Going Gift Free...and not hating it

When my husband first suggested going (largely) gift free last December*, I was horrified. I adore presents; choosing them, wrapping them, giving them, getting them, unwrapping them... the whole shebang.

But after a long year, the thought of trying to pick out non-bankrupting presents that weren't largely meaningless additions to clutter and/or consumerism was overwhelming.

I agreed to try it.

We persuaded most of our immediate family to do the same.

Somewhat to my surprise, I didn't hate it.

Now WHY would you cut these delightful things out of your life?
Photo credit: JD Hancock (CC-BY 2.0)

Why Replace Gifts?

Why do we give gifts? Sometimes we do it in order to satisfy social convention, but in the best case scenario we genuinely desire to show love and appreciation for another person by giving them something that they will enjoy, and something which they wouldn't necessarily have gotten for themselves.

Now ask yourself: does my gift giving always actually end up doing this? And if so, is it the best way to do it?

Often, it seems to me, we spend a huge amount of time and a scary amount of money trying (sometimes unsuccessfully) to express our love. The stress of malls and shopping centres in the run up to Christmas can consume our attention for weeks ahead of "the big day", and being in that environment often increases our dissatisfaction with the gifts we've chosen and the lifestyle we live: being exposed to all that consumerism and advertising definitely has an impact. It's all very well to be strong willed, but companies spend millions of rand trying to make their product irresistible to people just like you and me.

And then, too often, the gift you settle on isn't quite right. You end up buying something for the sake of having something to give, but it isn't quite what the person needs or wants, and you end up feeling even more dissatisfied. 

(This isn't to say that when you find that perfect gift you shouldn't buy it. But don't buy it because you have to. Buy it "just because". We did that once. Three years on, the gift in question is still being used daily. This is a win.)

But when you are buying bulk gifts for everyone, it's unlikely that you'll hit the giver's jackpot for everyone. You'll probably have to settle in some cases, and end up back where we started. Dissatisfied.

Or they'll get you a bigger/better gift, and you feel guilty.

Or they'll get you a smaller/worse gift and you feel grumpy. And guilty for being grumpy.

Either way, you lose. Money. Time. Peace of mind. Even relationship value.

Wouldn't it be better to take that time, and a small portion of that money, and spend it with the person you love?

The gift of time?
Photo credit: Moyan Brenn (CC-BY 2.0)

Time and Effort

I am a firm believer in this principle: if you want to cut something out of your life, replace it with something better. Otherwise the gap will either hurt like the blazes, or get filled by something worse.

We replaced Christmas presents with two things: time and effort. Or, as we phrased it amongst ourselves, acts of service and family activities.

Basically, we got together and made two lists. One was of things that we would like to have done for us, or that we needed help with. My requested act of service was making a headboard for our bed. My dad wanted help painting his puppet theatre. My mom needed help with organising her digital music collection, and so on. Then we made (and diarised!) times  to do these acts of service for - and more importantly, with - each other.

Mostly, the acts of service weren't necessities - of course we would help each other with urgent and essential things at any time during the year. They were just those little niggly things that you want done. In that way, they mimicked an important quality of gifts: no-one wants nothing but socks and toothpaste for Christmas! You want things that you just want.

The second list was of family activities. Climbing Table Mountain, going to the Planetarium, having a mini carol service and baking gingerbread were some of our chosen activities. Some activities involved a smaller subset of the gifting community, others were much wider. We made a conscious effort to spend large chunks of time doing things that we wanted to do, rather than letting the whole "festive season" take over and leave us exhausted but without having actually spent quality time together.

Family outings aren't limited to the human race!
Photo credit: Boris Kasimov (CC-BY 2.0)

Saving Money vs Financial Freedom

You will notice that I haven't spoken much about saving money. That's because although that was a side-effect of our Gift Free campaign, it wasn't the main purpose. In fact, some of our acts of service and family outings actually cost some money. Gasp!

But although it wasn't about saving money as such, it was definitely about financial freedom.

Because financial freedom isn't only about being free to quit work if we want to. It is also about having our happiness independent from money. It's about satisfaction getting disconnected from consumerism and reconnected to relationship.

From this point of view, and in fact from many points of view, I am more than happy to repeat the Gift Free strategy this year, without feeling the least bit sad about those glittery packages.

What would you do to replace gifts in  your life? If you're not ready to replace them altogether, how could you reduce the impact of stress and consumerism on your gifting decisions?

To freedom!
jjdaydream




*If you're wondering why I'm talking about December/Christmas in September it is because we have had to start planning travel arrangements and family events already... so it is at the forefront of my mind. 2015 is almost over, people!

Ethical Decisions: Avoiding the Fool's Choice

We recently stumbled across a website called Made in a Free World. This is about sourcing ethical products, ones which don't make use of what is essentially modern slave labour. They have an alarming survey called Slavery Footprint.

You fill in data about your lifestyle (in great detail, like how many rooms your house has, and how many pairs of pants you have!), and they work out how many slaves/indentured labourers work somewhere in the world to make that lifestyle possible. Obviously things like cotton, coffee, cosmetics and so on are really problematic. Electronic devices also seem to be a real problem.

The two of us got 26 and 35 slaves respectively.

This was scary.

This is the number of people - including children - who work in conditions that I'm sure all of us would consider unacceptable in order to provide us with our insanely luxurious lifestyles.

