How I manage my personal finances

Although this isn’t a personal finance platform, I suppose it doesn’t help to learn about investing and business strategy if you don’t have any money available to invest.

With that in mind, I decided to share the basics of how I manage my personal finances. Perhaps some of this will be helpful to you on your journey to financial freedom.

If I make it too fancy, I’ll stop

It’s all good and well to build an elaborate and complicated spreadsheet that I hope to update every week or every month.

Will it happen? Probably not. Life gets in the way.

I take a practical approach with this. It’s important to regularly check where my money is going, but it’s unlikely that my lifestyle will change drastically from month to month.

The one exception is having a baby – Baby Ghost warranted an entire rework of my budget!

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Getting a solid baseline for the household budget

This may sound counterintuitive, but I believe that putting everything through my credit card helps me manage my money. This only applies if I settle my credit card every month (this is critical – I don’t allow the credit card companies to hurt me with huge interest rates!)

If I withdraw cash at ATMs and spend it all over the show, I cannot possibly track where my money is going. There will be a black hole in my budget that money disappears into without a trace. With a credit card, I can use my monthly statement to see exactly where my money went.

I have a proper rewards programme linked to it, so I take advantage of that as well. A very well-managed credit card works for me financially, but I have to be disciplined.

I take my credit card statements and look at where I am spending my money. I group it into sensible areas like “groceries” or “restaurants” or “personal care” and I work out an average for at least three months to avoid short-term fluctuations.

There are clever apps available in the market to make this easier. Depending on who you bank with, your online banking may also have budgeting tools that help analyse your statements. I bank with Investec and thankfully the functionality is all included in my online banking.

The magic number: monthly growth in personal equity

I think of myself as a company. Every month, I earn money and spend it. If I earn more than I spend, I can increase my “equity” i.e. what I am worth on paper.

For example, if I earned R30k per month and spent R22k per month, then my equity would increase by R8k per month. This assumes that I stick to my budget every month of course!

Armed with this knowledge, I could decide what to do with the R8k. Having adequate insurance and emergency funds is important. Beyond that, tax free savings accounts come into play. Once that is exhausted, things really get interesting with investment options.

As ever, it’s best to discuss this with a financial advisor.

Setting an annual target

I do a few weird things when it comes to my money. I’ve never been shy to be unorthodox in my approach, nor have I claimed otherwise.

For example, I don’t include any household items or cars in my assets. Literally, zero value. If we buy a couch, it’s worthless in my eyes. If we buy a car, it’s worthless on day one.

When I calculate my personal equity, the only assets I allow are:

  • Property (net of estimated fees to sell and taxes)
  • Retirement savings
  • Listed investments (my Easy Equities account)
  • Cash in bank

From this, I subtract:

  • Outstanding balance on my bond
  • Debt owed to family members (see note below)
  • Any other debt (e.g. if I had car finance, personal loans or outstanding credit card debt – which I don’t)

If I bought a R200k car, I would immediately penalise myself R200k. I would take into account the debt, but not the asset. It sounds extreme, but the journey to financial freedom certainly isn’t paved with nice cars.

I’m fully in favour of enjoying your money and I personally love cars, but I make sure I’m fully considering the impact on my personal finances of splurging on a BMW.

I don’t even allow my classic car to sneak in. It’s certainly way more of an investment than a modern car, but chances of me selling it are probably zero so there’s no point in including it as part of my journey to freedom.

Every year, I take into account the magic number (my budgeted monthly growth in equity) and set myself a goal accordingly for the next 12 months. The idea is to grow my net worth by a decent amount every year i.e. increase the difference between my assets and liabilities.

By taking the latest value of listed investments, I’m giving myself credit for growth in my investment fund. The whole point of investing is to watch my money grow, after all.

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Treatment of private investments

I value investments in private companies (like side gigs) at zero. They are borderline impossible to sell. The value of the investments is realised through dividends or other cash payments, which will come into my personal equity anyway when they hit my bank account.

I don’t see the point in inflating my net worth calculation unless it’s a business that is realistically sellable. Experience has taught me that very few private companies fall into this category.

Debt to family members

Certain family members who have excess cash to invest would be lucky to get 3% from the bank. At the same time, I’m paying more like 7% on my bond. Instead of letting the bank earn that spread on my family, I rather borrow the money from the family and pay down my bond.

Whether I pay 7% to the bank or to a family member makes no difference to me. It makes a huge difference to that family member. As security, I ensure there is enough of a balance in my access bond that I can pay back the loan at any time, unless we’ve agreed otherwise.

I strongly believe that an access bond is an incredible tool if you know how to use it. It’s literally a revolving facility with a bank, priced at prime or ideally even less.

Of course, this isn’t without risk. Don’t go and lend money to your dodgy uncle just because he will pay more than your bank. This only works when there is absolute trust, a clear ability to pay the interest and an agreement about how the money is repayable.

Feedback loop

It helps every few months to pull together my assets and liabilities and see how I am doing. Sure, I might have had an unplanned expense last month at home, but perhaps my investments did better than I thought they would.

Over the course of a year, it hopefully all comes out in the wash. I thankfully hit my target in 2020 and I’ve set a target for the next 12 months that will be harder to achieve.

Financial freedom is achievable with a disciplined approach. I can even have fun along the way, provided I have a good idea of how much money I have in the fun bucket.

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  • Deon van der Westhuizen

    Hi Ghost, please can you explain, practically, how it works if you borrow money from family for a bond? Let’s use a value of R1.5m as an example. Do you borrow this full amount from the family member? Secondly, how do you open a bond + access facility on a bond if you are not getting the finance from the bank? As I understand it you buy the house cash (with the family financing) and pay back the family member directly at 7%? Or do you only borrow part of the full purchase price and the rest you open up a bond for? Hope I’m not asking a stupid question 🙂

    • The Ghost

      Hi Deon – no such thing as a stupid question! The way I did it is that I bought the house a few years ago with a full bond raised. Because it’s an access bond, any extra paid into it above the minimum monthly payments can be taken out at a later stage. So, if you borrow a lump sum from family and pay down the bond, you only pay the bank interest on what you still owe (the reduced amount) and can access that excess money at any time to pay family back if needed. So the key points here are (1) the process to buy the house is run through a normal bank bond application and (2) the bond MUST be an access bond. Check the exact Ts & Cs with the bank. Hope that helps!

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