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The expense triangle of doom

Aiming for financial independence and early retirement? Minimise the ‘Big 3’ expenses.

While the headline of this article may earn a 10 on the ominous scale, I chose it for good reason. Your finances will be looking fairly ominous if you overextend yourself on the three expenses that stop so many people from catapulting themselves to a better financial situation.

We all mess up sometimes. That cappuccino purchase every other day could set you back R400 a month, and getting an over-spec’d fruity phone may increase your monthly cellphone bill by R300. But these can probably be forgiven, and are tame compared to the four and possibly even five-digit rand amounts that get sucked away each month by what I term ‘The Big 3’.

Now, when I mention big expenses, I’m pretty sure the first two items that pop into your head are housing and cars. And you would be right – these two eat a large helping of most South Africans’ budget pie.

But it doesn’t end there. Housing and cars go on to directly influence a third biggie, which forms what I like to call the expense triangle of doom (the deadliest shape in all of personal finance). 

It looks something like this:

Just when you thought you were done with Pythagoras. Picture: Author

Cars

Cars are one of those expenses we have a lot of control over. You can choose to get from A to B with a derriere that has been warmed to a precise temperature by a state of the art optional extra, and the knot in your lower back eased by the perfectly tuned vibrations of the massage function in your back rest.

Or you can realise that a car is merely something that meets the need to get you where you need to be. Anything that can do that reliably is going to be just fine (with plenty money left over for thermal underwear and perhaps a proper Swedish massage).

You can also choose how you decide to finance a car. Those looking to purchase a vehicle can get something they can easily afford and take a few extra months before buying it to put down a decent deposit. The other option is to go for something that quite frankly you cannot afford and commit financial suicide – a balloon finance deal and a great way to confess your undying love for your bank.

Something else that is important to realise is that the cost of an expensive car doesn’t end with an increased sticker price, additional interest payments and an oversized depreciation knock. 

Expensive cars are not only more expensive to buy, they are:

  • More expensive to insure
  • More expensive to service,
  • More expensive to maintain.

As you ratchet up the price you pay for a car, there is a whole symphony of related expenses that start playing louder and louder. 

And then of course your choice of car directly drives another one of the Big 3 expenses – your cost of commuting. An expensive car costs a lot more per kilometre when you factor in all the related expenses, and this results in a more highly priced commute.

By selecting the cost-effective vehicle option, it means a decrease not only in your car expense, but also in your commuting expense.

Housing

Housing is likely the biggest line item on most people’s budgets. 

With such a big portion of income going towards housing, being smart and thinking long term when it comes to how much you spend on a house can have a massive impact on how much income you leave available for other goals and priorities.

For example, buying a house for 10% less than you can afford could make you a home owner five years earlier than the usual 20 years. Buy for 20% less than you can afford, and you could own your house outright in just 12 years.

Something else that should also be seriously considered is where you choose to buy that house.

The location of your house directly influences your commute cost (and, arguably just as important, your commute time).

This is where it can get a little tricky – for example, it may actually be worth paying more for a house that is closer to your work.

This is because the cost and time saving of the shorter commute could more than compensate you for the increased house price.

And of course, it’s always worth remembering that a shorter commute contributes to increased happiness. 

Read: Commuting your way to happiness

The backwards approach to big expenses

There is something that intrigues me about the way some people approach their expenses. With the small expenses, we are usually on top of things such as bank fees, insurance and eating out. 

We are generally pretty good at reducing these types of expenses when we apply our mind and dedicate some time to it. For the smaller expenses, the approach is usually to identify the need, and then try find the most cost effective way to meet that need. That’s a pretty solid approach.

But then …

Suddenly, we seem to forget that cars and houses are also simply ways of meeting a need. When it comes to the really big stuff, we decide to flip the whole process on its head.

The approach many take is to identify the most money their budget will allow them to spend, and then find the maximum amount of car or house that meets that money.

For some reason, people seem to try maximise their car and housing expenses.

And this is most unfortunate, because while reducing the small expenses certainly does help, it is by saving on the really big expenses where massive strides can be made and financial freedom can be bought.

If we are able to approach the big expenses with even just half an eye on cost effectiveness, we can really propel our finances to the next level.

Turning the triangle of doom into a triangle of dreams

If you overspend on a car, and overspend on a house that is far away from your work, then you are depriving yourself of the opportunity to pursue some of the many other joys life has to offer (such as financial freedom or travel).

So what is the alternative? Is it possible to flip this all around?

Controlling the ‘Big 3’ expenses means you can turn your finances into rainbows and unicorns. Picture: Author

And this is where I consider myself extremely fortunate. I have managed to turn the expense triangle of doom into an expense triangle of dreams.

Through some carefully considered decisions, I have managed to:

  • Buy a house for less than we could afford
  • In an area that is extremely close to my work
  • While driving a very cheap scooter.

Was it a schlep to haul life from Johannesburg to Centurion? Yes, it took some effort. Did driving a scooter to get to work take some getting used to? Absolutely! Was it worth it? Oh yeah! 

The fact that I have chosen to minimise the ‘Big 3’ is the only reason I am able to follow the early retirement and financial freedom dream. 

The key takeaway from all this can be nicely summed up by this tweet:

This article was originally published on the Stealthy Wealth blog here

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COMMENTS   16

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If you put car and travel together as “mobility” we can have the 3rd evil being children’s education. Fees are a killer for the middle class families.

