How do I change my spending patterns?

18 JUNE 2020

Most of us who were raised in African households particularly in the townships and rural areas only get to build a personal relationship with money the day we receive our first pay cheque. Given low household income if any, it was almost impossible for our parents to give us financial education. This is very understandable, a household that struggles to make ends meet can only think of money in the context of consumption. Each time our parents earned few hundred rands, they would only think of basic necessities which ran out the previous week.  Growing up in such communities or households can have long term psychological effects on ones’ attitude towards spending.

Habit of spending

Human beings are habitual beings. As humans, we have a culture of repeating the same habits which were learned from a young age. Some of these habits may have positive impact in our lives and some of these habits may be toxic. Many times we find ourselves doing things simply because it has always been this way, without applying a questioning mind. Our relationship with money is one of these habits. “Birds of the same feather flock together”, often when one develops a habit; he/she finds friends or colleagues who have the same bad habit. Association with people who share similar bad habits when it comes to spending only perpetuate the problem that we already have. It becomes normal to spend in excess especially if those around us have the same bad habit.

If we happen to have a bad relationship with money or bad spending habit without taking action, this will obviously continue into the future. It will later affect the quality of life we can live and ultimately the future of our children. Besides the long term financial impact, bad spending habits can also affect our mental health. Especially when we fail to provide for our loved ones or in cases of emergency which require large sums of money. For this reason, our attitude towards money and spending habits are some of the things we have to get right from a very young age.

Bad financial management

There is a saying “he who can’t manage R200.00, definitely can’t manage R 200 000.00”. A friend of mine used to work for one of the big companies in Johannesburg. As a young professional, he was surely getting paid a decent salary, enough to pay for personal expenses, entertainment and still send some money home. My friend had a problem. Every month, his expenses would run in excess of his salary. To manage this problem, he decided to get himself a credit card, just in case his expenses run in excess of his monthly salary. He used the credit card to pay for small expenses after finishing his salary and eventually he exhausted all the funds in his credit card. In the same office where my friend works, there is a cleaning lady who runs an informal lending business (Mashonisa). After my friend became aware that the lady is a loan shark, they became good friends, and my friend became a long term client.

What can we learn from the relationship that developed between the two? Firstly the friendship wasn’t genuine. The friendship was built on the basis of need. My friend ultimately became over indebted to the lady, something which could have been easily avoided. The relationship also taught me that it is truly not how much you earn but how you manage your finances that will deliver you to financial security.

How to create a good relationship with money?

If my friend had acknowledged early enough that his relationship with money is not so good, he could have avoided unnecessary debt in his life. If he had drawn up a monthly budget and saved part of his salary every month, the situation would be totally different. A budget is an estimate of income and expenditure for the month, every budget is different since our income and expenses are different. When drafting a budget, you should be as realistic as possible, include all the expenses, beverages, cigarette, going out etc. Every budget should include “savings” as savings is the amount of money that will not be spent.

This money should not be saved after spending on all the budgeted expenses but should be saved before spending a cent of your income.  This money can be saved in an interest earning account with any of the retail banks. In case of emergency, there is no need to create relationships with informal lenders but you can easily approach the bank to access your savings.

Benefits of savings

I was watching an interview of an old man; I will refer to him as “Ntate Maluleke” who made massive gains from the fast food business. His gains are in the millions. Something very unusual for businesses operating in the township and rural communities. The fast food business is one industry that has sustained many black households in South Africa, especially for those small businesses that operate in taxi ranks. Ntate Maluleke strongly believes the industry can produce sustainable businesses if the profits are well managed.

One of Maluleke’s colleagues, who was a bit old and wiser noticed that Maluleke cannot maintain his car despite the fact that he was well paid. The older colleague introduced Maluleke to the concept of emergency savings. Savings for rainy days. This is when Maluleke started saving a small part of his salary each month to build up his emergency savings. As the balance grew each month, this made him happy and it created the desire to build up even a bigger balance. This prompted Maluleke to save even more. The culture of savings is a habit, once you start saving – which will probably be difficult in the beginning but once you develop the habit, it becomes part of your life.

After Ntate Maluleke retired, he started a small fast food business in one of the taxi ranks in Eastern Cape. The business was giving him good margins. Since Maluleke had already developed a culture of savings, he saved a huge part of these profits. When he went to deposit his profits at the end of each month, the bank tellers would ask how he manages to keep such a healthy bank balance given the industry in which he operates, and the answer was very simple. It is because of something Maluleke learned from a young age, “SAVINGS”.

When Ntate Maluleke started in his first job, he did not know much about savings but he always had the desire to be rich. So, Maluleke as a youngster believed that if he was to earn a higher salary that would automatically be a way to riches. Since he wasn’t happy with his first salary, he went to constantly looked for a job that paid a better salary. At his second job, Maluleke was earning so well that he managed to buy his first car on cash. He did not have responsibilities and he was young. When time went by, the car required regular service and maintenance. Maluleke did not have enough cash in savings to service the car as and when required.

In Summary

So what can we learn from experiences of the young professional who ended up being indebted to the cleaning lady at the office and the story of Ntate Maluleke? Firstly it is not how much you earn or generate as profits from your business but rather how much you keep from your earnings. Secondly, spending habits can be changed, once you change your spending habits it becomes part of your lifestyle and it can lead to financial security.

Lastly it doesn’t matter in which industry your business is operating, every business has the potential to achieve long term success if the profits are well managed.

Mmamogodi Maleka is a Chartered Accountant (CA) registered with South African Institute of Chartered Accountants (SAICA), a hiking enthusiast and a cyclist.