A black hole is a region of space where gravity is so extreme that nothing, not even light, can escape. So explains the website scienceinsights.org. It goes on to set out that it happens when a massive amount of matter gets compressed into an incredibly small volume; in such a way that it cuts itself off from the rest of the universe.
Isn’t that how we feel when we’re drowning in debt? Our nerves knot us into a tight ball, and we feel as if nothing can reach us to help us.
Let me hasten to say that not all debt is undesirable debt. Some things, like a house or a car, are simply too expensive to afford with savings. So, am I going to rap you over the fingers for holidays, gifts or dinners out you can’t afford? I may, but then, who of us have not been guilty of transgressions on the money front. We are human.
But we must admit that enjoying a product or an experience while we haven’t paid for it yet, puts us under tremendous pressure. We’re almost stealing future joy. Part of this theft from ourselves is that we can pay way more for what something is worth. Yes, we live in a society of “I want it all, and I want it now,” to quote from the Queen lyric.
But we don’t feel like singing and dancing when it is time to pay back what we owe.
Let’s look at the sums if you want to go on a R100 000 holiday five years from now, or want to pay for it with credit and go now:
| Save for it | Going now, on credit | Saving or going on credit |
| Investing R1 295,81 per month at a growth rate of 10% (before costs) will give you R100 000 after five years. | The credit card interest rate is 21% (repo rate of 7% + 14% added by the National Credit Regulator). | Paying with a credit card and repaying it, will cost a lot more. |
| At an inflation rate of 6%,
the real value will be R74 725,82. (The “real value” tells you what the amount you are saving towards would be worth today.) |
To go on the same holiday now, you would need to borrow R74 725,82. You need a monthly repayment of R1 947,23 to pay back the amount over 60 months. | The difference between paying cash and paying with a credit card is huge:
R116 833,63 – R77 748,67 = R39 084,96 |
| Your total contributions will
be R77 748,67. |
Your total contributions will be R116 833,63. | By saving and not using your credit card, you can almost afford a holiday and a half. |
We all have big dreams as expressed in many popular songs. But a bit of patience will take us so much further, so much sooner.
Also, if we don’t splurge our available debt on nice-to-haves, we will have money available to borrow if something urgent and unavoidable goes wrong. That is why we call emergency savings a lifesaver.
Let’s say the pressure is on us to keep up with our neighbour, Ms Big Bucks. If she bought the double storey, it’s possible that her house may increase in value over time. But her gigantic car starts losing value the minute she drives out of the dealership.
I’d rather put money away now, also for my retirement. I’ll wave at her from my paid-off porch one day when she comes past in her clapped-out vehicle because she wasn’t cautious when she should have been building capital and not her image.
I want to avoid the black hole.
