Commandments of a Cheapskate 9

It’s time to think differently about income and risk.
Examine your human capital. What talents or skills do you have that can help you supplement your income? Picture: Shutterstock

A couple of years ago, I attended the Sanlam Summer School for Financial Journalists.

Our trainer, journalist Jenny Luesby who spent a lot of her time in Kenya, asked the class whether they would prefer to receive R100 immediately or if they would be willing to wait a year for R109?

(Truth be told I can’t recall exactly what the amounts were, but this would be more or less accurate. In any event, the direction journalism is heading, I don’t believe anything I read anymore, unless I make it up myself.)

Who would wait a year? Luesby asked.

I thought about the question for a moment. A return of 9% wasn’t great – effectively CPI plus 3% – but it wasn’t too shabby either.

I put up my hand, along with the majority of the class. Quite ironic that there is still safety in numbers, even when numbers aren’t really your thing.

Luesby looked surprised. In Kenya, she said, almost everyone would prefer to receive R100 straight away.

Now considering that the World Economic Forum’s Global Competitiveness Report ranks the quality of Kenya’s maths and science education 61st out of 137 countries, and only places South Africa in 128th position, one shouldn’t expect time-value of money calculations to be our strong suit. Then again, there is also that lame joke about the three types of journalists – those who can count and those who can’t…

But it turned out that this was not so much about inflation and percentages.

The Kenyans were convinced that they could turn R100 into significantly more than R109 within a year through various business or investment ventures. Essentially, they believed that they could do better by doing it themselves. Their appetite for risk was higher than ours.

Why is this relevant? It is relevant because you can only cut your expenses up to a point. At some stage, you have to start thinking about raising your income to improve your fortunes. And if this is solely up to your boss – or your productivity levels – it may take a very long time.

So what am I proposing?

1. We need to think differently about earning an income

As the world’s most reluctant entrepreneur, I’m certainly not proposing that everyone should start a business. I still have battle scars from the time I had to sell 10 Akkerjol newspapers on the streets of Worcester while wearing a bright red T-shirt and bucket hat during my varsity years.

But the world of work is changing. Automation is growing. People increasingly work on several projects for more than one employer at a time. According to Old Mutual’s Savings and Investment Monitor, more than one in three working individuals making more than R5 000 a month earn an additional income over and above their regular job.

Examine your human capital. What talents or skills do you have (or can you acquire or nurture!) that can help you supplement your income? An acquaintance – a chartered accountant – makes beautiful paper flower bouquets. As an entry-level organist, I myself have been known to attract more attention than a few brides with my “improvisation” of Mendelssohn’s Wedding March.

In the newsroom environment, required skills would traditionally have included “immaculate spelling ability” and “working knowledge of the economic/political landscape” but because of inherent deficiencies, the requirements have now changed to “ability to agree with the spell-checker” and “knowledge of a working economic/political landscape”. Just imagine how you could differentiate yourself with all these attributes!

The capacity to adapt to a changing work environment will become even more important as corporates desperately cling to the outdated concept of “retirement age”, while their employees live 20, 30 and even 40 years after retirement, often on a very small savings pot. I couldn’t believe my eyes when FirstRand announced on Tuesday that its group CEO, Johan Burger, “who reaches the retirement age of 60 in 2018” would step down at the end of March. He doesn’t look a day older than 70!

Unfortunately, the structure of the economy – with a significant number of unemployed young people – makes it difficult to strike a balance between retaining older employers and bringing more young people into the workforce. Some companies have even reduced their official retirement age in recent years.

Even if you are in a fortunate position and don’t need the money, many people don’t want to retire, FMI CEO, Brad Toerien, said during a recent presentation. People were 30% more likely to die in their first year of retirement than in their last year of working – it gave them a sense of purpose.

But what will you do if your employer no longer wants you – even before “retirement”? Well, I guess you could always move to Kenya…

2. We also need to think differently about risk

In a lower return environment, one has to accept that while pouring hard-earned money into a cash investment may shield you from capital losses in the short term, it is not going to protect you from inflation in the long run. In order to increase their real wealth, many investors will need to accept a higher level of equity exposure.

It pains me that by far the most popular question posed during our weekly personal finance show is: Is my investment with bank X or asset manager Y safe?

Against the background of the Steinhoff meltdown and on-going reports of people losing money in dubious schemes, it is not surprising. Yet, it also highlights an important point. Accepting that you will need to embrace more volatility to meet your investment goals is extremely difficult if you have a very limited amount of savings that have to cover immediate expenses.

However, if you could slowly but surely build a diversified portfolio from an additional income stream – money you don’t need to cover immediate needs – it may help to increase your risk appetite over time.

