My biggest frustration in learning about the financial world is the expectation that I should understand concepts that nobody ever explained to me. A part of the reason why I got into so much debt is because I didn’t fully understand how interest applied to my financial situation. The other part of the reason is stupidity.
The Fat Wallet Show is my attempt to level the playing field. Not only am I declaring, out and proud, that I don’t know everything. I’m also taking back the most important weapon against ignorance - the humble question.
Because this show started out as my personal attempt to find answers, we started with concepts that I didn’t understand. In the process, we never covered things that I did understand. A lot of the questions I have about the financial world these days don’t have much to do with my personal finances. The interbank lending rate, for example, is not something that has an impact on my ability to make choices about my finances. Interest, on the other hand, is a core concept that informs almost all of my financial choices.
There are, in my opinion, only five concepts you need to fully understand to take control of your money. In this podcast, Simon and I discuss those concepts and how they affect your finances.
If we didn’t explain some of the concepts in a way that is easy for you to understand, find someone who can. These concepts might be the catalyst that launches a journey of financial curiosity. If not, they are enough to get you to retirement in one piece.
Many have caught on to the idea that you don’t have to spend your life in servitude. Instead of lifestyle creep and keeping up with the Joneses, you can live modestly and put away the rest of your income. Once you have enough invested, you draw down just enough of your investments to maintain your already modest lifestyle and spend your free time doing what makes you happy. Early retirement: the Holy Grail of investment.
Mr Money Moustache in the US and South African Stealthy Wealth have embraced the idea of early retirement. In both excellent blogs, they explain the maths and share the types of financial maneuvering and lifestyle choices that would make early retirement possible.
Like most investment-related planning, though, both have had to make certain assumptions about what their investment returns would be over a period. No matter how much you save, cash won’t get you to early retirement. Enough money compounded over a decade or two, on the other hand, might just do the trick.
As aspiring retiree Ashleigh McLaren recently pointed out, however, the market doesn’t really care about our life plans. Over the past three years the local market has done very little, while Statistics SA recently reported a dependable and steady uptick in inflation. If I had to plan my retirement on my experience in the market, I’ll be better off buying survival packs so I can sustain myself on crackers and ammunition when I’m inevitably poor.
You might only be young once, but you'll be old for a long time and probably won't like cat food. https://t.co/71Mxdzm3w2
— Kristia van Heerden (@kristiavh) April 13, 2017
Are these calculations based on past market performance are realistic in the current market environment? We attempt to untangle that question in this episode.
P.S. We record the stinger at the beginning of the episode. I had every intention of talking about inflation-proof portfolios, but conversations tend to take on a life of their own if you let them.
Kris
For most of us, a retirement annuity is the biggest investment we’ll ever make. More than any other investment decision, your RA should be scrutinised and prodded at every opportunity. This week Alexis Whitehead wanted to know how to choose a provider. We often mention 10X, although Sygnia claims to be cheaper. etfSA.co.za, home of our bestie Nerina Visser, also offers index-tracking RAs. Which is the right choice?
Equipping yourself with the right tools to make financial decisions, I believe, is the best way to healthy finances in the long run. I believe I should have the right financial building blocks in place if I hope to be successful financially. To recap, those are:
I also try to develop mental models that would make financial choices easier. Those include:
In the end, your money should make sense to you. Who you choose isn’t as important as why you choose them. Having a plan is half the battle won.
kris
Due to Simon’s travels we recorded this episode a few short hours before news of the S&P ratings downgrade reached us. I was depressed about the state of affairs even then. I don’t know if I would have been able to get out of bed for a recording after the downgrade.
Weirdly we had a question about the downgrade on ice for this episode, so we delve into what it means. I also found this interview with our bestie Nerina Visser very helpful. So much was said and written about it in the 24 hours after it happened, I don’t think I can contribute anything meaningful to the discourse. However, I did write this blog about it when it was all just a terrible possibility. I also made a list of downgrade-proof ETFs here. Simon's JSE Direct podcast also provides helpful information on what this all means.
I’ve been thinking about the impact of currency movements on my portfolio for a while. You may remember so far my investments haven’t really been making much money. I get very excited when there’s currency movement, because my entire tax-free investment account is made up of DBXWD and CSP500. When the rand weakens, these dollar-based investments momentarily shoot my portfolio into profit. It’s a happy time until the rand strengthens again. This time around I’ve devised a plan to capitalise on it. I ask Simon to sense check me in this episode, then I did it. So far, I have no regrets.
Kris
Long-time listeners of The Fat Wallet Show might not be surprised that I find questions around credit records distressing. My dubious credit history makes me wary of debt billed as anything but an expensive and stressful parting from my money.
That said, some larger purchases are only within most of our reach through credit. A bad credit record could be the only thing standing between you and the house you shouldn’t buy. A question from a 24-year-old listener trying to prop up his credit record had me do some digging. I was happy to find there are ways to get a good credit record without exposing yourself to the trappings of the bad stuff.
I also received one of my favourite emails of all time from Shaun McQueen this week. Thanks for writing, Shaun. You did my soul good.
I'd like to give you some feedback on Just One Lap and your Fat Wallet Show.
End of last year I've came to the conclusion that I hate my job. I've been pondering on this for quite a while ..what the hell, it might also just be a midlife crisis.
Anyway, so I decided to focus on the one thing that doctors know nothing about - finances. Become a trader or something...After all, finance 101 in med school is easy. If you need more money - work more hours! Worst business model ever. This is how I stumbled across your show via the JSE podcast.
After 3 months of reading books, listening podcasts etc. I'm obviously not my own trader or investor - yet. But, I've noticed a big difference in my thinking. I suddenly realize that I don't need the expensive car, or all the gadgets etc. It's easy to think " I deserve this and that, because I work so hard". What bullsh*t. I now know that I do not hate my job, I actually love it. It is the fact that I need to work all the hours to pay for all the stuff that I do not really need, that makes me unhappy in my work.
So, today I've made a massive poster and stuck it onto my home office wall for me to see every day. I've noted down the stuff to get rid off, my step by step financial plan and my road to less working hours!( happiness). It won't happen overnight, but it is a start.
Thanks for waking me up. I'll continue down this journey of financial education. And maybe in 3 - 5 years from now I'll work because I want to, and trade because I can.
Regards
Shaun
PS Not only engineers listening to your show...