A last post from Korea

As I write this I am sitting at my strangely empty desk at work, next to my bags that are stuffed with the last remaining bits (mainly clothes!) that I will take with me out of Korea. It is officially our last contracted day. We have handed over the keys to our apartment, are wrapping up final things at work and then getting on a bus to Seoul to spend the weekend with friends ❤  I will do a post on this week’s spending and a big wrap up of our financial year in Korea but that will probably only happen once we have left. But before we leave I just wanted to do one more post from Korea. It’s a bit different for this blog – it’s an extract from a book (the most wonderful, beautiful book set in South Africa pre-Apartheid) that I have just finished reading. But I thought this extract offered so many themes that speak to the values and ideas behind early retirement, financial independence, self-sufficiency and worth that I thought I should share it with you, dear Reader:

[Mid-1920s on a Karoo Farm]

“In the dim pantry, their mother… notices the sorting that her fingers are busy with and it comes to her that this inessential work with the fruit is all that is left in this hour of the day to hands that once smoothed the clay, dung and blood of the very floor of this room. Her strong pale legs and feet, bared to the thigh, had tramped and mixed the mud for this room’s bricks. The food her children ate, and the clothes they wore, and the letters they learned to recognize, and the shelter over their heads, all had come at least in part, and often in large part, from her, but in the course of her lifetime this great round of work, the labour that had placed her at the core of her family, had been shared out to a hundred or more men, men she will never know, whose goods arrive in trucks in the town to be fetched by the farm – butchered beef and ground meal and packaged coffee, milled soap, loomed cloth, sewn shirts, machined boots and stamped tin. In her imagination the factories radiate from her home, busy as they are on her behalf (and that of a thousand thousand other women) with the tasks she once did.

And at the core of this system of energy and product are not her body and capable mind, not the skills, from honing a needle to building a house, that live in her, but the cash box in the farm safe. The flimsy pounds, the coins and half coins, these are at the centre now, and where is she? And if she, a woman on a working farm, knows her labour to have been usurped – sees her daughter and daughters-in-law cast about for occupation, for value in their days, sees the mothers among them turn from their own lives to fold themselves around their children and draw from them more meaning than motherhood can bear – how much less valued must be the women of the cities?”  (p. 97 – 98)

  • The Magistrate of Gower by Claire Robertson (2015)

Chat soon, dear Reader! Much love,

Xxx

 

Julia: The South African Saver

I found a gem this week: Julia 🙂 She is a South African (can I get a happy dance please?!) who has been aggressively saving for the last 8 years so that she can reach financial independence as soon as possible. And what financial independence means to her is being able to CHOOSE to work IF she wants to (when/where/how etc.). We are totally on the same page.

Here is the link to the podcast – scroll down to the 7th July (it’s from about 35 minutes in to about 60 minutes). These are the things that stood out for me though:

  • Based on the long-term history of the South African stock market your investment DOUBLES every FIVE YEARS (due to the magic that is compound interest).
  • Over 8 years she has invested R2.3 million. But compound interest means that she now has over R4 million. Beautiful, beautiful compound interest. (Based on your investment doubling every 5 years, by the time Julia is 65 she will have R128 million if she never adds another cent to her investment).
  • “Early days set me up” (again because of the magic of compound interest). In other words, it is always better to save whatever you can NOW than to delay it until later.
  • “Procrastinating their way to poverty”. That hit me hard. Not what I want.
  • She invests using index funds. I clearly need to research what the hell those are…
  • She earns a shit-tonne of money. Which sucks because it makes it too easy to write off her message with “well I don’t earn that much so I will never be able to do what she is doing”. However, if you keep listening you will hear the point: she could have easily bought a fancy-smansy car (like most people with her income do) but instead she chose to invest/save. The rest of us plebs might be choosing between buying a coffee or investing/saving but the principle is still the same.
  • [After a certain baseline] income determines lifestyle (not savings percentage).
  • Very interesting for me (because of the complete lack of blogs/information about this in South Africa) was her savings percentage: one-third to tax; one-third to life and travel; one-third to savings/investments. Her investment rate has slowed since she had a baby and bought a house though.

