Saturday, 23 August 2014

What to do with your first salary

Why I am writing this post? Well, to be honest, this budget stuff gets me going. My motivation is simply that I really like it. Is that okay? If you really like to bake then maybe you just find yourself hoping to run into a friend who you know will enjoy a conversation about baking. Later on you'll take these new ideas into the kitchen and whip up a muffin batch that could bring the king of Persia to his knees. No one asked you to, but you just wanted to because you love it. Good for you. So that's how I feel about money.

Now that I have received a few salary cheques in my life I can look back and ask, "What if..."

Never do that if you are emotionally unstable. I am not asking this question with tears in my eyes. I am looking back at my education, which has been by experience, and wondering how it would have played out if I had the education before I had the experience.

Back to the story. A lot of money has flowed through my bank account over the years and, even though I consider myself a rather financially savvy individual, I wonder if I really did the best that I could with this particular resource. I'm not talking about being entrepeneurial and that I should have invested it in the next Google, but simply looking after money then the way that I am looking after it now. 

By going through my failures and successes; maybe it'll help you or maybe you're just curious what other people do. Either way, read on and see if you can draw something from these experiences.  

To start, what did I do which was bad?

Well, I bought a car that I couldn't afford.

I needed a car, but I spent the little savings I had on a deposit and the loan I took out exceeded 50% of my annual take home pay! What a dumbass! Tip number one - don't put yourself in the hole straight off the bat. If you need a car, buy a car. But try to do it cash. If you can't do it cash, then take out a for loan less than 30% of annual income and pay the rest cash. If these parameters mean that you can't get the car, then realise that you can't get the car. Don't put yourself under that kind of pressure. Drive a scooter or take the bus, I don't care. But the fact is that if you buy things you can't afford then you are building a house on a very shaky foundation. You will only be one salary cheque away from bankruptcy every month. Don't do it. This isn't necessarily a first salary problem, but it is a mistake I made with mine and only learned later on how bad it was. By the way, to generalise, it doesn't necessarily have to be a car either.

Next up, I had no savings plan.

I did volunteer work, studied music and held odd-jobs for my first two and a half years out of university, and my first career-like job was as a maths teacher at an all-boys school. This is where I got my first real salary. It included a contribution into a retirement fund, but in the beginning I had no amount set aside each month simply for personal savings. Some months I had more and others I had less. I needed savings for many reasons. I needed to have an emergency fund in case the S hit the F. I could have started to put money away into unit trusts (which I now love). I didn't save for holidays, car repairs or anything else. Bad move. Why? Because, inevitably, S is always being flung at F, and it happens. I had to fix things I didn't expect needed fixing. I made plans for holidays but needed to come up with the cash from somewhere. I needed clothes when I realised I was inches away from people handing me a sandwhich when I walked down the street. I fell in love and proposed to the girl of my dreams and then had to magically make wedding money appear! 

Strangely, I found the money... most of the time. Luck? Not really. The real way to look at it is that I lost money to other things that for the life of me I cannot recall. When I realised I needed money for these things, I started to get my financial house in order and take control of money that was being lost. So from there comes tip number two - don't wait for your first flat tyre to make you aware that you need to have a spare at all times.... 

What did I do with my young salary that was good?

Like I mentioned, I'm not a total idiot when it comes to money. I'm a quick learner and soon realised that plans needed to be made. Here be tip number three. Learn. Once I realised debt was way too easy to get in to, I made sure I stayed as far away as possible. I had opened some clothing accounts, thinking it would help me build up a credit record. Once I realised I was buying things with money that I don't have (even at zero percent interest), I made sure to pay what I owe and cancel the accounts. I started to build up savings in a different account that was hard for me to access once funds were put away. This eventually helped me pay for our wedding and honeymoon without having to sell anything on the black market. 

What did I do with my salary that was grey?

