CASH is KING!
You may have heard that “Cash is King” and it has never been more apt than now. What does it mean?
It is simple – if you have cash (or money in the bank), you are king. the more the better. Everyone should be aiming at living debt-free. Not owing anybody anything is the way to live.
How do you go about this?
- Pay off as much debt as possible as fast as possible.
- The smallest amount more than ‘the minimum’ will make a huge difference. See example 2 below
- Live within your means.
- Spend less than you earn.
- Simple maths – if you earn (or however money arrives) R 1 000 and you spend R 800, you are living within your means.
- Only have what you really need. No need to minimalistic with nothing but a bed and a fridge here but:
- Do you really “NEED” the telephone contract with 10000 minutes?
- Do you really need a brand new car every 2 years?
- Do you really “NEED” 200GB of internet data when you only use 50GB every month?
Please be careful though.
As much as you want to pay off everything as fast as possible, heed the following points about cash flow:
- You need money to live. there is no point spending everything you have paying debts off and having no money for food!
- There may be penalties if you pay certain debts off “early”. Please contact the financial institution with regards to this.
Example 1:
A small car was bought by Bob with finance of R54 000. Bob and his family had budgeted for R1 250 per month but the amount the bank wanted monthly was R1 159 per month. Wanting to pay this off as soon as possible, Bob paid the difference between the two amounts monthly. Bob phoned the finance company and asked if there were any penalties to be paid if this happened, the call centre agent said: “if you do this, we would say congratulations!”
The finance was over 5 years but because of this monthly “extra”, Bob owned the car in just under 3 years!
Example 2:
Bob bought a property with a bond of R325 000. It was for an investment flat to be rented out. The bond is over 20 years (standard in South Africa). Being in the mindset of paying it off sooner than needed, he worked out that if he paid just R50 extra per month, he would save roughly R25 000 in interest and shorten the loan period by over 1 year. Well worth the extra R50 (not even 2 coffees!)