I’m really excited to have found Julia. And I’m also really excited to have discovered The Money Show with Bruce Whitfield. I’m becoming such a financial nerd! 😉 Now to find out about those index funds….

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Charlie Bucket looking into the sunset (Secunda, South Africa)

Xxx

My Financial Privilege

Most of the early retirement blogs that I have read talk about their financial history and how much they had when they started their journey to financial independence. And so I thought that I would do the same.

I went to a government school (i.e. a school subsidized by the government) for Junior School (Grade 1 – 7 for those not familiar with the South African education system) and won a scholarship to a private school (i.e. not subsidized by the government and so very expensive) for High School (Grade 8 – 12). Even with the scholarship though my parents struggled to pay the other costs involved and so my Dad (because my Mom had died by then) only actually finished paying my school fees a few years after I had finished school.

I then went to University. My Dad tried to take care of things financially but it was clear after 6 months that it just wasn’t going to work. So I got a student loan for the remainder of my degree (2 and a half years) and my Honours (1 year). My Dad paid the interest THANK GOODNESS and so it meant that at the end of my Honours I only had to pay back the capital (still a significant amount though). The challenge was though that student loans in South Africa don’t work how they seem to in 1st world countries (very low interest and almost no time pressure to pay them back). My student loan had an interest rate in line with South Africa’s interest rate (i.e. high) and needed to be paid back in half the time over which I had borrowed it. In other words, I had the student loan for 3 and a half years and so I needed to pay it back in 1.75 years. On the bright side though, I didn’t gather any other debt while at University – no banks would give me a credit card anyway! I did work part time during the 2nd and 3rd year of my degree but this went to supplementing my social life – it never even occurred to me that I should (could!) be saving money.

After University, student loan debt in hand, I bundled myself off to South Korea to teach English. And with discipline and focus I paid off my student loan in 18 months. Writing that debt off was one of the best feelings I have ever had and, because my last payment happened to coincided with Halloween (we had a massive celebratory party in Seoul that night!), it’s a day that I still remember every year. With the last 6 months I had in Korea, and no student loan hanging over my head, I funneled as much money as I could back to South Africa. With that money I paid for a 2 month road trip of New Zealand, bought an old second-hand car cash and had enough money to support myself in South Africa until I found work. Still nothing was invested or saved for the long-term. It didn’t even cross my mind.

I then worked for 6 months (earning JUST enough to support Husband and I – Husband was studying at the time) and again saved nothing.

From there I went back to University and did my Masters. I got funding (based on my good academic record) for most of it but was still short. My Dad wasn’t in a position to financially help (he wasn’t even able to sign surety for a student loan) and so my dear, sweet Grandmother stepped in and lent me the money. My funding and my Gran’s money covered my expenses for the first year of Masters and during the second year I worked in an internship and was paid JUST ENOUGH to support myself and Husband (so no funding or student loan required). I did miraculously find a way to save money that year though as Husband and I got engaged at the beginning of my internship and so we squirrelled money away each month for our wedding (it’s ALL about the priorities!).

The next year we both started working (the first time since Korea where neither of us were studying and we were both working!), paid for our wedding ourselves (debt-free), bought out first car (on credit) and slowly started paying back my Grandmother. We worked for two years at those jobs, for the most part insisting that we couldn’t save anything but suddenly found a way when we wanted to go to Italy. (Again with the priorities).

We then returned to South Korea at the beginning of this year with the intention of saving as much as possible for a house deposit. In terms of savings we started this year with nothing except a few thousand Rands in a back account in South Africa (convert R1000 into your currency, dear Reader, you will see it isn’t a great deal). But we also started the year almost debt-free, which counts for something. And I am pleased to say that debt was obliterated within 2 months of being in South Korea J In fact, by the time we started The Brat Experiment we were totally debt-free.

Looking back on my financial history I do not consider it to be a wealthy one. In fact, I think it’s pretty average (no debt but also no stockpile either). However, comparing ourselves (Husband’s history is pretty similar to mine) to most of the world’s population we are actually wealthy.

