Commandments of a Cheapskate

A salary-earner’s pursuit of financial health.

JOHANNESBURG – I must confess that I’ve never liked the word “cheapskate”.

It may be my Afrikaans roots, but the term immediately brings to mind mental images of low-cost laxatives.

It just seems like a fitting term for the kind of people who take wine to a party, only to empty the host’s supplies and leave with their bottle intact. (Friends can confirm that I would only ever relieve them of their tipple after finishing my own…)

And yet I’ve been called a cheapskate many times, often by a teasing family member in a pot-calling-the-kettle-black-kind-of-way after refusing to spend more money than I thought an item was worth or a situation called for.

The Oxford Advanced Learner’s Dictionary defines a cheapskate as a “person who does not like to spend money”. I wouldn’t say I don’t like to spend money. It’s not that I compare prices at supermarkets to save 50 cents, or break matches in half or even deprive myself of relatively expensive items. It’s just that I don’t think it’s rational to pay for something without getting proportionate value from it. More importantly: I firmly believe that financial health is about understanding that just because you can afford something, doesn’t necessarily mean that you should have it. 

I’ve wanted to write a column highlighting how a frugal lifestyle can help salary-earners to improve their financial situation for some time, but since the workload here at Moneyweb is already quite considerable, and I’ve hoped to avoid the additional burden of dodging comment section assassination, I’ve been procrastinating. Even under the best of circumstances, lifestyle sacrifices is an uncomfortable topic to tackle and not the type of tangent to be followed by social media stardom and book deals.

Although, considering the subject matter, maybe fame and fortune* could come cheap. 

The future

Unfortunately, South Africa has reached a point where it would be amiss to refer to the economic situation as “the best of circumstances”. Although I have fortunately not been one of the chosen few commentators to receive an exclusive invitation to the memorial service of South Africa Inc, it would be foolish not to acknowledge that the current political and economic situation is extremely serious, and that we are entering a period that will likely leave (deepen?) financial scars on households.

Consumers were already in a tough financial spot prior to president Jacob Zuma’s controversial cabinet reshuffle, but were looking forward to potential interest rate cuts during the latter part of the year and a more favourable inflation outlook. While Moody’s is yet to announce it’s position on South Africa’s sovereign credit rating, further downgrades of our local currency rating by agencies other than Fitch (who have already downgraded), could see billions of dollars leave the country, potentially triggering further rand weakness and higher inflation. Against this background, the Reserve Bank is likely to adopt a wait-and-see stance.

At the same time, economic growth is expected to remain below 1% this year, while limited fiscal drag relief in the most recent budget means that many taxpayers have experienced an increase in their effective tax rate after an inflationary salary increase.

If I had to plot my own salary increases over the past decade and connect the dots, the line graph could quite easily be mistaken for a child’s play slide, although I guess the trend is somewhat exacerbated by the fairly early career stage and the industry I work in. However, I suspect most South Africans would agree that the job market is a lot tougher than it was ten years ago.

On the stock front, market commentators have for some time warned that investors should moderate their returns expectations. Following an incredible run after the global financial crisis, South African equities have not managed to outperform inflation over the past two years, delivering returns of just 5.1% and 2.6% in 2015 and 2016 respectively.

Bottom line: The time of exuberance is over. 

Portfolio managers often advocate buying stocks for less than they believe they are worth, thereby allowing for a “margin of safety”. In financial planning, I would argue that a similar margin of safety or cushioning is prudent – ensuring that there is always some money in your budget for unforeseen expenses and saving and investing as a manner of actively managing your lifestyle downwards. Such a buffer will likely come in handy over the next few years.

In an environment where consumers are expected to be squeezed from all sides, using debt as a “margin of safety” is ill advised and will be expensive in the long run.

Accepting the badge

When I initially thought about writing the column, I struggled to come up with a title aptly summarising the preachings of someone advocating for living below your means. Mutterings of a miser? Brakes on buying? Frugal Fräulein? Sayings of a skinflint? None of these titles really capture what it is I want to say.

I still dislike the word cheapskate, but much like a wife who has learned to accept the shortcomings of her husband and love him with all his flaws, I guess using it in the title is fitting, considering that uncomfortable compromises will be a recurring theme.

I aim to publish the column on the first Friday of every month and hope to provide you with a glimpse into some of my (and other’s) thinking around this topic. You’ll probably hear some offbeat and unpopular views and get exposed to R-rated sarcasm, but if nothing else, I hope I can at least make you smile at the Commandments of a Cheapskate.

* I kindly ask that you do not share this post too widely. If fame and fortune do follow, I would prefer not to go down in history as The Cheapskate Lady.

** Please send me your suggestions and personal stories on the topic – inge@moneyweb.co.za.

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Brilliant idea Inge. There is too much focus on trying to find the top performing fund and so called experts telling people where to invest, each with a different view, but very little about areas that can reliably add value to our long-term financial well-being. Look forward to your Friday columns.

