Oh to be 24 Again!
24-year old me was in 2nd year accounting articles with big dreams of nice houses and fancy cars by 30. Many people are under the (misguided) assumption that all Chartered Accountants (CA’s) are good with money. The challenge with CA’s is that a person is usually drawn to the profession because it provides financial security and money, money, money. No one chooses accounting in university to save the world, let's be honest now.
Some of these lessons are my own experiences and some are my fellow misguided CA’s.
1. Skip the flash
CA mistake number 1, the aspiration to have fancy houses and fancier cars. Not forgetting the leather designer handbag updated every season. As a recently qualified CA I had received a significant increase in salary (FYI article clerks are paid terribly), so I obviously wanted to trade up my 10-year-old Ford that had belonged to my grandmother. I decided to go with a VW Polo, my father-in-law high-fived my decision, citing when he first received a “decent” salary in his 30’s he went out and bought a BMW 3-series, as that’s what middle-class people did in the 1980’s. He loved his flashy car, but every month when the monstrous car repayment came off his account he wanted to cry.
A fellow CA fresh out of articles made the financial decision to buy a new Mercedes while still living at home with her parents, instead of investing the money she was saving while not paying rent. I know the media tells us to aspire to fancy things, but a Hyundai will get you to work just as efficiently as an Audi. Flashy large assets equals very very scary debt levels.
2. Swiping your credit card is only cool in the movies
Credit card interest is the highest interest rate there is (maybe a close second after dodgy loan sharks), going as high as 25%. DO NOT BUY on credit. Buying a house or car using bank financing is different (and the interest rate is much lower). If you do not have enough money in your bank account to go on a shopping spree at Canal Walk or Sandton City, stay at home, lock the door and binge watch series. Do not shop on credit, it’s not worth the cost. When I started accounting articles we were expected to miraculously have a presentable work wardrobe on a very small salary, it seemed impossible. But never fear, Investec is here.
CA’s in training were offered the prestigious Investec account and a credit card that came with an R20,000 credit limit. Can you guess how many CA's in training in their first year of articles had R20,000 credit card debt when earning R6,000 a month? Can you guess how long it takes to pay off R20,000 credit card debt when you earn R6,000 per month and are clearly already living beyond your means? Long. Do you know how much that costs? R4,000 a year (I guessed an interest rate of 20%, as Google couldn’t help me - banks don’t like to advertise what they are charging in interest). Gosh, a CA in training could have bought 2 more Country Road suits for that (remember this is 10 years ago)!
3. Property is the scariest thing you will ever buy
Looking for a house to buy is beyond many people due to high housing prices but when you do look for your first house, it is usually an educational experience. Firstly, what you would like is usually out of your price bracket. Secondly, you realise how little you know about the construction of houses (will this house fall down?). Thirdly it will be the biggest, longest loan you will ever apply for. Don’t forget all the hidden costs, transfer fees….surprise! Lawyers fees….surprise!
Something I only found out after buying our first house, you are effectively just paying interest for the first few years (unless you are paying a much larger than required installment). So be like some of my intelligent friends (unfortunately I didn’t get this lesson yet), get your salary paid into your bond account and then draw down a monthly allowance out of your bond (that should obviously be less than your salary, otherwise you are missing the point here!). In this way, you pay down your capital balance faster and reduce your interest in the long term. People who practice this kind of financial restraint pay off their bonds in their 30’s (screaming face emoji).
4. Consider alternatives for standard retirement saving
CA’s are risk-averse by nature (unless they’re making choices about swiping a credit card at Country Road). So when it came to making a decision about retirement savings I turned to the establishment and took out a Retirement Annuity. Because of the tax benefit, duh. Alas, my RA performed so terribly that the tax benefit did not outweigh its dismal performance. I switched my contributions to other investment options, such as an Index Fund (like you can find on Franc). If you have an RA, please review its performance against your tax benefit and assess if your retirement savings are better placed elsewhere. *I am not a financial advisor!
5. Know what you are spending money on
Most of my adult life I wasn’t really sure where my salary was going every month. I had an idea of what I had at the end of the month, the big things such as bond and car repayments, but the rest was a grey blur. Not until I actually started tracking my spending This was essential when I was retrenched and had to review my expenses to make savings, such as stopping dog insurance. No matter what your hairdresser tells you, dog insurance is not worth it!