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23 Jun 2013

LIVING ON 50 PERCENT

Ever since we became a crazy family, we have been living on 50 percent of our income or below. Before getting impressed know this... it was never planned. This was because of my real estate craze. We just had to pay two mortgages at any given time. Usually me with a smaller one and Mr with a bigger one. Or him with a smaller one and a car and me with a bigger one. Money was quite tight earlier on because of that. Strangely, I cant remember us having an argument about money ever. We were very aware of where our money was going, which helped. I did buy more stuff than I need but there was not much money hanging around for more of that. More than 50% of our income was tied in investments.
living on 50 percent of your income - image
We are not special in any way. We are an ordinary family of four just like most families. Think about it 50 percent of your income is probably all you need to survive too. If you can be honest with yourself, take out all the debt payments, and take a fresh look at your monthly income, you are likely to be shocked. Your 50% or more could be eaten by debt and its interest. Lets look at a hypothetical middle class budget or spending pattern:
Homeloan R10000
Cars R15000
Fuel & Car Maintenance R5000
Food R4000
School  Fees R5000
Consumer Accounts R3000
Credit Card R2000
Personal Loan R1500
Dining out & Leisure R1200
R46,700

The assumption is that we have a two income family with two kids earning a combined R45,000 after deductions and medical insurance. See how they spend R46,7k from their R45k income. It happens all the time because this couple is sinking every month without bothering to take note. Look at what is actually debt in their budget. 10000+15000+3000+2000+1500=R31500. That's the whole 70% of their income on servicing debt. That should be craziness in anyone’s standards.
Many people argue that one can’t live without debt because they need a car and a house. That’s not true but for the sake of this example we will entertain that. How about getting a modest 3 bedroom townhouse and reduce that mortgage to R8000 per month and buy two used smaller but safe cars at R8000 per month for both.  Even better, save a higher deposit and slash that car payment to R5000 for both. Nothing stops them from driving their cars for longer whilst they save for the next car. This sanity of relying on banks to finance one's existence is very expensive. South African interest rates are too high. They are great for saving and horrid for spending. I often wonder why people still choose to pay interest on their credit cards.

Try living on 50 percent of your income. Its easier than you think. Automate your investments and savings and see how easy it is to adjust living on the other half. 

Have a great week. Happy investing!

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