Dawn Ridler is a money advisor. Unlike many in the financial advice sector, Dawn advises her clients to take charge of their own money. What’s more, Ridler uses her experience in ecology to apply scientific principles to personal finances. Whether you have had a terrarium or fish tank, her advice is look at money management from a different angle. It’s the ecologist’s alternative to 2020 hindsight. Her article is republished here, with kind permission. – Jackie Cameron
Use 2020 hindsight for a new beginning
By Dawn Ridler*
Coming to the end of the year, most of us want to start 2020 with a clean slate, and the good news is that you do have perfect hindsight (sorry, over-worked analogy already, and next year is going to be full of ‘Vision’ marketing plans). If you want to understand your personal wealth ecosystem, and how to optimise it, you need to get back to basics. Have any of you ever tried to set up a terrarium? You know, put some soil, water and a couple of plants in a bottle, seal it up, then 20 years later you have a glass bottle of greenery, having never opened it again.
If you accidentally add some nasty fungi, or insects into your terrarium – in a few weeks you’ll have nothing. Your personal wealth ecosystem is also a delicate balance, and there are just as many weeds, bugs and pests that you need to root out if you want it to prosper. My ecological skills have evolved from sealed terrariums to my most recent project which is to replicate a marine reef ecosystem – and the secret is slow and steady, going back to basics when things start to fail.
Once I had the tank in place (over 400 litres), with (marine) sand, rock and salt water added, I had to leave it for months to ‘cycle’ so that the bacteria, diatoms and algae could bloom, die and find the natural levels of co-existence so that the ecosystem could evolve. I then slowly added a couple of hardy fish and snails, then some ‘cleanup crew’ (cleaner shrimps, sand sifting star fish) before adding (and occasionally losing) cooler fish, then anemones, soft corals and gradually more and more ‘picky’ corals. In all it has taken the best part of a year and I am not there yet.
Your personal wealth ecosystem should also evolve, if you try and do things too fast, your wealth ‘tank’ is going to crash.
During the last year I have had to take a couple of steps back to get the balance right, all the time taking advice from experts that have been in this hobby for decades. I had some ‘hitch-hikers’ come in with my ‘cool’ stuff and try and take over. You might have accidentally added pests to your wealth tank – life policy premiums that are out of control, balloon payments on your car, high fund or asset management fees on your portfolio, ‘early termination’ penalties in your retirement annuities etc.
During loadshedding, some fellow ‘reefers’ had cut corners and not installed electrical or generator backups for their tanks, and ended up losing the entire living contents of the tank (worth tens of thousands of Rand). I know, I am a goody two-shoes, but I didn’t add a single fish or coral before I had a full generator and UPS backup.
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This isn’t actually a matter of not cutting corners, but doing a massive amount of research into the hobby before I started, and then keeping on researching before each new species was added – watching YouTube videos, reading blogs, joining WhatsApp groups and picking the brains of experienced reefers. In other words, exactly what I do in my ‘Day Job’. Luckily I don’t find that a chore – but I am a reefing amateur and I know better than try to be a know-it-all. I also don’t expect all the advice to be free, I buy stock from the experts who have helped me – because they haven’t tried to get me add expensive animals before my tank was ready.
Growing a wealth ecosystem is no different, and irrespective of where you are in your journey it doesn’t hurt to go back to basics (before you get the wealth equivalent of a tank crash) and don’t try and be a know-it-all (or pick your advisor’s brains for free all the time.) There are, of course, brokers out there who are just after the ‘sale’, but that is the topic for another day.
Funnily enough, smaller reef tanks are way more difficult than bigger ones, and the same applies to your wealth. A small tank gets out of balance very quickly. Water evaporates changing the salinity, the ambient temperature gets too hot (a far more expensive problem to solve than cold), you can get alkalinity swings that kill off your corals, your crab tips over your expensive hammer coral causing it to face-plant and die.
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A large tank takes far longer to respond to potential disasters, and if you’ve got the basics right and are watching it, you can sort it out well before it crashes. The same is true of a wealth ecosystem, the bigger it is, the more stable – but we all have to start somewhere, right? When you have a large wealth tank, you can get lower fees, first class advice, proper diversification in your portfolio (here and offshore) and the portfolio can withstand the odd blip in your wealth environment – a retrenchment, laat lametjie, entitled millennial, midlife crisis etc.
Even if your wealth ‘tank’ isn’t that large but you have buffers like an emergency fund and a low maintenance spouse, you can weather the storm. It’s when the wealth equation (Income minus Consumption equals Wealth) starts coming up negative that you’re in trouble. If you consistently spend everything you earn (and more) nothing is going to grow or flourish.
So how do you go back to basics?
- Work out how much wealth you have actually accumulated this year. Take all your income, minus all the consumption (not equity house payments, payments to true investments and savings) and you’re left with your wealth accumulation (which might be negative).
- Go through your bank or credit card statements and find the wasteful expenditure. In other words, send in your “clean-up crew” to free up money that can start to build your wealth. This will be different for everyone. Gym etc. memberships that are never used, changing home and cars too often, too much ‘stuff’, armed response exploiting your fear with little in return, contents insurance on ‘stuff’, life cover not matched to your changing needs (or that will explode in cost in the future), brand-besotted progeny or spouse – you get the idea.
- Pay off ‘bad’ debt as quickly as you can, personal loans, credit cards fall into this bracket. Don’t pay it off just to start again when the slate is clean…
- Put scheduled payments (equal to the savings you have made) in place with your bank. Savings, with their “real” (after inflation) interest rates are a good place to stick money right now, as the savings accumulates you can start looking at other long term investments. These savings are the building blocks for your wealth, without an ‘emergency fund’ – money that can be quickly accessed – you might be forced into taking on debt to meet an unexpected obligation.
- Downgrading your medical aid and using the savings to take out independent gap cover (never with a medical aid) might be a good strategy. Just a quick tip – never disclose that you have gap cover to your medical provider, there are too many cases of them upping their quote or costs to match your cover. Same applies to funeral cover.
- Never suck the joy out of your life when you’re cleaning up your “wealth tank”. Even when I have had to step back with my marine tank, it has always stayed an awesome asset to my Gin Bar (don’t ask) with fat, healthy ‘cool’ fish, anemones and soft coral – I found Nemo. Pick your pleasure, and find ways to afford it.
- If your problem is entitled, stay-at-home millennials – get them coaching or therapy and out of the house, rather than continue to be “Daddy Bank” (a term coined by one of my own progeny!)
- Ensure your ongoing ability to earn an income. In case you haven’t noticed, there is a dramatic change happening in the way we ‘earn a living’ AND how and where we spend our money. I am writing a more detailed blog on this, but this is not going away. Start looking at side-gigs, freelancing and ongoing education and experience.
- Over-expenditure on ‘experiences’ is just as bad as spending it on ‘things’. The wealth has still been burned.
In a final word: You have 365 opportunities every year to leave behind unhelpful behaviour so be kind to yourself. Make New Year’s resolutions by all means, but be realistic and let yourself take a step back from time to time as long as you keep on moving toward your goal. No goal is ever achieved by going in a straight line.
- Johannesburg intermediary Dawn Ridler, MBA, BSc and CFP ® is founder of Kerenga.
