Buying a Brand New car is an investment because I can save money on repairs and gas.

Uhm no it’s NOT an investment. First of all, buying something with monthly payments instead of putting money in your pocket is not what I would call an investment. Period.

One of my friends once argued that if he traded in his old car, that was fully paid off, for a new or relatively new diesel car. He would be able to save almost half of his gas bill every month. He thought that by buying the new car he could actually save money. He was trying to convince himself that he would not just be driving a better car but actually save money. He was right about that. He could drive a new car and save money on gas and repairs in the beginning. However, he forgot to look at the whole picture in other words, what his new car would actually cost him.

In the first place, he will have to take out a loan for the car, which means he now has to pay off his new car over a period of 5 or more years depending on his payment options. There goes the money he thought he was going to save on gas. In fact he’s probably going to spend more money on installments of the vehicle than what he would have paid on gas.

Secondly, because he has a new higher priced car, he will have to pay higher insurance premiums. Oops,  he forgot about this one, it never even crossed his mind. Most of us don’t think about it either until we have to start paying. This is usually an after thought. “Oh shit I forgot about that bit Mmmmmmm”.

Thirdly, my friend was not a hands on guy that could repair or service his own car. He usually took the car to a shop to get serviced or repaired if something broke. Although new cars generally aren’t supposed to break down we all know that it sometimes happen. We also all know that a new car will cost you more to repair and service than an older car/model. BOOM !!! Another cost he didn’t think of. I bet you by this point  he was already regretting his decision to buy a new more expensive car.

This brings me to my last and most important point. The opportunity cost that he loses. In the next 5 years that my friend has to pay off his new car, how much money would he actually spend on his car. Lets have a look. If for example my friend bought a new $18 000 car. At an interest rate of 4.5% over 60 months. His car repayments would be  $336 / month. Lets say his insurance would cost him approximately another $160 / month. Therefore the new car will cost him $496 per month.

Now take that amount over 5 years. It would be ($496 x 60) a whopping $29 760. Furthermore, this is not even the full extent of the money he would have lost. If he invested the $496 on the stock market in an index or ETF fund for example, he could have earned an average of 8% on his investments over the same period. This would have amounted to a monstrous $37 183.

So in light of the above which do you think is a better investment ? Buying a vehicle that is worth about $8 000 at the end of the 5 year period or having an amount of $37 183 in your investment account.

 

To Gucci or not to Gucci

Q. Simonette from Simi’strinkets and treats asked

All my friends have Gucci bags. Should I buy one too to impress them even though it’s really expensive?

To be honest for that reason to impress your friends I have to say NO ! “Why?” you might ask, is because there is no point in trying to show people you have money when you don’t. If you cannot afford the bag normally then I would advise against buying it. In fact the only satisfaction you’re going to get from buying the Gucci bag is the moment you buy it, which will soon be replaced with regret and guilt of buying something so expensive especially if you’re going to buy it on credit. You might feel some pride or joy when your friends notice your new bag. If you want to impress your friends rather invest the money in a money producing asset like the stock market or gold/diamonds. Something you can actually get a good return on. A handbag loses value. Since its no longer new you won’t be able to sell it for the amount you bough it

It’s understandable that people want to buy these kinds of things to impress others or to feel rich and important. But in reality your just fooling yourself. My advice to you would be to work on increasing you earnings first. Then if you still feel you really want the Gucci bag, go out and buy it. It would be like a reward for your hard work. Then you will have bought it for the right reasons. You really wanted it and not just because you’re competing against your friends.

 

Little things you can do to save more money

If you want a better life for yourself. You’re going to have to start somewhere. Most people have the same excuses ” I don’t have any money to save!” This is not true. You are only lying to yourself. If you really wanted to have a better life or to achieve financial independence you will find a way to save money, no matter what situation you are in.

One of the first things you can do in the beginning is to try to live more frugally. This means to cut back on your spending a bit. In the beginning it will be tough because you have developed a bad habit and you have done this throughout your whole life. Bad habits are extremely hard to break. The only way to break a bad habit is to replace it with a good one. One way to build a good habit, like saving, is through paying yourself first.