I spent it on travel. But not any kind of travel. The girl of my dreams was a good eight hour drive away, and trying to make a long distance relationship work takes more than love. It also takes money. Why do I call it grey? I need to explain this, especially if my now wife reads this posts and wonders why I didn't call it the best thing I ever did with my money. The reason it's grey is simply because a relationship should be a great thing to spend money on but we could have done it better. In the beginning the travel and our time together swallowed so much of our money and we failed to plan completely on how to manage it. Only a few months down the line did we come up with a plan and a budget. The budget was built on how long we could go without seeing each other without going nuts. If we were apart for too long we discovered that our relationship took strain. The key period decided upon was three weeks. Once that was in place we could start planning far ahead and budgeting accordingly. Words of wisdom tip number four - invest in good relationships with your money, but do it wisely. Don't buy love, but take it out to dinner from time to time and let it know you're not reckless. Chicks dig stability.

What would I go back and change if I could?

I wish I had bought a cheaper car. It would have taken a lot of pressure off of the next few years and I would have had much more wiggle room in my wallet and a lot less stress.

I wish had started investing earlier. Few things to me are more exciting than putting money away and watching it grow. Investing in Unit Trusts are incredibly easy. I was stupid enough to try and buy my own shares and speculate with very unstable financial products long before I thought of putting funds in an account for long-term investing. We need a good saving habit almost as much as we need a hate for being in debt. Saving about 10% of your salary every month should not be hard. If it is then you either need a bigger income or you need a better budget. 

At the moment I have three main accounts. I have a extra-budget account, or an emergency fund as it is more commonly known. This is slowly built up to look after the things that I can't fit into our monthly budget. The second account is my bank account in which I only leave enough money every month to fund a well-planned budget. The third an last account is a Unit Trust account where I try and build up money for a house deposit and for our retirement. I wish they would teach these three accounts as a rule when you start to work and earn! It's not fool-proof but it has made my life SO much more manageable! Damn son, I actually think I'll write a post just on these three and why I have decided to live on them and them alone. 

Lastly I wish I wish I had won the lottery. Can't win if you don't play right? Okay that's a joke. I am not advocating stupid tax here. My point is made with sarcasm, and it is this; there are better things than winning the lottery. Not needing to win it. I wish I had a money mindset instead of a poverty one. This was something I identified early on and then took to change immediately. I am no longer money's angry jealous cousin but I feel like money is a good and trustworthy employee, doing what I want it to do.

Am I stinkin' rich? Hells no! I am not a millionaire, but I do think I will be some day. Is it because I am earning bajillions per year? Hells no again! It's because I've watch small amounts grow into bigger amounts, encouraging me to make to smaller amounts bigger so that the bigger amounts can get even bigger! Well, how do you make smaller amounts bigger? For starters, try and pay yourself what you are now paying the bank! One of my first goals was to replace my debts payments with Unit Trust payments. Works wonders I tell you! Don't pay off one debt and then think you can now afford another! 

So getting practical. 

Get the salary. Don't rush into anything. Look at what you earn every month and what you need to get by. Assess whether this salary is matching your living standard. Should you scale down or are you getting by comfortably? Make a budget that comes to less than you earn. Make sure to include medical aid (even if it's just a hospital plan) and car insurance into that budget. Why? Because as much as it sucks, something can happen with in either of those areas that could take to you right down to square one, or God forbid, even lower. Avoid debt. If you already have debt, made it your first goal to get rid of it as soon as you can. Put some money out of reach to fund things that won't fit into the budget (5% or more of your monthly salary, plus whatever extra pops up). Do this until your emergency funds eventually sits at about 3 months worth of expenses. Start replacing the money you would throw at debt to long-term savings. Try and see if you can get this up to about 15-20% of your monthly income, so that eventually what you have put away can replace your incomes in the golden years. Be disciplined and don't touch these funds. If an emergency comes around you'll have your emergency savings. The long-term savings can only be for a house deposit and act as a supplement to your retirement. Don't feel pressured for household insurance if the most expensive thing you own is a waffle machine. Don't pick life insurance if you are young and you don't have any dependants. Don't take out a retirement annuity yet if you aren't sure which country you'll be retiring in (rather put these funds in the third account for now). Don't be a scrooge and forget to have fun within your means. You only live once so make it good, but do it wisely so that you make the goodness last.