The economic chains which keep people in slavery are just as real as these ones.
Photo credit:Trevor Leyenhorst (CC-BY 2.0)

I recommend everyone does this survey. Rethink your life choices. It's a humbling exercise, and one which we should all do once in a while.

Avoiding the Fool's Choice

Now I know that often ethical consumer choices are prohibitively expensive. So how can we save money but still consume ethically?

This can be an example of a Fool's Choice or false dichotomy. You feel like you have to choose between two bad options. Actually, there is often a third option.

False dichotomy: forgetting the third option.
Photo credit: Dan Moyle (CC-BY 2.0)

Neither.

Don't buy the dodgy product. And if you can't afford the good product, then buy nothing.

Mostly, you don't actually need either of them.

Consuming less is a good idea anyway. Buying less saves money, cuts down on slaves and is also better for the environment.

When there isn't a third option...

Even food, the obvious exception to just not buying anything ever, can be part of the false dichotomy. Maybe the third option there isn't so much "neither" as "something else altogether", such local, in season fresh products.

But nonetheless, we have to accept that sometimes there is a genuine payoff here, and we have to make a genuine choice between cheapest and ethically acceptable.

This is a complicated, entangled issue. In each of these situations we need to make a moral choice as best we can. All I ask - and I am asking myself as much as I am asking you - is that we really think about the choice, rather than just grabbing the quickest, easiest, or even just cheapest option.

Think first. Consume later.
Photo credit: Taymaz Valley  (CC-BY 2.0)

Yours, in a most challenged frame of mine,
jjdaydream

Why Budgeting can be Dangerous

Over this weekend, we went down a Youtube rabbit hole: The One Rand Family. This was a Sanlam initiative (advertisement) during the month of July which was National Savings Month. The original version was The One Rand Man, which ran during July 2014. 

The big idea was that the participants got their whole salaries for the month in the form of one rand coins, and locked away their plastic money for the duration. This not only gave them a very visual sense of what was going on with their money (stacking up piles of coin-filled plastic containers makes you aware of the size of your car repayments on a very visceral level) but also made them think twice before spending. When you've actually got to dole out your last few piles of one rands, it makes you think more carefully about whether you really need whatever it is. And when you've only got a couple of hundred rands and 9 days left in the month... well, then you really start changing your spending behaviour, at least temporarily.

Watching all of their episodes, as well as some other interviews with the participants, it seems that the biggest challenge for them was not making use of overdraft/credit card facilities when the cash flow got tight at the end of the month. 

Even for those of us who aren't quite as extreme as the One Rand Tribe, using credit as an escape route when our money has vanished is a very bad idea, short of a once off emergency. Because unless we have saved a lot already, this means that we are spending next month's money this month, with no particularly wonderful prospect of making up for it next month. Borrowing for lifestyle expenses means that a month's salary is not enough for a month's lifestyle; and it definitely won't be enough for a month's lifestyle plus debt repayments. Ask yourself: what will be different next month? The sad truth is that next month we'll have the exact same problem except probably worse: after all, your salary won't be any bigger; it still won't be enough to pay for your lifestyle. 

If you aren't careful, you'll end up getting further and further behind, unable to pay the full credit card bill every month and therefore creeping further and further into debt.  As soon as you start paying the minimum payments rather than the full balance it is scarily easy to end up in a situation where you are constantly a month or more behind: and then half your income is going to disappear into repayments that hardly even touch the capital of your debt but instead scrabble around in the foothills of a massive interest rate. 

A truly alarming number of South Africans seem to be in this predicament.

The beast of the night called DEBT makes a guest appearance...
Photo credit: GotCredit at  www.gotcredit.com (CC-BY 2.0)

This got me thinking about BUDGETING: the process of trying to fit your lifestyle into your monthly income.

Here is the usual idea behind budgeting, one to which I have unfortunately subscribed for many years: 

1. List all the expenses you can't avoid, such as rent and utilities, tax, medical insurance and so on. These are usually the ones that bounce straight out of your bank account as soon as your salary arrives. You should know what they are. You probably can't do anything much about them. The exceptions to this are debt repayments, which also come off at this stage, and which you can definitely do something about (pay them off quicker!).
2. See how much money you have left. This is usually a lot less than any of us would like. Now allocate as much as  you think you will need for other essentials like food, petrol and school fees.
3. Whatever is left is for spending however you like. This is where you "budget" for eating out, clothing, movies and holidays: all the things you'd actually like to spend your money on.
4. If by exerting colossal effort you have managed to ensure that there is some money left at the end of the month, save it.

Now, budgeting like this is definitely better than not budgeting. At least you know where your money is going, and you have a reasonable expectation of not going into credit for the essentials of life. Depending on your self-control on step 3, this process will even prevent you from going into credit on the non-essentials: yay!

BUT

BUT 

BUT

Why Budgeting is Dangerous:

Step 1 shouldn't have any debt in it whatsoever. Making debt repayment come off like a normal expense makes it feel like it's okay. It is not okay to be in debt. Half of the reason South Africans are in such a debt hole is because of the perception that debt is like an awkward uncle: not ideal to have around, but everyone has one, so it's fine. If you have a debt, then budgeting should involve Step 1, Step 2 and NOTHING ELSE until the debt is paid.