Thanks Steven. Much appreciated!

Any other feedback from the Moneyweb community? Criticism welcome – I’ve got my bulletproof vest on today 😉

I think this is a great idea, but would love to see it grounded in reality. Many entries on this subject are completely unrealistic. It would be great to take a typical case study, let’s say a family of 5 with a gross household income of, I don’t know, R35k and see how frugal living can change their wealth plans for the better. Things like dumping DSTV, reviewing cell contracts, etc. I think that you may find most people are already living close to the edge. A phrase I read recently, “a hollowing out of the middle class” comes to mind.

Agreed. In fact, assuming 2 salary earners for that R35k gross, probably one is on a marginal tax rate of 26% and the other 18%. Any discussion of tax deductability fo retirement funding should use those sorts of rates as an example, not the highest marginal rate which so many seem to use as a default.

The thing is, most people know what is right but refuse to convert from their (evil) financial ways. Proposed articles like this is always welcome and although one can already get them in abundance, it will hopefully serves as a repeat reminder to the majority of financial sinners.

Inge – a good idea to run such a column, and maybe you can intersperse you columns with real life stories. Sift through those who have been successful in creating wealth (as this should be the objective if one wants a comfortable retirement) and then the more plausible and pragmatic approaches you can engage those persons and embellish their stories. Investment advisors getting a rollicking for not being practical in their approach to meeting clients long term goals (and these do shift age dependent) as they take a one size fits all. Maybe engage a few of these guys/gals and get their views but also get them to expand on why they chose certain paths for the different individuals – i.e. what was their basis of decision. Also maybe even look at R.A.’s and more specifically those who are in the old order RA’s, and how the holders can get out of what is going to be a disaster come conversion time to an LA.
The main issue has to be to get below the warm and fuzzy nonsense and fee generating sales pitches and allow the client to make choices that meet their lifestyle needs and future needs

Another thing, how do you, reading this posting now, prepare for your financial future? I was suddenly retrenched working as a highly skilled individual for a large mining company. Thanks to my view of a “cheapskate”-ish lifestyle the retrenchment exercise hurt my pride more than my finances.

Cheapskate in my view means “street smart”. Who in his right mind pays R12k (and more) for a cellphone? Google the Xiaomi Redmi 4A, a recent purchase for me and an excellent phone so far.

By buying all these overpriced items that the Joneses are buying, do you realise you are spending your future pension right now? Rather be a cheapskate now but with a comfortable pension in future. Your kids and family will appreciate you not leeching on them in your old age. Now that’s impressive, not your junk iPhone 7 and/ or VW Amarok.

I live on slightly less than 50% of my income. I guess this qualifies me as a cheapskate, but I don’t feel deprived at all. I focus on efficiency. I spend a lot of money on things I use a lot and the minimum on things I don’t use often. I only use my car 2% of the time (half an hour a day), so there is no need to spend a fortune on it. Aiming for the middle is also a good strategy. This helps avoid envy from others and it also prevents pity if your stuff looks too cheap.

I agree.

Building wealth is nothing more than postponing consumption, but being able to do that, and then crucially *feeling* able to do that, is where most people struggle.

Really depends on what you earn and the size of family you support. Far easier to live on 50% as a single top earner vs a single income family of 5 with a median salary, but still a good target to aim for.

True. But if those dependents are children, they’re a choice. Delaying children and planning smaller families is probably the most essential, yet controversial “cheapskate” tactic there is.

I would like some “out-of-the-box” advice. Life insurance, for instance is gradually getting more expensive.Insurance companies probably plan to get 20 year of payments and then push up premiums to unaffordable rates in order to get rid of you before you die. Are there no alternatives of securing a future for your family? Saving at least half of your income is probably one way to get financial security over time. There is also the issue of increasing cost of education. The US currently in a far worse state than SA but still I am thinking of alternatives such as IT ( where education is far shorter, and therefore likely less expensive and where demonstration of skill matters more than papers, or learning vocational skills). So many possibilities and interesting topics.

In my view life insurance is only something you need on a temporary basis. 10 to 20 years term. Typically when you are young with little assets and a family to support life insurance is very important. Once the kids are out of the house and you have built up enough assets you don’t need it anymore. Whatever you do, don’t get “whole life” life insurance. It is incredibly profitable for the insurance companies and very expensive/unnecessary for the average man/woman in the street.

As for education, treat it as an investment and pay attention to its risk-adjusted return.

