Sometimes we find ourselves under pressure. Often the pressure is not warranted and we end up making poor financial decisions. Society’s standards or the standards present on social media cause many people to fall into financial traps they can’t get out of. These standards are linked to set timelines – by a certain age, you must have left home, bought a car or wear popular brands, etc.
When I was a university student, I was fortunate to have a student assistant job. I earned R2,500 a month. I thought I was a baller all of a sudden. Because of these standards, working people were not supposed to wear Mr Price. So I opened an Edcon store card (horrible idea). They gave me R1,500 credit to start with and I think the interest rate was 21%. So I would buy on credit, pay the installments, reach a certain credit balance and go shopping again. It was fun and I had nice, branded clothes.
I even bought groceries at times using credit, because I could. And then something happened that, I learned later, is quite common. My monthly income of R2,500 came to an end. I had no other source of income and my parents were unemployed. I couldn’t service the debt anymore and for the first time in my life, legal action was taken against me.
Eventually, I started working and managed to sort out the debt. From that experience, though it was a small amount of debt, I learned that following other people’s standards would get you into trouble. Often people buy cars and houses they can’t afford. Unlike the R1,500 debt, it’s harder to get out of R200,000 or more should your income stream dry up, even if it’s just for a few months.
I often tell my friends that when deciding to buy a car, a house or whatever, they first need to test if they can afford it.
Let’s say you want to buy a car for R200,000 with 0 deposit at an interest rate of 13% over 72 months. Your monthly instalment would roughly be around R4,015.
Now add 50% to the projected monthly instalment – around R2,000 – and save the R6,000 for six months in a 32-day savings account or similar. This exercise will determine if you can live without that R6,000 every month. If it proves to be possible, you’ll also have saved at least R36 000 (not counting the interest), which can be used as a deposit, reducing your loan amount significantly and possibly your interest rate as well.
If you can commute to work using public transport, try to save this amount for half the instalment period (31 months in our example), and you will be able to buy the same or similar car cash.
If having a car is a necessity and not just to meet a social media-driven standard, you can save enough to put down a cash deposit to reduce your monthly instalment and interest in the process. The same goes for more significant purchases, like buying a home.
The moral of the story is to make conscious decisions. Free yourself from society’s pressure and social media’s standards. Your bank account will thank you later.
Njabulo Nsibande is a Just One Lap user-turned-contributor and a founding member of an investment club. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.
Follow Njabulo’s journey here every month. You can also follow his trading journey by listening to his Village Trader podcast.
Find him on Twitter: @njabulo_goje.