Step 2 is open to (mis)interpretation. It is too easy to make yourself believe that something is essential, when it is actually a discretionary item. Here is an example: for the first three years after we got married, we had yoghurt with our breakfast muesli every morning. Once in a while we would look at the price and wince - because yoghurt is a lot more expensive than milk - but we convinced ourselves that it was good for us, and therefore necessary. In fact, once you look at the sugar involved in most yoghurt, the "good for us" premise is unlikely. And unless you have a very specific medical situation no-one would say that the yoghurt cultures (or whatever they are) are necessary for health. The main thing healthwise for ordinary people is the calcium: and that is available much more cheaply in milk. It takes a huge amount of self-control to be totally honest with yourself about the true essentials of life, particularly when it comes to food. A similar process often happens with petrol - we use too much of it, because we drive too much. "Allowing" this expense in our budgeting can make us feel like this is an acceptable situation.

Step 3 is a disaster waiting to happen. We all know that the "I want" section is where budgets fall apart. When I was a student I budgeted to buy one soft drink per week, on my way to tutoring. This was my discretionary spend. But guess what? When I walked past the shop on other days, sometimes I brought myself a soft drink anyway, because what's one extra soft drink? Yet if I did this once per week, my discretionary spend would have doubled. Yes, this is a silly example, and probably made no difference to my financial health. But when you're earning more than a student pittance, the tendency is to repeat this pattern in an increasingly unhealthy volume. R400 becomes R600, because I've worked hard and deserve it. R300 becomes R450 because it was a special deal and worth every cent. R200 becomes R370 because I don't want to look stingy in front of my friends. Making it okay to spend some unnecessary money often opens the door to making it kind of okay to overspend - and even to use credit to fund your lavish lifestyle. 

Putting discretionary spend before savings is a major catastrophe: but it is a catastrophe that too many of us overlook in our monthly budgets. If your budgeting process looks like the one I outlined above, you are treading water. And yes, that is better than drowning. But at the very best, you are probably making a small contribution to your pension fund as required by your employer, and perhaps perhaps saving something at the end of the month. But over all, you are (hopefully) breaking even, and making little to no provision for the future. Yet you probably feel as if you are doing quite well. But if a wave comes along... you could too easily go under. News flash: your financial position may not be as awful as other people's. That doesn't mean you're in a good place.

Budgeting is the process of fitting lifestyle into cash flow, not the other way round!
Photo Credit: Tax Credits at taxcredits.net (CC-BY 2.0)

What does healthy budgeting look like?

Don't get me wrong, budgeting is a really important and helpful part of living a frugal lifestyle, fueling the independence engine and (hopefully) reaching financial independence. But we need to budget in a productive way. Here are some ideas for healthy budgeting:

1. Budget descriptively, not prescriptively. Budgeting should be a process of observing your own spending habits. This means that you can plan cash flow effectively, and work out if and when you will be able to afford those unavoidable large expenses. It also means that you can safely save your maximum without being afraid of accidentally running out of grocery money.
2. Save first. I've said this time and time again, but looking towards the future cannot be an afterthought to your month. Use your descriptive budgeting to work out how much it is possible to save, and get that amount out of your bank account ASAP, before you accidentally spend it.
3. Budget with a critical eye. When you look at your spending for last month, look out for danger areas. Perhaps when you look back you notice a gradual creep in expenditure on clothing. This enables you to cut back in those areas next month.
4. Don't budget for wants. If a "want" spending opportunity comes up, either do it or don't do it, based on careful consideration of that situation. Don't have a general rule like "up to R200 is okay for discretionary items", because the truth is that sometimes it is and sometimes it isn't. Make each choice deliberately, not automatically. (Imagine paying for it in one rand coins if you think it will help!)
5. Budget long term. Create a spreadsheet or plan for the next ten years. Where would you like to be? This helps you to keep an eye on the bigger picture, without getting too bogged down in month to month expenses.
6. Whatever you do, don't create a series of ineffectual and unrealistic budgets which you know you'll never be able to follow. This will just make you feel bad about yourself OR make you feel unhelpfully good about yourself while making no actual change to your financial health.

Overall, your budget should be a means of you (and your spouse/family) planning financial choices sensibly. It isn't a magic spell which will make all your financial problems go away. As with all financial tools, if a budget is used badly, it will have a negative impact on your financial situation. But used with caution, it can be enormously powerful.

Postscript/PostInvasion from Mr Cent(ri)frugal Force:

You may find some of these tools helpful for putting together a healthy budget:

Picking the right tool can make all the difference.
Photo Credit: Lachlan Donald (CC-BY 2.0)

• Google Sheets - an online spreadsheet tool. I like to keep my descriptive budget in the cloud so that I have access to it anytime and anywhere - it's also easy to share it with others (once I've made a more user-friendly version of my spreadsheet I'll share it on the blog).
• 22Seven - this really cool company (now owned by Old Mutual) has an app (and a web version) that pulls in all your account balances from all your online accounts that you choose to link to your 22Seven account. You'll need to do your own research and choose how comfortable you are putting your passwords into their service, but their security appears to be pretty solid. Their software tracks your spending and categorises it for you - this is a very good way to see exactly where your money is going. Personally, I prefer to micromanage things so I like my spreadsheets and accounting software (see below). But I've been making use of 22Seven as well (mainly to decide if I'd like to recommend it on the blog) and I've been pretty impressed with them. They also have a blog which is pretty good - you should go check it out. One word of caution - the service is free, but they're probably hoping that you'll make use of them to save in a Tax Free Savings Account. The signup process looks ridiculously easy and the fees are not too bad (0,68%). But you can definitely find lower fees elsewhere - this 0,68% is a fee over and above the fees paid on whatever unit trusts you'll be investing in. Fees really matter so you'll want to do your research on this one. I'll try to do a blog post about fees soon.
• You could also make use of some accounting software. Back in the day I used to make use of Microsoft Money, but I found the "category approach" for income and expenses not as helpful or powerful as a proper "account approach" that one would use in accounting. This is when I switched to gnuCash which is free and cross-platform. You can even turn off words like "debit" and "credit" and make them display something like "money in" and "money out" if that helps you ;-)
• Other than the above I haven't dabbled in any other budgeting tools, apps or services. If you have had a particularly good experience with other apps let us know in the comments!