We have always had a roof over our heads. We have always had food. We have always had running water, flushing toilets and electricity. We have always had access to good education and healthcare.

But why? Why are we among the few number of people in the world to have always had access to these things? The answer is two-fold: we were born in a specific time (the 1980s when all these luxuries had long been invented); and we were born in a specific place: South Africa. And I cannot talk about my financial history without acknowledging and giving voice to exactly what that means.

I am white. Born to white parents at the end of Apartheid.

This means that, even though I had barely started school when Apartheid ended, my parents and grandparents had certain opportunities and privileges that would not have been there if they had had any other colour skin pigment. And these opportunities and privileges were in-turn handed down to me. This does not mean that I, my parents or my grandparents did not work hard. It does not mean that any of us is racist. And it does not mean that anyone at the time thought it was right (or wrong) for us to have benefited. It simply means that we did. And the ONLY reason that we did benefit was because of our whiteness.

So I cannot and should not talk about my financial history without mentioning my whiteness. Or my parents’ and grandparents’ whiteness. In recognition of that I have made a list of things that were only allowed to happen because of whiteness. These things either directly or indirectly benefited my financial standing (there are many, many other things that benefitted me that have nothing to do with money but I’m trying to stay on topic here!):

  • My Oupa’s family owned a farm in an area that was vaguely farmable (blacks tended to be given the worst land, and not much of it, under the 1913 Land Act).
  • My Grandmother’s father owned land near a financially lucrative (read: white) town (non-whites needed permission to even go into towns and so owning land in a town was totally out of the question)
  • My Oupa and my Grandmother received good education AND in their home languages (my Oupa in Afrikaans and my Grandmother in English)
  • My Oupa and Grandmother both went to University (despite being so poor)
  • My Oupa qualified as a lawyer and was able to practice in a PRIME location in town. (My Grandmother wasn’t allowed to write her final exam to qualify because she was pregnant at the time and they wouldn’t allow a re-write. Apartheid and pre-Apartheid didn’t love women – even white women). This helped my Oupa to make a lot of money and so fund the best education for my Mom and her siblings. It also allowed him to fund my Mom going on a Contiki tour of Europe in the mid-70’s where she met my Dad (a New Zealander).
  • My parents were both very well educated (never had to do Bantu Education), which meant they were able to help and encourage my education (e.g. they were able to read to me, could help me with my homework etc) – all of which increased my chances of educational achievement (along with the fact that I received my education in my first language).
  • My Dad was allowed to immigrate to South Africa.
  • My parents were allowed to date, get married and have children (because they both had the same skin colour).
  • My parents were allowed to lease a farm (and therefore had the opportunity to make money). This in turn allowed my Dad to sign surety for my student loan – and so gave me access to a University education.

This list is not to say that it was impossible to do these things if you weren’t white. For example, we all know (I hope!) that it was possible to be black and become a lawyer (in case you don’t know, dear Reader, Nelson Mandela was a lawyer). However, Nelson Mandela’s path to becoming a lawyer would have been MUCH harder than my Oupa’s. According to Critical Legal Thinking, Nelson Mandela opened the FIRST black law firm in South Africa in 1952. 1952! The fact that no one else had been able to do that prior to this speaks volumes.

White privilege is the fact is that the whiteness of my grandparents and parents removed (financial) barriers that would have otherwise been there. And so their whiteness gave them opportunities and privileges that made their (financial) lives MUCH easier. And this, in-turn, has made my (financial) life so much easier.

In terms of my own wealth: I may think of myself as pretty average but I’m really not. I may not have a heap of money saved up but I have had opportunities that make the future easily full of possibilities. Specifically my access to education, and my parents’ and grandparents’ access to education, has meant that it is relatively easy for me to improve my financial standing. What a privilege.

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Durban sunrise (South Africa, 2015)

Xxx

Our South African Financial Life

So now that I feel like I have a vague grasp of the numbers, I thought that I would try applying them to our lives in South Africa.

