Wednesday, November 07, 2018

Cost of Living

"Purchase Power Parity" (PPP) is a tool used when comparing the output of two countries. If you just compare the Price, it doesn't compare apples with apples. Since apples don't cost the same in both countries. 

I first dipped my toe into life as a Soutie when I was 18 years old. I had two older brothers at university, and no idea what to study. I hated the idea of having to choose one thing. At school, you could do everything. Apparently being an Adult meant forgetting how to play. I wasn't ready. The bonus of a 'Gap Year' (or two) from the School-University-Work-Retirement-Death machine was that it wouldn't have fees. At that stage, you could get a two year 'working holiday visa' to go the UK. That sounded fun. I earned the plane ticket fee by working at Centre Court Restaurant at the Pavillion in Westville. I then hopped on that plane and went to work at a school in the South of England.

During the 9 week Summer holiday, I took on an extra job at a local hotel as a waiter, and a Night Porter. Scurrying away my pounds like a Hamster, I tried to live as cheaply as possible. The school I was working as an Assistant Teacher (Gap Student) gave me board and lodging. I tried to spend almost nothing.

I particularly remember the first round of drinks I had to buy. In South Africa, I was used to buying drinks for people. But normally on a one to one basis. In the UK, it seemed drinking was more of a Rugby match than a Tennis match. A Team Sport. One round cost me the same as the most I had ever spent on booze.

When I got back to South Africa, my Pounds were magically converted into Rands. I felt like a Millionaire. The opposite of the punch to the stomach when you reached the bar, it felt like I was being given the beer. "Thinking in Pounds" gave me a spring in my step. The Barmy Army felt the same, and made up a song called "We're so rich it's unbelievable".

Barmy Banter - a Donkey taunting the Army

"The Law of One Price" is the idea that without friction, and with free competition, the same thing should cost the same everywhere. The "Law" doesn't work. In reality, prices are local, and the cost of living differs in different communities. Money is a story, and stories are local. Even within a country, the cost of living differs in different places. Every community has a different "Entry Ticket".

Financial Security depends at least as much on the outs as the ins. It depends more on the outs than the ins. Someone who gets control of their outs, and can get that sustainably below their ins, is in a much better position than someone with big ins but outsized outs.

Often ins and outs end up matching. Working is expensive. We have to pay to live close to work, perhaps put kids in school close to work, and we end up having to 'buy our round'. Buying your round may not be how you want to spend your money, but you end up being forced to because that is what everyone around you is doing, and where the people you want to be around are.

It is hard to get control of your ins and outs by yourself. 
Financial Security is also a team sport.

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