Every time you spend money, you’re making a choice about what’s important to you. You can have it all, but only if you plan for it. Planning includes weighing up spending choices, looking for the balance between what’s going to give you immediate pleasure, and what’s going to buy you a lifetime of feeling secure. Sometimes, ticking the sensible box is immensely pleasurable.
You make decisions every moment of your life. They may be habitual (buttoning your shirt, brushing your teeth), or they may require some thought (cereal or toast for breakfast?).
As the day progresses from your morning rituals, these decisions multiply and get more complex. And many of the choices you make while on the treadmill of everyday living will come back to haunt or praise you.
Some of the more difficult decisions we make have to go against the fact that our brains are “hard-wired” to focus on the immediate, the here-and-now. We expect instant gratification. Get to gym (long-term fitness benefit) or stay in bed longer (immediate comfort)? Bag of crisps (lovely oily salty oral gratification and energy kick) or apple (less appealing, but less fattening)?
We all have plans for the future: the job we’d most love to do, the perfect house for the family’s needs, the wonderful partner, the successful children. But what do we do – consciously – to ensure that at least some of that becomes part of our everyday landscape? The job may need education, training, networking, or a combination of all three. The home that’s close to schools and cuts commuting time costs a whole lot more than one that’s out of the way. And so on. Are we actively working towards those goals, or are we simply dreaming of a better life?
Here’s a wonderful statistic: in the UK, more than 9% of the adult population relies on winning the lottery to fund their retirement. That’s not a good plan, obviously. But then, is it any better to “gamble” instead on some company pension plan you’ve never really scrutinised, or savings that you’ve never done the sums on? What about the decision made on a sunny day to buy the BMW Series 3i convertible (R505 000)? Even if you put down a R100 000 prepayment, you’d still be coughing up over R8 000 every month for the next five years. Now, imagine if you put all that into your home bond… (OK, we’ve done the sums for you: you’d knock off about R600 000. “Making” R95 000 is as easy as not buying that car.)
Numerous books and financial gurus urge us to make financial planning a priority in our lives. Easier said than done. For starters, as money guru Suze Orman says, “Money is not stagnant; it is ever-changing. It means different things to us at different points in our lives.” This could be rephrased as: “Our lives are not stagnant; they are ever changing. It means we spend differently at different points in our lives.” And therein lies the rub. When you get your first well-paid job and step up into the circle of better cars and better restaurants, the joy of the freedom you feel to spend, can be irresistible. And so we do: we spend freely on momentary pleasures.
Orman believes that the roots of our inability to plan for the future reside more in “the emotional, psychological, and spiritual conditions that have shaped our thoughts” than in simply being unwilling to make correct choices. In her words: “What we have begins with what we think.”
A colleague tells the story of how his wife, during their early years together – “the hard times” – tried to live a cash-based life, and kept allocated money in different purses. One for groceries, one for entertainment, one for necessities (gas, petrol, electricity, phone), one for emergencies and so on. And she would never rob purse A to pay for purse B. This may be simplistic, but it ingrained in her – and her husband – the need for control and, more importantly, the fact that you do have control. When you believe that money controls you, then planning your future with money becomes difficult.
Changing the way you think about your future and the way you think about money, however, requires action. You need to plan, to look ahead. Basically, you need to own your life. If you think that takes the joy and spontaneity out of life, you probably need to ask yourself the hard questions about your emotional responses to money.
But assuming you have resolved this and do want to lift your eyes to the horizon, where do you start this active step of the journey?
Most financial advisers recommend that you first work out your debts – everything from outstanding parking fines to credit cards to home and car loans. You need to be ruthless here – and yes, that does sometimes mean cutting the plastic into little pieces for the time being. Think about where you actually lose money, such as in the charges on credit card payments, and settle those as quickly as possible. Again, look ahead to what that added income currently being spent to service a debt can do for you.
Take, for example, the average young couple. Love sparkles between them, everything they do together is an adventure. Their plans tend to extend to the weekend, and not much beyond. But as any financial adviser will tell you, statistics show young people face a disproportionately high chance of being involved in an accident. Young and active people are more likely to dabble in extreme sports, for instance. And though they might feel fantastic about buying a mountain bike, they’re less keen to buy disability and lifestyle protection. The sobering truth is that if you cannot afford both, and if you’re serious about building a life together, then you should buy the risk cover before you upgrade your bike.
A friend, a successful professional, when invited to go on an extreme sport challenge, sat down and worked out what it would cost him to keep his business going if he had an accident on the trip and could not work afterwards for a while. Apart from whether his medical expenses would cover him, he would need to continue his car and mortgage payments, pay his staff, cover the rental for his office etc.
No one wants to be wrapped in cotton wool for the duration of their life. He chose to take on the challenge – but not before he had put in place, as far as possible, the necessary cover that would assist him should he have been disabled. He had the means to do so. But he also had the foresight to prioritise what’s really important. By owning his life, he continued to do what he found challenging but without the nagging concern of “what if…?”
Perhaps the biggest challenge, especially when you are young, remains retirement saving. Even thinking of retirement tends to cause instant brain shutdown. But as any financial adviser will tell you, “no matter how old or young you are, now is the best time to start investing for your retirement”. Doing so could mean the difference between being able to retire and having to work in your old age. And yes, if your life goes well, you will get old – and when you get there, you won’t feel old, and you’ll still love your life. It’s true.
Life is about choices. Do you want to make those choices on your own or do you want the choices made for you simply because you failed to own your own life, starting today?