Happy budgeting!

jjdaydream & Mr Cent(ri)frugal Force

Stuff Minimisation and Financial Freedom

Over the past two years, we have been on an EPIC QUEST please tell me we’re not the only people for whom thinking of things as quests makes the admin feel more bearable… One of the parts of this quest, as you know, has been reduction of expenses. Another part has been self-education regarding personal finances, and a resulting increase in investment income. A third branch of the quest, one that has been essential to the financial freedom frame of mind, has been the process of STUFF MINIMISATION. 

Does your life feel like this? Time for STUFF MINIMISATION!
Photo Credit: Nathan Jongewaard (CC-BY 2.0)

Minimisation and Financial Freedom

What does STUFF MINIMISATION have to do with financial freedom? 

1.  It is about reducing our dependence on a consumer mindset, and retraining our brains to understand that STUFF does not make us happy.
2. It is about (re)discovering useful and awesome STUFF that otherwise gets buried in all the other STUFF, and therefore getting the best use/most enjoyment out of the STUFF we have instead of constantly needing new STUFF -  otherwise known as expenses!
3. It is about reducing the amount of time spent maintaining, cleaning and repairing all your STUFF, thereby increasing the amount of time available for everything else.
4. It is about creating a calm environment (minimizing stress right alongside that STUFF) from which we are better able to cope with life. We are therefore better able to make tough, long-term decisions instead of lurching from choice to choice in the sometimes inexorable grip of what feels good now.

However, STUFF MINIMISATION is a process, not a destination. We, for example, still own far too much STUFF, despite all our efforts. We live a lavish lifestyle, if you get down to the basic needs, surrounded by sentimental and useful possessions.

The fact is, that although we may admire the homes furnished entirely by two blocks of concrete and a pot plant, we have no real desire to be minimalists. Some STUFF is handy to have around, and the premise of chucking everything not currently in use seems wasteful: after all, I will need that brand new extra beater at some point when my current one fizzles, as it inevitably will. But do I need ten microscopically different baking dishes, all of which fulfill the same essential function? Nope. Might I need the work trousers in one size up some day? Yeah, let’s be honest, I might. And why buy a new pair just because I didn’t want to keep one extra folded pair of trousers in the back of my cupboard? Do I need to keep the skirt which I’ve worn once in the three years since I bought it? Well… probably not. There is a balance here, and probably a balance which comes out differently for every family.

So I can't give you a date by which we will only have the optimal STUFF left in our home. I can't show you a picture of the ideal STUFF-free home, or tell you which of your STUFF you should get rid of.

But I can tell you that embarking on a process of STUFF MINIMISATION definitely makes you think twice before acquiring: for that reason alone, it is worth considering in our consumer-mad world. 

Fill your life with freedom, not STUFF.

Photo Credit: brett jordan (CC-BY 2.0)

Making Minimisation Practical

Most of us wouldn't mind a bit of a spring clean, and most of us would probably agree that we could stand to get rid of some STUFF. The difficulty is that, well, it's... difficult. Whether because of inertia or sentimentality, the STUFF MINIMISATION process is tough to start and tougher to make significant progress in. The choices are personal, and often emotional.

How do I make myself actually make those choices on a fairly regular basis?

1. Give almost everything away. This is usually quicker and easier than selling, and it will probably give you a happy glow. Plus, (almost) everything can be given away, and not everything is saleable if you aren't going to do the massive garage sale thing. And I certainly do not have the energy for that. Most charity shops will take boxes and bags of unsorted junk with wide-embracing er, charity, and do all the sorting and  pricing themselves. Some will even collect. If they can make a bit of money out of my pursuit of freedom, awesome. 
2. Sell the big stuff. Some STUFF is worth a lot of money: you know what that might be in your home. Double financial freedom whammy: less STUFF + more money. In South Africa, Gumtree is your friend, though you need to be careful (obviously). But if you don't have the bandwidth even for this... see #1! Don't get stressed about making a small amount of extra cash here: the main goal is getting the STUFF out of your life as efficiently as possible. Keep your prices low but fair in exchange for quick, easy sales.
3. Keep a secret STUFF stash in between dumping trips. We have a big cardboard box in the garage. Whenever we decide that an item can go, we put it in there, straight away. No backsies. Then, when the box is full, we can take a trip to our favourite charity shop.
4. One step at a time. Whether you work room by room, or have a special decluttering time in the week/month, or cope with one type of STUFF at a time, don't try to do everything in one go. That's just demoralising. Rather celebrate each item of STUFF that you manage to toss. And of course enjoy using the good STUFF unearthed!
5. Embrace the process... and remember it. The pain has significant gain: if you can hold on to your irritation as you throw out another half used moisturizer, and bring it out at the right moment, you are way less likely to buy more useless STUFF next time you're at the mall.

