Dear All
We are a nation of spenders. We are ranked in the top ten countries who buy luxury German vehicles and we are also known for our penchant for expensive branded clothing and personal items such as jewelry, sunglasses and watches.
We are also pretty good at showing off the latest equipment around the house and on the golf course, despite many of these purchases not adding more value to our lives than would a better priced, quality product.
All this despite being one of the lowest ranked countries in terms of socio-economic standards, hygiene and education.
What is it about us that makes us behave this way? Probably the same thing that makes many people become disciples of the shopping mall, a dream created by Marketing departments and informal evocative images sent through social media, TV and the internet! The same thing that is informing the poor (there have always been more poor people than rich people and they used to be happy in their less comfortable lifestyles) about how the rich live and making them want the same. This is the same thing that is enticing the persecuted in the Middle East and North Africa to risk their lives in the hope of finding Utopia in Western Europe. The attraction of a beautiful image when one only knows a world of hardship is virtually irresistible. It offers a feeling of peace and safety to the persecuted or feelings of temporary financial security to those who are in financial distress.
It is difficult to resist temptation for anyone. Read the Bible or any other book on religion. They discuss how best to resist temptation and some even claim to be able to offer a remedy for it!
If we were bombarded every day with images of sad, destitute people representing those who couldn’t resist temptation to buy the latest expensive items and were also shown images of financially comfortable and happy people representing those who were able to resist that temptation, then possibly more of us would save rather than spend. Or try this comparison (a poor substitute for a glossy image, I accept):
The decision to keep your tried and trusted, but clearly adequate car and to rather save R7,500-00pm in an investment portfolio or to upgrade your car to a more sleek version and to use that amount as your installment for the next 60 months (i.e. you have a car at your disposal and you are therefore being presented with a real decision to either save or to spend).
This would enable you to buy a Honda CRV with a purchase price of R350,000 and to pay it off at a fixed 10% p.a. interest rate over 60 months.
I will assume that your investment portfolio would grow at 10% less the 1.5% combined annual platform and advisor fees = 8.5% p.a.
The value of the car after 5 years would be around R250,000 depending on the mileage and the value of your portfolio which was growing at 8.5% p.a. net of fees would be around R580,000. After a further 5 years the difference is clearly even more astounding: The car would be worth nothing, while the investment would be worth around R1,400,000.
You would have had the use of the vehicle during that 5 year period, but the investment portfolio on the other hand would have provided you with peace of mind and (because) it has offered you readily available liquidity for use in emergencies, etc.
Of course, if you do not have a reliable car, you will clearly need to buy one. However, a new vehicle may not be the best option.
This simple exercise illustrates how much more we can achieve by using some restraint when the next new (or very expensive used) vehicle looks enticing.
Restraint is what we will all need as interest rates slowly move upwards over the next several years and a lower (good) entry point will be reached on the stock market before long.
Best wishes from the team at Intasure Life