Sunday, 17 August 2014

Hindsight + Foresight = Insight

It was my 30th birthday yesterday. I have never been one for big parties, but deciding that it's a milestone, my wife and I organised a poker night for some close friends and ended up having an amazing time. 

I am listening to a second audiobook at the moment, "Start" by Jon Acuff. This is the same author that I had referenced in previous posts. His stuff was recommended to me by a friend. He has an engaging way of communicating, and even though the content is not life-changing, it is thought provoking enough to keep listening. 

His idea in this book is about following your dream... I think. He goes on about finding the thing you really enjoy and discovering that which brings meaning to your life and then how to pursue this life's purpose from beginner to expert level. 

Let me take a step back before I get to him, and get to what I want to talk about. 

I was driving in the car on the day before my birthday. I haven't had any depressing thoughts about being 30 until it dawned on me that I was on the last day of my 20's. I started to think about the last decade and realised that the me that I have got to know as a twenty-something is on the cusp of fading into history. Danie will never be a twenty-something again. That is a weird feeling. 

I was having this thought and was calmed by Jon who was babbling into my earphones that your twenty's are about learning. A time of your life where you would have done your studies and have jumped from one interest to another. You would have had a couple of jobs but you would have a better idea of what you are good at at the end. You have a whole bunch of experiences that you can sift through to find out what your talents are, what makes you happy, what makes you unhappy, what you suck at etc. 

He continued that the next phase of life is the editing phase. This means you that learning has brought you to a point where you know what the handful of things are that you can see yourself doing in life. Your passions. In the editing phase you hone in on these and start applying yourself more intentionally. You become better at the things you want to spend time on and you leave behind the things you have tried and just didn't fit.

This made me not feel so bad as I realised that I had undergone this process and that I'm now at a pretty decent jumping off point for the editing phase. I never wanted to believe that music would only be a hobby and not a profession. At 20 I refused to believe I wasn't going to be a career musician. At 30 I am extremely grateful that I am not a career musician. I have rediscovered an interest in mathematics and I had also realised that, as enjoyable as teaching was, I did not want to make a career out of education.

Thanks Jon. You saved me from not having an answer, or excuse, for myself as I sat thinking about this last day of 20's. 

Later that day I told my mom about this strange feeling, jokingly asking her if there is anything to do on the sunset of your 20's! Much later she told me that a friend of hers just found out that his wife had only 3 months left to live, and how this is so similar, but also has such a sad, sharp contrast to my feeling.

Wow. So terrible how jumping from "what do I do with the last day of my twenties' to "what do I do with the last three months of my life." 

I won't pretend that I know in any way what that it feels like to stare finality straight in the face like that. But with me looking back at my twenties and then having the realisation that life definitely is finite made me feel like I had a clear view for a moment of a person's journey. 

I haven't given it much more thought than that. I will be thinking of my mom's friends often though. Stories like that do something strange to me  and I keep thinking about how no one knows how they must feel, or at least very few do. This won't stop their story from playing out in public, and the group of people that they interact with taking part in their tragedy, whether they want it or not. Some onlookers will be empathetic and others insensitive, while others will just be human. Placeholders of the population, just like they should be. But the degree of suffering must be so great, hurt so much and make them feel so lonely. 

Back to the moment. 

Simply, we need to be the analyst (have hindsight) and the entrepreneur (have foresight) to have clarity in the moment (have insight). This is what I am discovering at work these days. My boss had some figures that the group had all decided were our targets for the financial year. They were great targets and they were very intelligently broken down into the different arms of the sales business where the money was going to come from. 

In the last week I spent some time working backwards from these targets, but I simultaneously played a numbers game where I looked at which metrics needed to change in order for these targets to be reached. I discovered that some drastic changes in the status quo were required. There was great tension between two specific figures. The numbers of transactions per month and the average transaction size. 

The assumption was made that the average transaction size was going to be larger. But how much larger is something that wasn't really addressed. If frequency of transactions increased, then the transaction size was relieved of some of the pressure. 