Step 1: (Brutally) Look at our expenses

This is where Husband’s teacher’s salary went on a typical month for the both us last year (because I really did keep Excel spreadsheets!):

 Salary: R18 817

Tax and other deductions: R2724       Unavoidable

Medical aid (entry level): R3211         Unavoidable bare minimum

Rent: R5300                                            A VERY cheap deal for a lovely two bedroom cottage

Lights and water: R500                         Could have reduced a bit…

Car payment: R2048                            Entry level car. Unavoidable.

Car insurance: R854                             Unavoidable

In terms of cars, the formal public transport in South Africa is almost non-existent, which means that you have to have a car. And given that we both worked, and at different jobs with different hours, we had to have two cars. We bought one second-hand car outright but couldn’t afford to do that with a second car (second-hand cars are VERY expensive in South Africa) and so we had to get one on credit.

Petrol: R1754                                                      Unavoidable.

The petrol is simply Husband’s petrol because my petrol was a business expense.

Total spent: R16 391 (87%)

“Surplus”: R2426 (13%)

The percentages of spending vs surplus are not awesome. But as you can see, dear Reader, there is almost no room to cut down. Knowing what I have learnt since starting the Brat Experiment I imagine that we probably could have shopped around for better deals initially. But my fellow South Africans will know that this takes significant resolve and patience as the inefficiency, personal time and high jumps required for seemingly simple tasks (e.g. change of address, renewing your passport, getting a landline for internet etc) is mind-boggling. I shudder to think of the emotional-sanity price of changing deals mid-swing…

I was self-employed in a new business, which meant that I never knew how much money would come in each month so Husband paid for all the routine expenses and my money was used for bonus “luxuries” (i.e. food, internet, cell phones and any anything else). On a typical month these were:

 Food: R3343

Internet: R427

Two cell phones: R627

Total spent: R4397  

 The real bugger with being self-employed was that if I didn’t work I didn’t earn. Which is fine until we want to have children and I need to take maternity leave. This means that the initial financial implications of having a child are:

  • the medical fees not paid for by our entry level medical aid
  • all the baby equipment (although I don’t think this would be much as we would do it South African style: hand-me-downs, second-hand things etc as much as possible)
  • the loss of my potential earnings (and so having to stop our internet and cell phone contracts and eating less or more cheaply)

Taken all together, we would be living on a financial cliff with NO buffer and NO room for anything to go wrong i.e. financial hell. You can see, dear Reader, why we felt we had to change things before we had kids.

But anyway, I digress. The point of this post is to apply early retirement numbers to our lives in South Africa. So: ultimately the minimum (I haven’t counted anything extra in spending like medication, haircuts, the occasional clothes shopping, presents, alcohol, holidays/travel etc) total spending of our household per month was: R20 788. Step 1 complete.

Step 2: Work out what we need to retire (A rough guesttimation)

Spending per month = R 20 788

Therefore spending per year = R 249 456

So applying the magic number (5%) for South Africa means that our minimum retirement amount is our spending per year X 20: R4 989 120. Step 2 complete.

Step 3: How long it will take us to get there

This is of course based on our savings rate… which you have already seen was not awesome… And for a long time we genuinely felt that it was impossible for us to save anything… Until we wanted to go on holiday to Italy.

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Florence, Italy (July, 2015)

Xxx

We have a problem: I’m not American. Part 3.

However, cultural and free stuff aside (see Part 1 and Part 2 if you haven’t already), there seems to be a bigger problem with the fact that I am not American. And that is the numbers. The actual maths calculations required for working out how much you need to retire on. And it turns out, dear Reader, that this number is dependent on which country you live in. Bugger.

All I can say is thank goodness for my brother. My Humanities brain had skipped over the numbers, being much more interested in the philosophy, culture and way of life behind the idea of Early Retirement. Don’t get me wrong, I knew that the numbers were important, but I figured that they were minor details that I could grapple with when I felt like it. So I absorbed the 4% rule, felt like a hero and marched forth 🙂 But then my brother, who miraculously marches face-first into numbers without any fear, pointed out that I might have a little problem…

This is because the 4% rule is 4% because:

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Except that I’m not American. This means that I need to use numbers specific to where I am living. The challenge is that while the inflation number is quite easy to find, the average investment return is not. So with my best googling foot forward this is what I’ve guesstimated:

In terms of South Africa:

  • South African average investment return: 14% (8% real return + inflation – fin24)
  • South African inflation: 6% (tradingeconomics.com/south-africa)
  • Therefore, South Africa’s magic number is: 8% (and I need to save 12.5 times my living expenses to retire). On a side note, maybe this evens out the lack of free stuff in South Africa?

