Today’s tip is a cautionary one. As I write, the interest rate has been raised 4 times in a row and the Reserve Bank is talking of another hike in a month’s time.
Inflation is beyond the “acceptable” limit and South Africans are allocating approximately three quarters of their after tax income in the form of dept repayments.
Bottlenecks at banks and the Deeds Office due to strike action and new legislation are leading to the kinds of delays that many people simply cannot survive financially. The kind of people who are relying on the sale of their house to resolve debt problems, for example.
At times like these you need to make sure you are not over-extended.
During boom times, like we’re been having in South Africa the past few years, everyone’s an investor. Everyone’s bulletproof. Everyone can defy the rules and make money. Everyone has brilliant vision, brilliant instincts.
Everyone is suddenly a property investor and investment expert.
The problem is, everyone also has short memories.
We forget that the wheel turns and lately it happens to have been on the upturn; which is why we’ve been doing well.
But we are not aware of this ... instead we think we’ve done well because of our own brilliance, talents, vision, etc. We do not realize that luck has played a far higher role in all this than we think.
When the wheel turns downward (and though the signs are already there, we cannot say for sure when it will happen, only that it WILL happen) and our fortunes go with it, we are bewildered.
We’re not doing anything differently! It’s just inflation; U.S. debt; the oil price; etc. Suddenly it is no longer our responsibility, the way success was! Suddenly we’re victims; and true to form, we start complaining around the braai.
Meanwhile, this is the point at which the real Wealth Creators come into their own.
While others were over-extending themselves in terms of borrowing; buying “investments” in a hurry because “there was no time to lose!”; and walking a tightrope between solvency and crashing, because “I will double my money in six months’ time” ...
... Wealth Creators were being far more cautious. They were eliminating their debts; getting cash-flush; and doing worst-case scenarios on all the ridiculously overpriced “investments” and “bargains” that came their way.
They overrode the hype and the fear of losing out, and stuck to the figures.
If the figures did not make sense, they did not buy. This takes some mental strength and discipline ... it is hard to go against the crowd.
People like these can weather interest increases because they’ve planned for them; their debts are low or non-existent, and their investments are cash flow positive right from the start.
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