Business 5.5.2017 06:36 am

Commandments of a Cheapskate

A salary-earner’s pursuit of financial health.

I must confess that I’ve never liked the word “cheapskate”.

It may be the Afrikaans roots, but the term immediately brings to mind mental images of low-cost laxatives.

It just seems like a fitting term for the kind of people who take wine to a party, only to empty the host’s supplies and leave with their bottle intact. (Friends can confirm that I would only ever relieve them of their tipple after finishing my own…)

And yet I’ve been called a cheapskate many times, often by a teasing family member in a pot-calling-the-kettle-black-kind-of-way after refusing to spend more money than I thought an item was worth or a situation called for.

The Oxford Advanced Learner’s Dictionary defines a cheapskate as a “person who does not like to spend money”. I wouldn’t say I don’t like to spend money. It’s not that I compare prices at supermarkets to save 50 cents, or break matches in half or even deprive myself of relatively expensive items. It’s just that I don’t think it’s rational to pay for something without getting proportionate value from it. More importantly: I firmly believe that financial health is about understanding that just because you can afford something, doesn’t necessarily mean that you should have it.

I’ve wanted to write a column highlighting how a frugal lifestyle can help salary-earners to improve their financial situation for some time, but since the workload here at Moneyweb is already quite considerable, and I’ve hoped to avoid the additional burden of dodging comment section assassination, I’ve been procrastinating. Even under the best of circumstances, lifestyle sacrifices is an uncomfortable topic to tackle and not the type of tangent to be followed by social media stardom and book deals.

Although, considering the subject matter, maybe fame and fortune* could come cheap.

The future

Unfortunately, South Africa has reached a point where it would be amiss to refer to the economic situation as “the best of circumstances”. Although I have fortunately not been one of the chosen few commentators to receive an exclusive invitation to the memorial service of South Africa Inc, it would be foolish not to acknowledge that the current political and economic situation is extremely serious, and that we are entering a period that will likely leave (deepen?) financial scars on households.

Consumers were already in a tough financial spot prior to president Jacob Zuma’s controversial cabinet reshuffle, but were looking forward to potential interest rate cuts during the latter part of the year and a more favourable inflation outlook. While Moody’s is yet to announce it’s position on South Africa’s sovereign credit rating, further downgrades of our local currency rating by agencies other than Fitch (who have already downgraded), could see billions of dollars leave the country, potentially triggering further rand weakness and higher inflation. Against this background, the Reserve Bank is likely to adopt a wait-and-see stance.

At the same time, economic growth is expected to remain below 1% this year, while limited fiscal drag relief in the most recent budget means that many taxpayers have experienced an increase in their effective tax rate after an inflationary salary increase.

If I had to plot my own salary increases over the past decade and connect the dots, the line graph could quite easily be mistaken for a child’s play slide, although I guess the trend is somewhat exacerbated by the fairly early career stage and the industry I work in. However, I suspect most South Africans would agree that the job market is a lot tougher than it was ten years ago.

On the stock front, market commentators have for some time warned that investors should moderate their returns expectations. Following an incredible run after the global financial crisis, South African equities have not managed to outperform inflation over the past two years, delivering returns of just 5.1% and 2.6% in 2015 and 2016 respectively.

Bottom line: The time of exuberance is over.

Portfolio managers often advocate buying stocks for less than they believe they are worth, thereby allowing for a “margin of safety”. In financial planning, I would argue that a similar margin of safety or cushioning is prudent – ensuring that there is always some money in your budget for unforeseen expenses and saving and investing as a manner of actively managing your lifestyle downwards. Such a buffer will likely come in handy over the next few years.

In an environment where consumers are expected to be squeezed from all sides, using debt as a “margin of safety” is ill advised and will be expensive in the long run.

Accepting the badge

When I initially thought about writing the column, I struggled to come up with a title aptly summarising the preachings of someone advocating for living below your means. Mutterings of a miser? Brakes on buying? Frugal Fräulein? Sayings of a skinflint? None of these titles really capture what it is I want to say.

I still dislike the word cheapskate, but much like a wife who has learned to accept the shortcomings of her husband and love him with all his flaws, I guess using it in the title is fitting, considering that uncomfortable compromises will be a recurring theme.

I aim to publish the column on the first Friday of every month and hope to provide you with a glimpse into some of my (and other’s) thinking around this topic. You’ll probably hear some offbeat and unpopular views and get exposed to R-rated sarcasm, but if nothing else, I hope I can at least make you smile at the Commandments of a Cheapskate.

* I kindly ask that you do not share this post too widely. If fame and fortune do follow, I would prefer not to go down in history as The Cheapskate Lady.

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