Some may deduct these expenses from income tax. I’m helping many with this, but only if you earn less than R50k pm.

@Moonie….what ?

You are able to deduct schooling fees for those earning up to R50k a month ?

Explain plse

*lol* I really start to sit up and take notice when you mention SCOOTER! 😉

Owned one of the big “superscoots” (Suzuki Burgman 400cc) for Gauteng commute…and then later upgraded to 650cc version for the odd Klerksdorp to Gauteng trip. Car passengers’ stares are priceless when a mere scooter comes past (relaxed) at 130kmh on the freeway. When filling up at fuel stations…older people walk up & ask questions about the bike. Everyone stares.
For inner city traffic, a Vespa or similar smaller scoot is a time killer.

If you commute by scoot, you can wake up at least a half-hour later. Or arrive sooner back home. Worry about getting wet? Keep moving & you stay fairly dry, especially on the big-fairing superscoots.

Visitors parking never a problem when at office parks…you park on the pedestrian walkway leading up to building entrance…so that others can admire it 😉

Superscoots never really caught on in SA due to price (and us SA men are insecure in our masculinity to be seen on scoot). You get 3 bikes into one, combining the comfort of a cruiser, with sportbike cornering/fun, plus a trike’s luggage space. No chain & sprocket maintenance issues. CVT a bliss while maneuvering gridlocked traffic. Even a mate riding Harleys his whole life, was astonished after taking the “Burger 400” for a spin.

A scoot has a downside: “Honey, I need to fetch bread & milk at the cafe” down the street, you end up riding out to the cafe furthest away in town, and return only the loaf of bread, by ‘conveniently’ forgetting the milk, which requires another outride “sigh” 😉 You return home after an hour, what could’ve taken 10min *lol* Adrenalin rush lingering.

“Baby Goldwing” regards!

(Sorry, got carried away….completely forget the Triangle of Death)

I’ve always feared becoming a bumper ornament on the front of a taxi or bus, but I’ll be looking at getting my 2-wheel licence this year still 🙂

Hearing you Iced Coffee would love to too but these CT drivers and the taxi’s. Not a chance!

….you’ll enjoy your 1st m’bike. As with anything on wheels, safety comes always first…be always aware of your surroundings in traffic / When waiting for red light at intersection turning to green….don’t just rush off…first make sure cross-traffic has stopped, to avoid motorist skipping red right.

When lane-splitting, keep the speed-differential between you and cars reasonable….don’t go chasing down between lanes at break-neck speeds…give cars reasonable time to see/hear you coming.

Actually, you’re safer (IMHO) on a mbike standing at intersections from hijackings/smash-and-grabs. A bike doesn’t have “something of value lying around in the interior”….so they don’t target bikers. There’s the intimidation-factor of a dark visor helmet/armored jacket/gloves, possibly helping. More vulnerable in a car in standing traffic against smash-n-grab….car has nowhere to go.

No matter how uncomfortably hot it becomes in summer…NEVER ride without gloves/armored jacket (even on short trips to the local cafe). Invest in an “airflow-jacket” for summer.

Enjoy the adrenaline rush…and learn from any close shaves on the road to become a better, improving rider.

Yup, me too. Otherwise I would have done it already. I might still just go for the scooter too, lol.

I am sorry, but you won’t ever find me driving a motorbike on South African roads, way too dangerous.

Would you take financial advice from somebody with such a poor understanding of risk that s/he advises riding a motorcycle on South African roads?! Even by the generally low standards of “articles” written by financial advisers on MoneyWeb, this one was truly facile. In the UK – with uniformly good roads, vigilant policing, tightly enforced speed limits and well-maintained vehicles – motorcycle users are recognised to be at least 38 times more likely to be injured or killed than car users. Add general lawlessness, panel vans turned into taxis with bald tires, potholes and ancient cars on the road and this risk goes up materially.

More motorbikes on the road means a sharp increase in the supply of fresh deceased-donor organs for people waiting for transplants.

You just need to have a look at quality of the cars on the N1 between JHB and PTA in the mornings to see the extent of the problem. In order to buy TOO much house you usually need to buy outside the city limits where you work. Then TOO much car becomes a necessity because you justify in your own head that it’s required if you are going to ‘brave’ 2-3 hour commutes. Not to mention that you need a fully loaded 4×4 for that pesky 400m of dirt the damned municipality hasn’t tarred yet.

There are definitely people that can’t afford to live in the city and have to drive their 2nd hand Chery QQ 150km per day. I have sympathy for them especially when e-Tolls is trying to extract what money they have left at the end of the month. But I have met far too may people described above for this behavior to be isolated. Sometimes even inverted where their highest monthly expense is on fuel, second on car and third on house.

The ANC Ministers cars are NOT the way to go : Oh Hang on , I forgot , we pay for them !!so no Problem !

In lot of cases deciding on the house and car is heavily influenced by “keeping up with the Joneses”. One of my colleague bought a Mercedes because his brother bought a BMW. I am sure others did similar things too but he openly admitted it and blamed his brother for it claiming that his brother started it. Had a girlfriend who always nagged me to go to fancy restaurants her friends went before. The relationship lasted less than 2 months.

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