Your R100 is on its way.

PS: If anyone has any bright ideas on how to earn vast amounts of money through ventures that are neither illegal nor an utter snoozefest, you know where to find me. Just a reminder that the maths skills may be lacking.

PPS: Just out of curiosity. What would you be willing to pay to read a satirical column about frugal habits? I ask this particularly since this is a scalable exercise…



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Another entertaining read Inge!

An important skill to master (if you are not content to just pull down a salary and pray you do not get laid off) is the art of the “hustle”. I believe it is a skill that can be learnt over time by continuously and gradually extending your comfort zone. I have a much younger (and luckily for me also much brighter) partner in a part time consulting business. I have been amazed to see the stuff that he does. He works for a fairly large listed company and recently pitched a business proposal which has now made it to the CEO’s desk. The proposal is totally unrelated to his current role but he simply does not sit back and wait for a boss to pigeonhole him. This is what most employees do. They take instruction and wait for some senior person to come up with all the initiatives. To survive in the competitive global workforce one must learn to think and act entrepreneurial, even as a salaried employee.

“What would you be willing to pay to read a satirical column about frugal habits? ” – Now that sounds like a tough challenge to set yourself Inge. Selling a column about frugal habits to cheapskates or aspiring cheapskates. As a self proclaimed champion in this area I will at most be willing to contribute a few ideas to your column. But part with some hard cash (despite recognising the fact that I receive valued content for free). That would be a real stretch!

An intelligent person should constantly reassess his beliefs, perceptions and convictions. Most people however, prefer to stay in the “safety” of their comfort zone and to pamper, protect, nurture and reaffirm their current belief system. This general human trait creates the opportunity for the person who has a mechanism, and the determination, to discipline his mind and to take charge of his thought processes.

By opting for an investment in interest-bearing instruments, investors prefer the certain loss of purchasing power because they fear the uncertain profit of a share portfolio. A certain loss is more acceptable than uncertain profits. We like certainty, even if we pay for it. This is the power of our perceptions.

Take the farmer for instance, who only invests in his farming enterprise because “he is in total control of all the risks”. Then parliament comes with a curve-ball that proves him wrong.

The bottom line is, nobody owes us a pension or wealth. What we have on our name is merely the remuneration for our belief-system. Try telling that to ANC and EFF supporters.

Very interesting Inge (and Ryan plus Sensei above) and I believe the Kenyan analogy can be extended to get explanations as to why people borrow money, particularly at exorbitant (to us conservatives) interest rates. Even the R100 today scenario for some of us is not as simple as you paint. Aside from simple national inflation, I think there is actual purchasing power in the basket of your “real” inflation (forced or chosen), tax (obviously) but of of many types and rates and purchasing power of your ront versus “real” currencies, say US$, Euro’s, yens (sic) or even pounds (then the rip off fees, differential rates to exchange for currencies etc etc) to consider. And there are lots of “clowns” (I say) who tell us to save by putting money in the bank!! Just retaining value is tricky, to make “real” improvement in SA, maybe anywhere, is pretty damn difficult I reckon.

Quite rightly pointed out – one of the most devastating risks to wealth is being too conservative. It is the one that catches you by stealth.

I love your columns. Never stop…

Earning vasts sums of money (legally) is not an overnight/short term process.

The best advice I ever received was to build a well diversified portfolio of quality assets. I am still astounded (at 47) at the effect of compounding, and how much of my wealth is due to time in the market and growth over a long period. It may be boring, but it works.

I’ve spent a fair amount of time working in Kenya and was blown away by the amount of hustling going on – they’re just wired differently to us Saffas. Everyone from colleagues (in a multi-billion Dollar global business) to the taxi driver had a gig on the side – it was almost expected that you had other pursuits as a sideline business. Even driving the streets of Nairobi you can see that everyone is trying to make it happen – my wife remarked that “even women are willing to dig trenches on the side of the road to get one is sitting around looking for a hand-out..” Speak to any Kenyan and they’ll tell you about their gig economy.

No self-respecting professional cheapskate will stoop to PAYING for advice.

But your column is well-written and humerous and – key point – invariably contains a kernel of practical wisdom on the side.

Soooo … there is a perceived value in your column … which attracts readers (who won’t pay).

But these readers – if there are enough of them – will attract ADVERTISERS – who WILL pay.

So continue to build your little quirky brand. Attract advertising. And then syndicate your column. Worldwide! Your observations have value for your readers and the need is universal.

Oh, and you can forward this cheapskate a monthly 5% royalty when your turnover exceeds your current salary.

End of comments.




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