Lastly, keep your eyes on the purpose of all your hard work: instead of gradually accumulating more STUFF, you are gradually accumulating more freedom. Instead of buying the latest and greatest, you are getting rid of the white elephants, the not-really-our-favourites and the no-longer-useful. Instead of filling your home with possessions, you are emptying it, to make space for possibility.

Make space for possibility!
Photo credit: Archana Jarajapu (CC-BY 2.0)

To freedom!
jjdaydream

Frugal Shopping: Grocery Edition

Grocery shopping anti-love...
Photo credit: Les Chatfield (CC-BY 2.0)

Grocery shopping: along with the dishes and the laundry, one of those depressing chores that is half necessary again by the time you've finished packing it away... and worse than the aforementioned, it requires the regular expenditure of fairly large sums of money!

Lots of us have experienced grocery shopping on a tight budget, especially near the end of the month. Lots of us have also experienced this curious phenomenon: when money is really tight, suddenly it is possible to spend so much less money at the grocery store than we previously thought possible. I thought I was buying only the bare minimum: but now it appears there is another minimum below my previous minimum - and I'm still perfectly well nourished. Magic!

Don't mess with my food supply!
Photo credit: Sodanie Chea (CC-BY 2.0)

But when frugality is a choice rather than a necessity, groceries and food are some of the most difficult and emotional things to save on. Why? Food is one of the essentials of life, so cutting down or changing diet (or even just brand) choices can feel like a drastic lifestyle change, even if the shift is relatively small. Fair enough: we have strong cave-man/cave-woman instincts to protect our source of nutrition! In addition, we often feel defensive of our food and grocery choices, because they are some of the most intimate choices that we make on a day to day basis.

However, just because our reluctance to make changes in this area is understandable does not mean we shouldn't make those changes: we need all the fuel we can get for the independence engine! We were already living fairly frugally, but in the six months after going postal on the Financial Independence Quest, we cut down our average monthly grocery bill by about R400. This may not sound like much, but remember: if we were to save that R400 per month, that is R4 800 extra to save every year. Assuming that this is sensibly invested and gains a quite achievable 7% above inflation for ten years, this could accumulate into R66 300! Maths evidence? Courtesy of the annuity formula (for regular savings invested in something that earns compound interest):

Okay, I hope you're convinced that it is worth trying to shave down your grocery bill, even by a couple of hundred rand. Here are some of the ways in which we managed to gradually improve our spending. Everyone is different, and so your strategies will be different to ours. But these might give you some ideas.

Regular Shopping Strategies

Go to the grocery store as seldom as possible. This saves petrol and time, but also means that you have to plan your purchases carefully to last till next time, and cuts down on the chances for impulse buying (mmm, that freshly baked bread smells amazing, let's just... sound familiar?).

Make a list, and stick to it. As mentioned above, impulse buying is the budget enemy. We are busy developing and trialing a Wunderlist shopping-list system, but pen and paper will do the same job.

Make a list. Stick to it. Even if there is a chocolate aisle.
Photo credit: hobvias sudoneighm (CC-BY 2.0)

Visit only the aisles necessary for your planned purchases. Although I do love wandering aimlessly through the aisles, this wastes time and increases the likelihood that I will spot something that I immediately need... but don't actually need. Like Ultramel custard on special. Stay away!

Use the reward cards... the free ones, obviously. But don't get suckered into buying things you otherwise wouldn't have. Redeem the points frequently: money saved this month is better than the same money saved next month. The money that stays in your bank account will earn interest :-)

Bulk Buying Strategies

Buy in bulk, but only when the cost per unit is genuinely better, and the increased bulk won't result in waste. Waste can be a result of increased usage (I have a huge block of cheese so I cut off a fatter slice for my sandwich) or expiration.

Buying in bulk can backfire...
Photo credit: Shlomi Fish (CC-BY 2.0)

Specials are brilliant but also dangerous. Make use of them only if you would have been buying the item anyway, and if the product won't go to waste (see above!). But do make use of them: buy lots!

Go to Makro. Yes, it's a mission, but once we've taken increased petrol consumption into account (our local Makro is further away than our local PnP) we usually save about 13%. We don't do this every five minutes, but stocking up on non-perishables and slightly-perishables once every few months is well worth it. Don't forget to follow the bulk buying guidelines though: we have been known to go a little Makro-mad and over-bulk (not a real word, but work with me here!).

Choice Strategies

Choose food that has a good cost per calorie, or, even better, cost per nutrient ratio. How much does each calorie of lentil cost, compared to each calorie of lettuce? Hint: much less. Mr Cent(ri)frugal has a spreadsheet (which he'll share with you in a future post), because he is a keen bean that way. It makes interesting reading. For example, although sunflower seeds are expensive per kilogram, they are excellent value per calorie, because you only need a few to get full. In fact, my school lunch of about 160 g of seeds, nuts and raisins, is both cheaper and more nutritious than a sandwich, though it obviously requires supplementation with vegetables and so on in the evenings. The basic principle seems obvious: choose items that are cheap, but rich in nutrients over expensive, nutritionally empty items. The detail, when you really work it out, is often surprising, and probably deserves a post of its own.

Don't be snooty. Pick and Pay or Checkers are acceptably close in quality to Woolworths for most items. The in-store brand is often indistinguishable from more well known brands. If you feel there is a real difference, actually work out exactly how much more you are paying for an equivalent product: in most cases it isn't worth it. (That being said sometimes the generic just doesn't cut it - but you first need to have really tested it before you cut it from your list.)

