I am super excited to be supporting Money Smart Week South Africa (MSWSA) this year which runs from the 29th of August to the 4th of September 2022. This is a week where financial educators like me join hands to spread financial literacy to the world.
The tagline for MSWSA 2022, is BUILD YOUR FUTURE, BE SMART ABOUT MONEY. ln the same spirit as our tagline and since the main objective is to bring financial education to you, l chose to focus on how best you can be smart about your money.
We are going to dig deeper into the principles we have to practice to enable us to live a courageous life of managing our money smartly. It’s not an easy road since we have stagnant set beliefs which have become a part of us, some we have to unlearn and re-learn new ones. In this series, I will share with you 5 principles that will take you through your transformational journey.
Principle 1 – Live below your means
The first principle on how you can be smart with your money is to live below your means. What do l mean by this? Your lifestyle must be below the income you make. This is a major challenge why many people struggle financially because they are not fully aware of this principle. You will realise that many people live above their income. Thanks to easy access to debt facilities because they make life easier for one to achieve the aforementioned state. This is because of the perception that for one to look rich they must be driving a certain brand of car or living in a particular suburb. Now, the question is can you really afford it or you will end up drowning in debt??? It’s time to sit down with yourself and introspect on your financial decisions. If we remove the debt factor can you still sustain your lifestyle?
You need to be honest with yourself about what you can afford without factoring in credit cards and loans. Simply understand your income versus your expenditure. Do you really need that fancy lifestyle? It indeed is a cause for concern when you end up using debt as an extension to your income because in this state you can’t even afford to save R100. Sadly, you will be having sufficient income but it will all be splashed into your lavish lifestyle. I love this quote that l saw on the social media streets which read, “Stop living a champagne lifestyle on an apple juice budget.”
l learnt the hard way when it comes to being smart with money. Let me share a story on one of the many money mistakes l made in my past. A few years back l decided to start a cross-border business whereby l used to travel to other countries to buy clothes and shoes and sell them to my colleagues and the ladies in the saloons. The business was doing so great that l remember l even quit my job because oh, well l thought l was making enough. I had a good clientele base some customers used to pay in advance then my job was just to go and get their orders. So, me being me in those days, whenever l purchased orders for clients, l would get myself the same, either clothes or shoes with different colours or designs. This meant that all the profits would be spent instantly on me. l felt like l can’t be that lady who sells clothes and shoes but does not wear them as such. Since l wasn’t reinvesting the money into the business and no longer had a salary, l started to borrow money for transport. I got into a debt trap as l would borrow Jane this month and Mary next month to pay back Jane.
What a mess l got myself into! That is how this thriving business ended up collapsing because I had not yet mastered this first principle. l wasn’t operating below what l could make and afford. My goal was competing with my customers and for the world to see me. I made money but debt was always running after me because l was not smart with my money. So, don’t be like the foolish me back then, make a bold decision to be smart about your money choices today! Watch the you tube video l did here.
Principle 2 – Mindset matters
When it comes to personal finances mindset matters. We are all never taught about this subject so we got to figure it all out on our own. Many a time we get our wake-up call when we are already in a deep mess called DEBT TRAP. What affects our mindset the most is the way we were raised and how society set perceptions on what it takes for one to be termed rich. You need to question yourself if all the rich markers you have ever come across whether they are true or false.
There are two types of mindsets, the scarcity mindset, and the abundance mindset. I can admit for the greater part of my life, l operated in the scarcity mindset because that’s what I had been fed from a younger age. For us to manage our money in a smart way we have to change our mindset because all issues to do with money begin with our mindset. The moment your mindset is in a scarcity space whatever l am sharing with you today won’t make sense. It’s perfectly understandable because l was once there.
What is a scarcity mindset – A scarcity mindset stems from a space of fear. A space when you feel you want more and you are never getting enough and you miss the beauty of life and all the good things you currently have. When it comes to our money what happens when you operate in a scarcity mindset, this is when you feel like you have to be competing with everyone else, and you live your life trying to prove a point. You will be feeling the urge to always be spending so that they can see you. But, can you afford all that?
Now, an abundance mindset is a shift from scarcity because you know your worth, you know what you can afford and you understand in this life we all have our times and there is no need really to be competing with anyone else but just yourself. An abundance mindset is when you are self-fulfilled and understand when it’s your time you will have whatever you desire and there is no need to be into debt for it. You get time to appreciate the moments you are living in and be grateful for all that you have.
We should all strive to always have an abundance mindset as it opens more doors of opportunities, especially with your money.
