What I Accidentally Learned from My Father about Money

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I have listened to many people postulate an approach to money making or money saving projects that go against mainstream approaches. People who visit my blog regularly would know that I do not believe that mainstream methods and techniques are in and of themselves the path to financial freedom, but I also do not believe that the average person can choose to forgo these techniques and the products that go with them and still hope to build sustainable wealth without at the very least embarking on a journey of education and practical learning first.

The more I listen to people talk about all these ideas they have, the more I realized that people do not understand that difference between different kinds of costs.

My father, albeit in an abstract way, played a massive role in my financial education. I will, with respect, use his experience to illustrate these concepts.

My father is highly magnanimous but earns meagerly and has gotten himself into a couple of interesting situations as a result. He wanted to build the best life for my sister and me, so he decided to go the building route as opposed to buying our family home. This became his first building project.

When I was a university I lived in a steeply priced commune for a bit and my dad grew frustrated and decided that he would start a commune of his own, his second project.

He also really wanted to improve the quality of life for both my paternal and maternal grandmothers who both live in different villages each approximately 311 miles (500 km’s) in different directions from our family home in the city, his third and fourth building projects respectively.

My dad is a stand-up guy, right?

Let’s Save Money & Do it Ourselves

So now that we have a bit of context let’s do some learning and hopefully, we can learn some valuable lessons.

When my dad embarked upon these projects he obviously had to get a good idea of what the costs relating to this project would be. He probably drove around and got some quotations for bricks, cement, window frames, tiles and all the rest.

To make an extra saving, he probably even tried to eliminate the middleman and go directly to the manufacturer to buy whatever he needed. To save further, he bought closer to the project, rented a trailer and took delivery himself to save on those insidiously exorbitant delivery charges.

Because he did not have the means to see this project through, he got a building loan as well.

This is all good and well but let’s take a look at what was really happening.

Actual Costs

These are the costs that we factor in that are tangible and will actually form part of the structure that we are trying to build. These would typically be projected by a quantity surveyor and are relatively standard across the board. These are classically the costs that we will quantify. These are naturally the costs that come to mind

Costs that I call Tuition Costs would probably also form a part of actual costs; these are the costs of mistakes you will inevitably make simply because you have little experience and contacts in the field you are venturing into and will almost invariably make blunders and pay more than your seasoned counterpart would.

So there are typically projected actual costs and unforeseen actual costs.

Ghost Costs

In hunting for the best deals, time, money and fuel are spent that hardly anybody would factor into the building cost of the respective house. Moreover, wear and tear on your personal vehicle.

My dad on more than one occasion filled up his rental trailer with building material and drove all the way to my maternal and paternal grandmothers’ home in a neighboring country to deliver building supplies and transport his trusted team of builders. He had to quickly drive back to return the rental trailer and avoid penalty fees.

This combined with the cement he would ferry himself from time to time took its toll on his personal vehicles suspension which to this day is not worth replacing as the repair would cost well over the current value of the vehicle now that it has depreciated so rapidly. He has had to replace his engine in large part because of the industrial activity the car had been subjected to.

There’s more, but I suppose you get the drift. He essentially lost a car to save costs on building a house. This is not something one would typically factor in at the beginning of one’s project forecasting.

Opportunity Cost

To date, my parents have owned the investment property they had earmarked for student accommodation for just shy of 12 years. This house has a mortgage which they have been servicing since 2007. Their mortgage payment is quite high as the bank decreased the repayment term citing my parents older age as a concern. What if my dad had invested what have been his mortgage payments into a standard mutual fund (unit trust) or ETF’s?

What if my dad had spent all the time he spent comparing quotes, delivering building material, overseeing projects and all the rest reading a book that taught him skills instead?

This is opportunity cost and it is sad because although we can probably hazard a guess, the reality is that the possibilities are really infinite.

Another potential opportunity cost would be the maintenance and reparation costs on the family home that is now his to finance with money that could have been used in other ways. Moreover, the loss in capital appreciation that they would have enjoyed had they gone with an architect, who would better understand designs that the market perceive to be desirable, as well as a seasoned and reputable building contractor, would deliver a higher standard of workmanship.

The Lesson

The point is we pay all these costs whether we acknowledge it or not. It only makes sense to make ourselves aware of their existence. Thus we can make proper assessments on how to really use our time and money efficiently.

Paying less towards something is not always the same as saving on costs.

We all spend a lot of our time trying to make money; it only makes sense to learn to spend it better. Investing in financial literacy is never a bad choice. The more financially literate you become, the more you begin to appreciate the value of delegation and outsourcing, such that your time, money and efforts are saved for whatever it is that you are truly good at.