Keep your eyes on the goal: is the better coffee, the out-of-season fruit or the imported luxury item more important than financial freedom? Is it more important than being able to quit your job (or go part time) and spend time with your kids? Nope, I didn't think so.

Even if some previous shots have gone astray... keep your eye on the target!
Photo credit: Pete (CC-BY 2.0)

If you'd like to read more about this interesting topic, here's what Mr. [sic] Money Mustache [sic] has to say: shopping with your middle finger, and killing your $1000 grocery bill. He is the original, and always good value. (He also talks about cost per calorie if you can't wait until we get to it!)

May the grocery-force be with you!
jjdaydream

The Grace of Giving: Now or Later?

John Wesley famously said, “Earn all you can, give all you can, save all you can”. Most of us will admit that generous giving is an admirable quality. How does this fit in with the quest for financial independence?

Now or Later?

As always, there are several sides to the argument...
Photo credit: Kristofher Muñoz (CC-BY 2.0)

At the moment, as an example, we live on roughly 22% of our joint salaries (post tax). Surely that leaves 78% to donate to charities and organisations that desperately need financial support? John Wesley also said “Do you not know that God entrusted you with that money (all above what buys necessities for your families) to feed the hungry, to clothe the naked, to help the stranger, the widow, the fatherless; and, indeed, as far as it will go, to relieve the wants of all mankind?" Whether or not you believe in God, the needs in this country are so enormous that it is difficult to sanction holding on to resources which could serve others. 

On the other hand, if we are particularly good stewards of our wealth, then surely it is better for us to take good care of it, ensuring optimal growth, and allowing much greater generosity in the future - putting compound interest to work for charity, as it were. The hope is that after reaching financial independence, our ability to be lavish with our giving will be much larger. Besides, if we don't save at all, we ourselves will be a burden on society at some point in the future when we are no longer able to work. 

And if we can imagine a third, less altruistic hand in this argument, what about the whole point of this blog? Aren't we supposed to be saving everything we possibly can so that we can reach financial independence as quickly as possible? That couple of thousand rand that you give away each month could be powering the financial independence engine and shaving months if not years off your working life. 

Since this one is probably a bit easier to answer, let's put it to rest now:

Reasons to Give Now:

1. Gratitude. Giving really is a grace. It gives me a chance to reflect on everything we've been given. How wonderful that we are in a position to have so much more than we need that we can give money away! How wonderful that we are able to touch the lives of others, even in a small way. How wonderful that we are able to encourage and support causes that we believe in.
2. There are an awful lot of needs right now. Telling the NGO to let the children in the orphanage hang on a few years for their supper because we're just letting their donation grow by compound interest... you can imagine how well that wouldn't go down. The church roof might actually fall in by the time we are good and ready to start giving. 
3. Good habits die hard. Even if you are giving less than you plan to give in the long run, it means it won't come as such a shock when you finally reach the point where you want to start giving a significantly. The danger of course is that we get so attached to our money that by the time we were going to start, it's just too much... or we haven't taken account of it in our FI calculations, or, or, or... Far better to put the habits into place from the beginning, even if it burns a little bit.
4. Tax. You won't ever make money by giving but if you're giving to the right types of organisations (section 18A) then the government will give you a tax rebate on some of your donations. Up to 10% of your taxable income can be deducted from your taxable income via donations. So you pay a bit less tax. (Mr Cent(ri)frugal will do a more detailed post on this later - this is called delegation.) What is comes down to as far as I'm concerned is you're forcing the government to donate money to the charity of your choice. I like. 
5. Giving in other ways. This doesn't really belong on this list, but it is still something to consider. Sometimes, we can (and should) be giving acts of service, not only money. This costs nothing but time, but can be hugely valuable. Does the organisation you're supporting need volunteers? Maybe this is a way that you can maximise both giving and saving. (I still don't think financial giving should be off the table, though...)

How much then?

Not whether there should be a gift, but what size the gift should be.
Photo credit: FutUndBeidl (CC-BY 2.0)

Okay, so assuming that you agree with me that a certain amount of giving should happen now, the question really comes down to this: where is the balance between the "give all you can" and the "save all you can" clauses of the Wesleyan advice with which I started this post?

I think this is really something each individual or family needs to figure out for themselves. I'll share our thinking, not because I think we've necessarily got this sorted, or because we feel grandly self-righteous about how much we give (as you'll see, we haven't reached our giving goal yet), but because it can be helpful to have a benchmark; somewhere to start your own thinking.

I mentioned that we live on approximately 22% of our post tax income. We donate about 8% of that income to two organisations - one religious, one education NGO. The remaining 70% goes to savings. 

Our end goal is to be giving the same amount that we live on. Wouldn't it be wonderful if we could each support another family to the same standard of living that we enjoy? Of course this money wouldn't go to one other family, but would be spread out across the organizations that we support. It simply gives us an image of how we would like the world to be: every person fully supporting one other person.

We haven't reached this giving goal yet. At the moment, it would just put our financial independence goal too far away. We are (theoretically) only supporting just over one third (8/22) of another couple, living at the same level as we do. But we're working on it. And after financial independence we are confident that this will be possible, if not exactly easy. It forms part of our plan: we are saving more now, aiming for a bigger goal, so that we can make it happen in the future.