Principle 3 – Never use debt as an extension of your income
Our third principle for us to be smart with our money is going to be on debt – What is debt?
This is using money that is not yours and you are eligible to pay it back with interest on top. That is the reason why l always say funding a lifestyle on debt is just so expensive. Get me right not all debt is bad that’s why we see many companies flourishing even in debt. So, when it comes to our finances what do we miss??
I will delve into the two types of debt
Good debt & bad debt
Let me start with bad debt, this is the debt we use on depreciating assets for example let’s say l get a credit card because my banker advised me to get a bit of credit to increase credit scoring right, so what do l do with that credit card, l start living my best life going to all the restaurants and holidays l always dreamt about, because it’s cool and l can have something to post on Instagram, hey they will see that Tarie is living her best life. This is bad debt because the bank will need their monthly installments which have interest and charges on top, so now l am going to suffocate my salary as l have added another debit order on top of a dozen l already had. Was it necessary??
Good debt is when you use debt on appreciating assets, let’s use the example of a credit card again. I will use the credit card maybe to raise a deposit to get an apartment that l will rent out. I will start earning rental income and every month that money will go to pay the credit card and l can have extra on it. Which can give leverage to pay off the credit card earlier and have the whole advantage of getting rental income to pay off the bond and still have extra money left.
These are just examples of good debt and bad debt, we must always run away from bad debt as it doesn’t do any good to you and your money, you wouldn’t want a situation where debt collectors are on your case, and you can’t even figure out what you spent the money on.
Whilst on that issue of debt let me share another story. l remember when l got married in 2012, 2 months down the line my husband was involved in an accident and the insurance could not pay us out due to negligence on his part. So, we were stuck with a beyond-repair car and which we still had to pay for, we still had 4 years to pay it off, and imagine paying for something you are no longer driving. That was a messy situation. In trying to figure out how to get out of it, our banker told us of a great product called the revolving loan, at that moment hallelujah, we praised her because we thought it was a great thing to have. We took the revolving loan and we paid off the damaged car and we got a second-hand car in cash.
It took us 8 good years to pay off this revolving loan because the good thing about it was that whenever you pay it off you could still have access to borrow again and if you were not clever enough it could take you a lifetime to pay it off. The danger with this type of credit is that we would find ourselves using it on unnecessary things because it is easily accessible.
We must always research first before we commit our money to anything else. Even to this day l don’t blame this banker because she was doing her job and it was up to my husband and l to understand how this revolving loan works, what are the interest rates and all that information. The problem that most of us have is we don’t have time to research.
But let me tell you something for you to be smart with your money you have to be friends with researching and understanding first where you are putting your money. Usually, we unknowingly get ourselves into messy debt situations because of lack of knowledge.
Principle 4 – Think beyond having one source of income
If there is one thing that Covid taught me, we can’t just rely on a salary or one source of income. We have to think beyond salary. Let’s look into having multiple sources of income so that you won’t be deprived of the life you desire to live. You can give a task to your every income. For example, salary can take care of all your day-to-day needs, side hustle 1, for saving and investing for your future, side hustle 2, for your leisure and fun such as travelling, living your best life, side hustle 3, black tax and side hustle 4, making your money work for you.
That’s the kind of mentality we have to start cultivating when we have those talks in our circles. Let’s familiarize talking about how we can make money, and let’s not just rely on one source of income because the idea is that we want to have that life when we don’t use debt but we have more streams of income and money just keeps on flowing into your bank accounts on continuously.
The world is full of opportunities, it’s just up to us to ask ourselves how far our eyes can see and question what is it that we are focusing on because where focus goes energy flows. Money is energy so if you focus on growing it, it grows.
Principle 5 – Normalize money conversations with those close to you
Our last principle is we have to normalize talking about money with our loved ones. Sometimes we get into debt because we are trying to cover up for our families pretending as if everything is okay whilst we will be sinking deeper into debt. Money revolves around everything in our day-to-day lives. So, why are we afraid to talk about our money issues?
The moment as a parent, you open up to your children that things are a bit tight, they will keep on making demands because they don’t understand and we end up going to borrow because we want to please them because we believe we must protect them. This is surely a recipe for disaster as you will be just Inviting more trouble to yourselves. Be open and let those close to you know what you can afford and what you can’t which will be also good for your mental health.
Let’s always remember that money matters and you must be in charge of it, BUILD YOUR FUTURE, BE SMART ABOUT MONEY
#MSWSA2022
By
Tarie Manyonga
Financial Literacy expert & Author