I shared this with our team and it felt like we were seeing things through new eyes. A new urgency hit our department of what needs to be done to make sure the targets are achieved. 

If we only have hindsight we will never dream. If we only have foresight we will only be dreamers. If we have both then we transform into exactly what the moment needs us to be. We have the wisdom of the past and the vision for the future. 

I think about the past. I hope it has taught me what I needed to learn. I am a natural analyst and I struggle to dream. I have to now start dreaming and then I will be able to edit my life and find more in the next decade than I expect at this moment in time. I hope that if I then find myself in the sad situation of my mothers friends, hopefully years from now, the tragedy will feel defeated by a story of purpose when I look back. It will still be sad and will still hurt. Death is mercilessly awkward and desperately cruel in its finality. I would like to think however, like a curtain drawn back to let some sunlight in, that I wouldn't have regrets in how I have loved and how I have lived. I hope that the warmth of loving relationships and living life with meaning will make that moment one where I don't feel like fate is bullying me, but one where I am standing in a room filled with souvenirs of a good life. 

Friday, 15 August 2014


I read an article about a recording that was just recently released (you can find the link on my twitter feed, @daansteraan) of former US President Bill Clinton talking about Bin Laden. This recording came from  Melbourne, Australia, from conversation between Clinton and Sky News Australia the day before the 9/11 attacks.

"I nearly got him ... And I could have killed him but I would have had to destroy a little town called Kandahar in Afghanistan and killed 300 innocent women and children and then I would have been no better than him. And so I didn't do it."

It would have been extremely inappropriate for this recording to be released just after the attacks and I wonder how much truth there is to the claim that the holder simply "forgot that he had it."

Not that I would blame him if it wasn't true. If it was a decision that was made I don't think it was a particularly bad one at all.

I have a few thoughts today about decisions and their tiered nature. 

A basic decision comes across as having only one degree of consequence. Determinists would probably argue that exactly the opposite is true and every action has an infinite line of consequences. This arguments reaches an interesting stale mate with Quantum Theory when you starting working backwards and get to the point where you cannot tell where an action began (I am referring to not being able to determine the exact position of an electron in an atom).

Getting back to a basic decision, an example would be when I decide whether I want to put up my arm or not. The consequence is that either my arm goes up or my arm stays down. One tier, one consequence, one decision.  

It is, thankfully and and unfortunately, not that simple (it is always unfortunate when something is not more simple, especially for people who like simplicity). The real decision tree is probably uglier than the hariest crows nest we can imagine. The only hair-line I wan't to write about now is the one where a shadow of degrees of good is cast over it. 

Back to the example. My simple decision of raising my hand or not. As for second tier options, there are many we can imagine. One could be that I raised my hand to answer a question in class. Another could be that I did it to switch on a light. It could be to block a punch from an opponent in a boxing match. It could even be to throw a punch at an opponent. Or an animal. Or a woman. Or a child. 

Consider a shadow of degrees of good.   

Clinton had a threshold for bad behaviour which was not shared by his opponent. Bin Laden's threshold of bad behaviour was much lower (higher) than Clintons. Clintons prevented him from killing Bin Laden when he could have. Bin Ladens didn't stop him from doing much worse. Would it have been worth extending Clintons "badness threshold" to protect his assets? His assets being people who do not die from terrorism or terrorist related activity? I also suppose the asset class is very differently defined since we are talking about people. If it was a different asset like drugs maybe? If you had to smoke a joint to ensure your children don't smoke weed then our asset is "sobriety" and our badness threshold would not be with killing but getting stoned. More later. 

Thursday, 14 August 2014

Getting nature to roll a dice

I have a new addiction.

Pod casts.

The last one I listened to was talking about encryption methods. The simple method discussed worked by having a key which would decipher an encrypted message.

An example:

The encrypted message is "BLA".

The key is "2 3 6".

To solve the message you would count 2 letters on from B, 3 letters on from L and 6 letters on from A in the alphabet. This gives you the word "DOG". Pretty cool right?