In closing, I really do believe that giving, both now and later, is an incredible opportunity. It puts you at the forefront of a different way of seeing the world; a way of seeing the world that isn't about "us" and "them" but only about all of us, together, doing the best we can. Even if we don't get it right straight away, it is a dream that we can all work towards, starting with the smallest donation and building up from there.

To gracious giving, and generosity of heart!
jjdaydream

Cycling

Hi again everyone

People tend to look at me  bit strangely when I tell them that I cycle to work. I must say that I had a lot of misgivings at first too. But now I think that ditching the car (most of the time) has been one of the best changes we've made to our lives in the last few years. Here's my bold summary:

You should cycle to work.

Who wouldn't want to ride a bike when it looked like this?
Photo credit: Michael (CC-BY 2.0)

  Not sold? Not even by the blue and yellow bike?

Benefits of cycling:

1. The Planet. People, we do not live on an infinite resource. I would like my children to know what trees look like from first hand experience. Every kilometer cycled is a kilometer less fossil fuel consumption.
2. Your wallet. Our very basic little citiGolf costs approximately R4 per kilometer, if you factor in wear and tear, maintenance, depreciation and fuel (which you absolutely should, by the way. That new clutch is not going to pay for itself!). How much does your car cost? Go here to get an estimate. It totally changed my perspective when I worked out that my home-work route was costing me R50 a time. Would I really spend R250 per week just getting to work?
3. Health. I am fitter (and skinnier) than I've ever been in my life, despite eating like a Trojan. This comes down to simple Maths: although I don't cycle fast, or particularly far, I get about an hour's worth of exercise on average five times a week. This makes a big difference to a totally non-gym girl. If I don't cycle for a week, I can feel the stress levels rising as well. Apparently endorphins are a real thing.
4. Connection. Moving more slowly, and not isolated in your car bubble, you notice more. This week, I noticed that the pavements near our house had been swept, and spent several moments feeling grateful to whomever had toiled at that thankless task. I shared a wry grin with some domestic workers setting off on their longer journey home. Cycling gives me a chance to connect with the world around me far more than driving.

Being connected to the world around you: priceless.
Photo credit: Dustin Gaffke (CC-BY 2.0)

Problems with cycling (and how to make them go away):

1. "I'll arrive at work all sweaty and gross". Actually, you don't get that hot and sweaty, even in summer: cycling works up a pleasant breeze. You also don't have to cycle as if you're about to win the Tour de France. I usually take it easy; and if I can feel that I'm getting a bit warm then I deliberately slow down for the last few minutes of my trip. 
2. "I can't work in cycling clothes". Um, most workplaces have bathrooms, right? Some even have shower facilities. Now since I'm a teacher and I am NOT sharing a shower facility with the kids (we all have limits), I don't shower after my trip. But I do keep my work clothes in my staff locker and change when I get to school. I transport a week's worth of clothes when I drive in on the day I stay for evening classes. The quick-change process takes about 5-10 minutes in the morning.
3. "It's too far". If you live less than 10 km from work, just stop being a wuss. If I can get fit enough, trust me, anyone can. If you live further away, consider moving closer to work, or moving work closer to home: quickest way to reduce your carbon footprint too!
4. "It's cold and wet in winter". See point three above. The benefits far outweigh this consideration, unless it is actually POURING when you want to leave. And that has only happened to us once or twice this whole winter so far; it is far rarer than you might think. If you ain't already sick, you'll dry and warm up in no time. 



It isn't snowing, so stop making excuses!
Photo credit: Sakeeb Sabakka (CC-BY 2.0)

5. "I've got too much to carry". Easy. Stay at work a bit longer. Work a bit more efficiently. Leave work at work. This is a fantastic side effect of cycling. Brain space expansion!
6. "It'll take too long". It takes me about 30 minutes to cycle to school. If there is absolutely no traffic (i.e. almost never) it take 15 minutes to drive the same distance. And I'm getting in my free gym and mental health session as well. The time investment might feel like a lot, but it is actually minimal, considering the other benefits. I do leave a little earlier in case of flat tyres and other cycling catastrophes but that just gives me a bit more time at work to get my ducks in a row. My husband sometimes beats his colleagues home, as he almost always cycles during peak traffic.
7. "It's not safe". the received wisdom in South Africa is that the streets are a mad, bad place to be, especially for women, and much better only seen from the tinted windows of your vehicle. This is an important one to get right: it isn't worth risking your personal safety. BUT if you think about it, the very act of living risks your personal safety. You have to decide what risks are acceptable, based on their reward. My safety boundaries? I won't cycle at night. I have chosen my route based on the cycle paths as far as possible. I try to cycle with my husband through the dangerous/dark parts of the trip. I am hyper cautious on the road, and often wait for ages at intersections rather than take any chances. Depending on where you live, this last point might be the deal breaker. But think carefully before you allow it to put you off: you may just be making excuses. Plus, the more cyclists we have on the roads, the safer it will be for everyone: more cycle paths, better motorist awareness, general goodness.

So, to return to my first point... You should cycle to work.

It's okay to be scared - I was at first! Don't let fear stop you.

It's okay to start out slow. I'll post another time on how I got into the swing of it. Don't let inertia stop you. 

It's also okay to wimp out once in a while. Every day that you don't drive is benefiting you in so many ways. Don't let a desire for 100% perfection stop you.

Basically, don't let anything stop you.

To freedom!

jjdaydream

Introducing The Two Pillars and Compound Interest

Dear Awesome Person

In the last post I stated somewhat cryptically that:

"Money can be used to buy freedom by not spending it."