I retired as a financial specialist a couple of years ago, but I still follow all the financial news daily as this has always been my passion. Financial news services like Reuters, Bloomberg’s etc., after all these years remains the best and most comprehensive services that I follow.
The transition from old printed media many moons ago (where the reporters had to use the ‘’ticky box”’ to phone through their reports) to the electronic media and digital age today with all the digital platforms, changed this ballgame due to the wander of the news services.
Unfortunately, there are also a plethora of systemic plagiarism taking place via almost all sources of newsfeeds. A very big percentage of financial reports today methinks, is nothing more than copyright infringements. The very same newsfeeds that contravenes these ‘’laws’’ then place these articles, accompanied by the damn cheek, to make you pay for that service!
Inge, I am looking forward to your new articles as I am convinced that is what we need,,,,Recent market developments due to the decay and market crashes, downgrading etc., has left many people in the same position of financial ruin.
I also think the South African market will start deteriorating much faster from here as these financial problems normally leads to further personal problems like divorce, medical bills, retrenchments and eventually bankruptcy.
‘’When a man comes for advice, I find out the kind of advice he wants, and I give it to him’’ Josh Billings (1951-) …this is how I have experienced a lot advice from so-called fund managers….

Looking forward to the column – it has much potential. I would have gone with “Frugal Fräulein” however…

Thanks to everyone for the comments and all the e-mails! Will try my best to make it useful.

Inge, you can wear “cheapskate” as a badge of honor. From landmark studies like THE MILLIONAIRE NEXT DOOR (who the real wealthy are in the USA) to Daniel Kahneman’s work on behavioural economics one theme is clear: LIVE BELOW YOUR MEANS and SAVE. It is a flaw of the human condition to constantly expand your expenditure to meet your rising income. Anything to keep drumming this in is of value.

Another classic is The Richest Man In Babylon. Great little book.

The Richest man asks a group of people what they all do for a living. Many different answers follow with nobody earning the same salary. Then he asks if anybody has any money left over at the end of the month. They all answer no. This is the key, it is human nature to spend everything you have. It is also the easy thing to do. You might think you cannot save, but if somebody else is able to get by on less, then it is proof that you should be able to save. Saving money is effort and most people are not willing to put in effort.

Not taking up smoking would save people hundreds of thousands of Rands over a lifetime not to mention medical costs.

Driving your car for 10 years instead of 5 is another way to save hundreds of thousands very easily.

My car is 12 years old. No problems. Going strong.

Just make sure the car’s colour is white as it then shows it’s age less. 🙂

Individuals should be made more savvy about their pension funds. Companies, from small, medium to large hand over the pension fund contributions to schemes, and then simply forget about them. The fees payable from one scheme to another can be drastic, (2% compared to 1.5% is a 33% difference in fees payable) and the effect on the funds value considerable. Every 2 or 3 years, contributors, employees and their companies, should obtain alternative quotes from different schemes, and pay more attention to fees and performance. Pension schemes are often an individuals biggest (or only) savings.

Good idea Inge.
A lot of people have a problem understanding things that are important / not important to them.
Would you have 3 hunting rifles if it is not important to you? Neither would you have a money, or at least a money plan, if it is not important to you!
Most people want to have money, but they do not treat it with the same level of importance, as keeping up with the Joneses, or spending it all on immediate gratification.

An excellent idea Inge. As a cheapskate myself, my favorite example for my younger colleagues / friends / family who were smokers was to do a calculation using the amount I was able to get them to admit they spent each month on cigarettes. Using a spreadsheet I’d show them how that money would have grown if invested each month, at the going long term fixed interest rate, with compounding. Invariably the amount they would have accumulated over 30 to 35 years was sufficient to pay cash for a modest townhouse at retirement. To protect against inflation, they could look at investing in say Unit Trusts etc. In any event the price of cigarettes increase with inflation and sin taxes. Also shared my habit of investing my salary, received on the 25th, into my access bond until I needed to withdraw a large chunk to pay other monthly commitments during the first week of the following month. That way each month my salary would sit “earning” tax-free interest for about 10 days each month. In a year that was 120 days or three months. Annual bonuses, tax refunds etc were also “parked” until needed. In the bond, cash was out of sight, out of mind. To be used when really needed. My bond was fully paid up long before I retired.

Advice I give my wife on a regular basis: “If we NEED something,then buy it.If we don’t NEED something ,then leave it”.

And if she doesn’t follow your advice to the letter, I hope you give her a damn good thrashing! 🙂

Great plan, Inge. I just hope you don’t get too swamped with ideas that you can’t handle them all! I can contribute one thing at the moment. Do not let your children spend your money once they are self-sufficient. I had a pleasant surprise recently when I discovered that my two daughters (40 and 38) were more than capable of budgeting, selecting appropriate investments and not being stupid like being drawn into scams and Ponzis. While I thought I would find retirement “difficult” because I didn’t want to cast them out in the cold night air, in fact I am better off than I was BEFORE I retired. Less moolah, but it goes further. 🙂

End of comments.

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