Now we can start getting fancy. For example instead of an alphabet you could use a QWERTY keyboard or you could assign integer values to words, names or letters to make your key a riddle in itself.

Two things come to mind for me.

Firstly, this is the first practical application of Sterling numbers that I've bumped into. Or am I thinking of the modulus of a number!? I'll look it up!

Secondly, I could spend all day trying to think of ways to make the key interesting! I instantly thought how cool it would be if there was a way in which you could have a seemingly random event decide the key to use for the day.

For instance, all allies could set their watches to the same time. They decide on a random event that occurs each day, but one which they all would be aware of when it happens. If the event happens at 13:22, then the key for the next day could be 1 3 2 2, cycling through the numbers as need be. What could such an event be? A sound? A sight? How about the time at which a shop owner has his first customer with a red shirt? Or maybe even use the closing price of some arbitrary stock on a random stock exchange half way around the world? Maybe they could send an encrypted text message and the key would be the time at which they send it. Geesh! So many options!

There's a card game I like to play where you and your team mate have to have a secret sign to communicate to each other when one of you has four-of-a-kind. This is achieve through a simple method of exchanging cards with the dealer and other players. Once you have four of the same cards you need to let your partner know without letting the other team know. If you can do this successfully without being busted then you win. The other way to win is to bust the opposition team when they are trying to do the same. The typical signs are finger taps and head scratches. These kinds of signs have to be done quickly and subtly to avoid being picked up by your opposition. I always tell my partner beforehand that our sign should be this: trying to bust the other team, accusing them of blinking suspiciously... or something else that they would naturally have to do. Chances are that we would be wrong and their sign wouldn't be that obvious, however we would use this decoy as our sign to each other that we're ready to lay our cards out and collect our bragging rights.

It's all it is at some level. It's a game.

Saturday, 9 August 2014

Freelance living

I am listening to a great audiobook at the moment, Quitter by Jon Acuff.

For those who know his story, can I please say that I started blogging before I got this book. I hope this makes me look less lame.

There are many awesome pieces of wisdom in his book, carried across in a relaxing conversational style. Only one of these nuggets I want to write about today and expand on slightly.

Jon discusses his previous job before his dream job and starts talking about how he was stealing from work when it came to work hours. His employers paid him to work for a certain amount of time but his blogging ended  up leaking into his work time. Excuses like 'I can do the work they need me to do in less time' and 'my real passion is the one that's more important' both rob your employer of funds that they are spending on you per hour. If we were the employer it would be very easy for us to agree that those reasons are total BS.

I started thinking about what my employer pays me to do and my attitude towards it.

Let me give you some background into what I do for a living. I work at a company that buys foreign money from partner banks at lower margins. You might not know this, but depending on where you live and which bank you use, you're not getting the same rate as on the TV or radio for the forex you buy when you travel, pay invoices or emigrate. This is why there is a market for our company. I run the corporate dealing desk, making me in charge of the margins and profitability of this side of the business.

My day consists being available for my clients and staying in touch with them about their FX requirements. When they have to buy some USD, CAD, GBP, or whatever currency they might need, then I would give them a price and send them the invoice for it. Viola! Money in the bank! Literally!

...Unfortunately it's not that simple. I won't bore you with the details but the description above is the basic premise of our business.

The part where Jon's wisdom comes in to challenge me is that I feel like there definitely are times that I do things that are not what my business pays me for. I might end up doing things like trying to help a client with a query that someone else in the business is much better suited to. Or using company time to look at watches I want for my birthday. Or trying to position myself in a way that would make me do less of what I am paid to do and more of what I want to do.

The last point is probably the most relevant. You see, I really want to spend more time on niche clients and do analysis on their business and their needs. I want to work on products that we don't have yet and would set myself up to be too good for the job that I am doing now. It's quite natural I guess.We always want to be pushing ourselves forward. But I still feel like my approach could be different in this regard. I have a feeling that I could make more time to do the basics things that I was employed to do in the first place and be more effective in the way that my performance is measured at the end of the day.