But, I not currently living in South Africa and don’t plan to for a few years. We are currently in South Korea but are planning to head to New Zealand next year so:

  • New Zealand average investment return: 7% (rounded down from returns over 20 years – NZ returns)
  • New Zealand inflation: 1% (rounded up – tradingeconomics.com/new-zealand)
  • Therefore, New Zealand’s magic number is: 6% (and I need to save 17 times my living expenses to retire)

What this means is that if we are going to do this Early Retirement thing I can’t rely on my Experts to give me my exact numbers. And given that I haven’t been able to find any South African or Kiwi Early Retirement Experts (if you know of any PLEASE let me know!), I am going to have to take a deep breath, put on my grown-up pants and try to work out the nitty-gritty of my numbers myself.

Xxx

P.S. Since writing this post I have spoken to a (South African) friend of mine who is MUCH better with numbers and money than I am. He says that South Africa’s challenge is that our rate of inflation for education and health is higher than normal, which means that 8% isn’t going to cut it in the long term. Instead he says that 5% is our magic number. Now, dear Reader, you don’t know my friend so let me tell you a little about him: he’s brilliant with numbers, a rather intelligent fellow and highly risk adverse. In other words, if he says 5% is safe then it absolutely is.

P.P.S. It hadn’t even entered my brain as a possibility that there could be different rates of inflation for different things. And it scars the crap out of me. I’m going to need a bigger pair of grown-up pants…

We have a problem: I’m not American. Part 2.

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Oudtshoorn, South Africa (January, 2015)

The other problem (see Part 1 if you haven’t already) with not being American is that I don’t think that I get as much free stuff as an American would (one of the differences between a developed and developing country I assume? Although after doing some reading it’s not a simple concept…). This means though that I can’t cut costs like an American can. In South Africa you have to pay for EVERYTHING that you get. To give you an idea, dear Reader:

 

 

    • Paying for medical aid (which is no small sum by the way!) is a high priority because public health care is so under resourced. If you can even vaguely afford it, you have it.
    • Good education needs to be paid for (and by “good” I simply mean acceptable e.g. teachers are in the classroom during school hours and each child has their own textbook). Tertiary education is horrifically expensive across the board.
    • Second-hand cars are almost as expensive as new cars (I think because we see nothing wrong with something that’s second-hand??).
    • It is illegal for our banks to give credit without first proving that we can afford to pay it back (if they do the banks are liable for the debt instead of the individual). Credit cards are certainly not given out like candy at Universities.
    • Interest rates are MUCH higher in South Africa (at the moment 0.5% vs. 7%). This means that you pay a LOT more for any debt you have.
    • In terms of social grants, the MOST you can get is R1500 a month (about 105 US$ – for pension, disability and war veterans). You can get R350 (about 25US$) a month if you have a child. (See here for more details). Unfortunately, this amount of money does not go very far. And, given that I have a roof over my head and food security, I would never qualify for any of these grants.

 

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Oudtshoorn, South Africa (January, 2015)

 

My main concern that comes out of the difference in free stuff is children. According to my Experts, children don’t seem to put that much extra strain on the budget. In South Africa though, they get exponentially more expensive the older they get (mainly because education gets more expensive the older they get). This is so much so that the main reason that Husband and I have not had children yet is because we cannot afford them (like sheer, blind panic when we think of the financial implications of having kids). All this makes me desperate to find a South African Early Retirement Expert to shed some light but alas the online search keeps coming up empty (apart from a guy who is very critical of the idea of reducing spending but wants me to retire by buying houses with some magical capital I somehow have)… Maybe if I stick at this long enough I can become the South African Early Retirement Expert?!?! Hahahaha…

 

Xxx