Investing & Money
piece written on the 22nd April 2014 by  

I read an article total on the Times Live website where the head of financial wellness at Momentum, Estelle Scholtz-Mare, said that South Africans are spending 76% of their income on debt.

The article is fueled from the point of view that because of the debt people aren’t saving. What’s worse is that it’s reported that 24% of the loans were in arrears of 30 days or more and 16% of the borrowers had missed repayments for 90 days or more. If you know anything about compound interest you’ll know just had life destroying the accrued debt would be!

The article doesn’t go on to say whether “debt” includes mortgage repayments so I’m going to assume that it does. Of course, owning a property isn’t savings as the article is assessing, but it certainly is a far cry better than the debt purely revolving around loan accounts on cars, retail and the likes. A house in 20 years time could always be sold and used to buy a smaller house as well as start a small interest yielding investment. There’s good debt and bad debt, property is a good debt, cars and retail are bad.

Good and Bad Debt

Based on my experience and having spoken to quite a few friends about debt, I wanted to offer up some opinions from my side. I’m not an expert, but I have a huge fear of debt so I’ve learnt how to avoid it as much as possible and I’ve also researched various topics that involve debt. For the sake of this I’m going to keep property out of the discussion because I don’t see it as bad debt.

#1 Ignorance is bliss.

Strategly enough, whenever I’ve discussed debt with friends or colleagues, they’ve had a very disinterested view on it as though it’s not important. This could be denial or it could be that they don’t want to discuss it through embarrassment or fear. Either way, I get the strong feeling that it’s easier to mark it down as a “problem for another day” rather than trying to make a plan. I understand that it’s difficult to make a plan when faced with a lot of debt and the immediate reaction is that there’s no plan to be made because there’s no money. But let’s face facts, there’s always something you can do, at the very least it might be avoiding further debt, it might be cutting down on junk food or trips to the movies or it might even be establishing which debt channel has the highest interest rate and is therefore worth paying off first. Just a few little decisions can make a huge difference when dealing with compound interest!

#2 Start a budget.

If you’re a reader of this blog, you’ll know that I’m a huge fan of budgets. Yes, they’re annoying and somewhat of a hassle to maintain, but honestly, from experience I’ve seen how much money can be saved if you’re being miticulous and keeping your eyes open. It doesn’t matter how much money you have, keeping a budget is a crucial part of life. If you want to start a budget perhaps click here (http://www.imod.co.za/2014/04/02/comprehensive-monthly-budget-template-sample-data/) and download the exact budget document I have used for several years that has helped me to stay away from that red line!

#3 Ask for help.

This is one of those points that basically applies to everything in life, but there’s a reason for that.. it works. If you’re struggling with debt, put your ego aside and seek help. Debt doesn’t just go away but would you rather deal with it for 5 years or the rest of your life? Personally, I’d pick the former and with help the chances are that you’ll be able to suffer for several years but then live out the rest of your life in control of your finances. Nobody wants to live with debt, I’ve seen it destroy people who are close to me, get off the chair, make an appointment and act now.

#4 Live within your means.

I get the feeling that most people think debt only happens to people who don’t have money, but that’s not the case. In fact, the biggest demand for debt comes from those people earning over R15,000 per month! Yes, you read that correctly. It’s simple, as you start earning more so do you want more – a fancier car, an amazing holiday or the latest clothing. You feel on top of the world, it’s easy to think you can afford a lot and get sucked into the nasty debt spiral. Debt applies to everyone, don’t be that sucker who takes what they earn for granted and end up several years down the line burning out because you have to work so hard to now pay off those unnecceassry items! Although I see property as good debt, like Rich Dad Poor Dad reads, it doesn’t mean that you should by a bigger house if you start earning more!

#5 Adjust.

This is one of my favourite topics when it comes to spending money and can also be applied to that of debt. Adjust your life, make changes for the better and you’ll see a lot change. I often say to people, “A walk on the beach is cheaper and better for you than a trip to the movies.” – think about it for a second, it’s true! I’ve applied this to my life somewhat, not specifically for financial reasons and not specifically for health reasons, but the combination of saving money and being healthier is certainly enticing isn’t it? There are so many little adjustments like this that you can make and in the long run you’ll be thanking your lucky stars for doing so.

It’s easy to say these things but when it’s you that’s in the situation it’s naturally harder and if you’re struggling with debt then try to make just a couple of changes, it might be the start to something positive that will free you from the hold of the companies.