Photo credit Julia Maudlin (CC-BY 2.0)

It's probably time to explain what I meant by this. I present to you what I consider the two pillars upon which a financially independent life is based:

1. Live a frugal lifestyle so that you free up money that can be put to good use.

2. Find sensible investments where your money 
will work hard for you, and one day, will be able to work harder than you possibly can.

The sensible investments can be thought of as a Powerful Financial Independence Engine 
and the money that you save by living a frugal lifestyle it can be thought of as Fuel for the Financial Independence Engine.

But first we need to understand the inner workings of the machine which allows the engine to function:

The Power of Compound Interest

Compound interest will be a ridiculously powerful ally on your quest when it acts in your favour. But compound interest can be a double-edged sword. If you get on the wrong side of compound interest then the quest becomes exponentially* more difficult. (The wrong side of compound interest is a Fiendish Beast of the Night called Debt; we'll talk about this in a future post.)

When money is placed in an investment (we'll look at what types of investments there are and where to get them in a future post) then it grows according to the compound interest formula**:

F is the value of the investment, P is the money you put into the investment, i is the rate of growth and n is the amount of time you invest for.

The value of your investment is larger for larger values of P, i and n. This makes sense:

• the more you invest (P) the more your investment should be worth
• the faster your investment grows (i) the more it will be worth after a certain amount of time
• the longer you invest for (n) the more time you give compound interest to compound the growth on your investment

For now, let's look at a pretty amazing example of how the growth rate (i) and time (n) can work together to produce a snowball that starts small but eventually produces an avalanche of treasure.

If you can find an investment that produces real returns (returns above inflation) of 7% then an investment doubles approximately every 10 years. Using the compound interest formula we have:

What does this mean? Let's perform a thought experiment. Imagine that you have R100. I maintain that this is actually a lot of money and should be respected, but depending on your frame of reference it's not that much and shouldn't be too hard to find (chances are you have a R100 note in your wallet right now; go and fetch it and you don't need to imagine having one). Now imagine that you invest this R100 in an investment that grows at 7% per year above inflation. In ten years time you will have the grand total of... R200. Wow, that's a bit anti-climactic isn't it? Where is this phenomenally powerful engine that I promised? Be patient, the juggernaut is just getting going. 

• After 20 years you will have R400.
• After 30 years you will have R800.
• After 40 years you will have R1 600.
• After 50 years you will have R3 200.
• After 60 years you will have R6 400.
• After 70 years you will have R12 800.

"Okay", you might say. "That sounds like a lot of money, but it took 70 years to do that!" I'll be amongst the first to admit that 70 years is a long time to wait. But just think about what just happened. We took R100 and turned it into R12 800! This is an amount of money that could easily be spent on going to the movies, having take-aways or going out for an evening and you might not even notice spending it. But if you invested it instead of spending it, in 70 years you could have R12 800 to leave to your grandchildren as an inheritance or to donate to charity.

Let's be a bit more ambitious. Let's say we've managed to save up a small nest-egg of R10 000 that you were planning on putting towards something completely unnecessary like a new HD  TV or a fancier car. What does that become in 70 years?

R1 280 000 or R1,2 million.

Okay, that's a little more like it. But still, why am I talking about investing over 70 years if I'm trying to show you how you can use compound interest to achieve financial independence in a much shorter time frame like 10 years? It's because the interest rate (i) and time (n) are not the only factors that affect the final value of your investment. The amount you actually put in (P) has a profound affect on what you eventually get out. I needed to talk about periods of 70 years to give compound interest enough time to work because in our thought experiment we were not being ambitious enough. We were putting R100 or R10 000 away once off and then thinking that this is enough. Compound interest is powerful, but it won't achieve financial independence on its own. It needs something to compound on!

The general financial advice given when saving for retirement is "save 10 to 15% of your income and you'll be fine". Only saving 10 to 15% is what means you'll be working until you're 65. You're not letting P (what you put in) do enough work in the compound interest formula, so n (time) has to make up for it.

If we have a certain target, which will allow us to be financially independent (and we can talk about how to decide on this target in a future post), this is your F. So how do we reach this target?

Start investing now.

This makes n large in the compound interest formula giving compound interest more time to do its thing. Since we want n to be as small as possible for our target F (hello EARLY retirement), we need to increase P and i as much as possible. But of course, we should also start the process as soon as possible so that we maximise n without selling ourselves to work forever.

Invest as much as you can. 

This increases P in the compound interest formula. Increasing the amount invested comes from living a frugal lifestyle so that expenses are reduced and that there is more money to invest. This forms Pillar 1, which we'll talk about in more detail next time. It sounds so simple but there is a lot to it!

Increase your rate of growth

Invest in something sensible that will give you as large a growth rate as possible over the long term. This increases i in the compound interest formula. Increasing the rate at which your investment grows by choosing the right investments and investment platforms makes up Pillar 2: this requires a lot of thought and research as there are loads of pitfalls along the way.

Making use of the mathematics behind the power of compound interest will have you saving hard initially in order to increase P. Then once you've reached financial independence you can simply let i and n take over. That's freedom. Your money works so you don't have to.

Mr Cent(ri)Frugal Force


* Literally. Compound interest (on investments or debts) is an exponential function. Mathematically powerful to say the least.

** For multiple investments of different sizes made after time intervals of different length and with varying rates, the formula is a lot more complicated, but the factors that affect the final value of an investment are the same: P, i and n - it's just that none of these are constant.