I know you’re going to say but ” I don’t have any money to save!”, but that is the whole point. You’re spending everything on other things first. If you pay yourself first before you even pay anything else, like you utilities, Credit cards, cars, entertainment etc. You will start to build a good habit that reinforces you to save. You should think of paying yourself like paying a monthly rental fee for the use of your body for example. So open a separate account and put the money in there every month. Don’t even think about it. You’ve already spend it. It doesn’t exist anymore. It’s also very important to make sure that you do this on a consistent basis. Never ever skip paying yourself first. Consistency is key. If it is to difficult for you to transfer the money every month then I would suggest that you should go to the bank and set up a debit order on your account so that the money gets debited from your account every month as soon as your salary gets paid in.

Start out with a small amount, don’t think that because it is such a so small that it doesn’t matter. Everything adds up. By the end of the year you will have saved a few pennies. You wouldn’t believe how much money people waste on junk everyday and they don’t realize how much they are actually spending on these small things because the amounts are so minuscule. If you count up all these small amounts you spend on coffee, candy, etc you will be surprised at how much you spend. Remember, I’m not saying you shouldn’t go out and have a coffee or buy a sandwich at your favorite food stall.

One last thing to remember,  never save just because it is saving. Saving is only a temporary place to put you money so that you can use it later for a specific purpose. That is why I’m saying that you should view it as if you have already spend the money. Money is there to be used not saved.  I’ll write a post about about this topic at another time.

The Richest man in Babylon – Review

First of all, of all the books I have read, I think this books is one of the most relevant and realistic book that any person can read. It is relevant and relateable to any situation or occupation, whether you are a burger flipper or a desk jockey.

The book gives you easy to follow rules about money and explains the meaning and reason for each rule. These rules taught me to work with my money in business and in life and to avoid simple investment mistakes.

The book starts off by telling stories of ordinary men that are slaves in Babylon. As a slave you have only one life path, to work on building the wall around Babylon. This is a life of misery and in essence death. The only other way to live is to try and sell yourself to merchants before you’re sold as a slave to work on the wall. This is a book about those you had the courage to sell themselves.

The book follows the stories of various “slaves” in their journey to make a life for themselves. Its and interesting read that allows you to live a day in someone else’s shoes.

I have read a lot of books on investments. Most Investment type books are either boring or lack real value to its readers. The Richest man in Babylon is not one of them. It’s an interesting book that keeps the reader engaged and intrigued. It is well written and a it really gives the average persons a starting point on how to start your journey to financial freedom.

This is my two cents on reading The richest man in Babylon. 

I have $5000 to invest, how do I start ?

Well it depends on your situation. If you’re an expat like me, I would suggest investing it in the stock market. This way would be better as your money is more liquid and you can get a return of about 8% on your money per year. If you’re not an expat, living in another country, then you have other options like investing in real estate to earn rental income. However, investing in real estate is more complicated because you have to do a lot of research on where to buy, at what price etc, to make sure you get a good deal and earn a positive cash flow.

One of my expat friends asked me if he should buy Facebook shares since the stock price was down and he only has $5000 to invest. In his case it would be better to invest it in a global index or ETF fund and a AAA rated gov bond ETF. (GLobal index funds invest in all stocks across the board). This way he could own not only Facebook shares but other shares like Amazon, Apple, Microsoft etc. His capital would be better diversified. He should divide his savings into two and buy $2500 worth of shares in a global index or ETF fund and the other $2500 into a global AAA rated bond ETF fund. For Example:

$2500 in

Vanguard Funds plc (VWRL) FTSE All-World UCITS ETF USD

and the other $2500 in

iShares Global AAA-AA Govt Bond UCITS ETF

This is really easy to do and after buying these shares he doesn’t have to worry about it. He could just sit on it and wait. After a year, when he has saved up a little bit of extra money,he could buy more shares.

 

 

The Journey Begins

Hello!

My name is Rudolf. I’m an expat from South Africa living in South Korea. I’m an investor/Entrepreneur that’s on a journey to become financially independent. I started this blog because I found it difficult to find other people with similar interests. I want to build a network of friends where we can work together to find solutions and partners for our en devours. We can share Idea’s and tips. As the saying goes “As an individual.  you can achieve great things but as a group or team you can achieve impossible things” I will post on this site weekly, about my journey to becoming financially free as well as tips and knowledge I acquired over the past few years.