Jon's solution to this problem is to think of our employer as a client and our salary as billable hours. We wouldn't dream of billing a client that we were doing freelance work for for hours that we spent doing something outside our mandate. The same should go for work.

My thoughts drifted to the other areas of life. At the end of the day I felt like it was a question of resources. One party had spent spent some of their resources on another with a specific expectation or outcome in mind. The second party received resources on the premise that they provide a certain return.

Consider algebraically that the two parties and the resources are interchangeable with different elements of a persons life. I am the employer who engages my resource of time with my friend whom I expect to provide me with the outcome of a friendship and increased trust. If my friend takes my resource and gives me something less than what I expected then I would feel like my resource could perhaps have been spent better on something else. Perhaps another friend that would have got the job done. Wow. It's an incredibly robotic view of people, but are our basic needs that much more complicated?

What are my resources? Time, money, emotion, energy. What do I spend them on? What am I getting for it? What resources are others spending on me? Am I getting a good deal on what I am spending or am I being short-changed? Am I a good employee when it comes to what others spend on me? 

Makes you feel like making a list doesn't it? 

Friday, 1 August 2014

AIDS, Acronyms and Game Theory

I am fortunate enough to be a part of a wonderful community of individuals, the Western Cape chapter of the MENSA society. 

Last night we got together to hear from a young virologist, Dr Britta Flach, who told us all about the HIV virus and how finding a vaccine for HIV has been a very tough road to navigate for scientists working in the field. 

A few things stood out for me. First, let me make a quick disclaimer; please do not be offended by my thoughts or opinions. When addressing a topic which involves the suffering of others it is always hard to make sure you communicate empathy as well, which I do profess.

To start, both Human Immunodeficiency Virus (HIV) and Acquired Immunodeficiency Syndrome (AIDS) both have the word Immunodeficiency in them, yet the acronyms use this word differently. If the rule was 100% commutable it would either be HIDV and AIDS, or HIV and AIS. Is there a word for when this happens? Furthermore, HIV or HIDV would still have to be spelled out since it is uncomfortable to pronounce and AIDS or AIS could still be pronounced in word form. This rules out the thought that it may have been done for some communication related or linguistic convenience. 

The second thing that was very interesting was the idea of how a vaccine would traditionally work and why it doesn't work with HIV. A standard vaccine introduces a kind-of-dead version of a virus to your system with a very low initial response by your immune system. The response is enough to teach your immune system how to fight of the virus when it is encountered at a later stage. With HIV, the infection targets the immune system itself so you are left with nothing to fight with. The talk ended with this quote; 

"AIDS: a time to return to basic science"

Very interesting. Newton said that he accomplished what he did from "standing on the shoulders of giants" (and he did so rather tongue-in-cheek apparently). In this scenario it would be suggested to get down from the giant's shoulders and find another or be your own!

The last thought I had relates to a podcast by the authors Levitt and Dubner (from Freakonomics fame) who mentioned that email scam artists are pretty good at game theory. They send the same story out without changing anything so that when they get a bite, the victim is likely to fit all the criteria that they require for a successful con. The criteria being a strong dose of naivety, a little greed, a touch of stupidity, some money and internet access. Bob's your uncle (Who also happens to be a Nigerian prince that would like to send you his money). The game theory part comes in here. If they tried to change their strategy, they won't know for sure if replies come from suitable victims or not, since the scam might be too good. 

When it comes to HIV, there is an extremely sad parallel to this story. The most common method of infection is unprotected sex and unlike cancer which does not discriminate, a lot of HIV victims fall into a rather specific category. Rural areas, low level of education, low levels of understanding of the communicability of the disease and, in all likelihood, cultures where sexual promiscuity is less likely to be condemned by society (wrongly or rightly). 

I was infuriated by comments on an article of a gentlemen who had suffered a fatal shark attack, even though he went out while the warning flag was up. Readers commented that he was stupid so deserved his fate. Would those readers feel the same about the AIDS victims or the people who fall for scams? It would be a tragedy if they did.