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Quotes on managing your money
WEALTH Wealth is not about “ -WISE WAYS 13 An investment in knowledge pays the best interest. – Benjamin Franklin In spring cleaning your household finances, take inspiration from these pearls of wisdom from writers, celebs and financial gurus Every time you borrow money, having a lot of money; you’re robbing your future self. – Nathan W Morris (American (American scientist, philosopher and statesman) it’s about personal finance expert) The habit of saving is having a lot of options. – Chris Rock When you understand that your self worth is not determined by itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to (American your net worth, then forethought, and so comedian) you’ll have financial freedom. broadens the mind. – TT Munger (American – Suze Orman (American investor) personal finance expert)
Rich people have small TVs and big libraries, Annual income twenty Many people take no care of their money until and poor people pounds, annual expenditure they come nearly have small libraries and big TVs. – Zig Ziglar (American motivational speaker and author) nineteen pounds and six – result happiness. Annual income twenty pounds, annual expenditure twenty pounds and six – result misery. – Charles Dickens (English novelist) to the end of it, and others do just the same with their time. – Johann Wolfgang von Goethe (German novelist)
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MONEY BASICS with MARTIN HESSE
The cost of having it NOW VERSUS LATER
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MASTERING your finances and building wealth, like mastering a sport or a skill, requires discipline, dedication and patience. One of the first disciplines to learn is that of delayed gratification.
It’s natural to want something straight away. Your neighbours have a new large-screen smart TV. You want one too, NOW! Your lounge suite is starting to look worn and outdated – a newspaper supplement from a furniture chain is advertising a new one, to your taste and style, for just over R500 a month, which you can get NOW!
Big companies with large advertising budgets rely on this “instant gratification” factor to market their products, and through the media they bombard us with messages that it’s okay to have everything NOW.
But it’s not okay. In fact, those big companies are deceiving you. They have just one objective: to get richer.
The trouble is, you will get poorer. Instant gratification can cost you big time.
The cost of credit That lounge suite I mentioned above. You can pay it off over three years at R532 a month, which amounts to R19 152 in total. If
you pay cash, it’s R11 799. That’s a difference of R7 353. The interest rate charged, at 19.5% (according to the barely readable small print in the ad), is shockingly high, considering inflation is at a low 3%.
If you put away that R532 each month, taking into account that the lounge suite may cost a little more by then, you could buy the suite cash in two years.
You’ll have to live with your old chairs until then, but you will have saved thousands.
Let’s say you do that, but continue putting away R532 for another 12 months, as if you were paying it off, in an investment with a reasonable return of 8% a year. You would then have R6 615. Without contributing another cent, after 10 years your money will have more than doubled, to R14 281. Forget about it for another 10 years and you’ll have R30 832.
Let’s take this a step further and see what happens if you decided not to buy the suite at all, and put R532 a month into an investment from the start, stopping contributing after three years but letting the money sit there and grow.
After three years you would have R21 623. Ten years later it would have grown to R46 682 and 20 years later to R100 783.
You’re making compound interest work in your favour, instead of against you.
So giving more thought to what you want to buy, and then saving up for it (delaying gratification) instead of buying it on credit (instant gratification) are the biggest steps you can take towards attaining financial freedom.
The marshmallow test Research has shown that people who have learned the discipline of delayed gratification early in life tend to fare better in their careers and personal lives than those who haven’t.
In an experiment conducted a number of years ago, a group of four-year-old children were given the following choice: eat a marshmallow now or wait 15 minutes before eating it and then be rewarded with another marshmallow.
The researchers found that about two-thirds of the kids could not resist the treat and ate their marshmallows within three minutes. Only about 30% of the children could resist the temptation and wait for 15 minutes, after which they were rewarded with a second marshmallow.
More interestingly, the research team did a follow-up study of the children some 20 years later, when they were now young adults. How had they done at school and in their lives after school?
They found a high correlation between “high delayers” and success in careers and relationships – in other words, those kids who could delay gratification during the marshmallow test tended to be more successful in their academic careers and personal relationships than the “low delayers”.
It was found that many of the “low delayers” struggled with life in general because of behavioural problems, which manifested in poor academic results, employee records and personal relationships.
You can train yourself to be a “high delayer” at any stage of your life. Of course, you need to keep a balance between present and future needs – it doesn’t mean never spending on yourself in the present. But, as far as possible, avoid “robbing from your future self”, which is what you do when buying on credit.
Are financial advisers WORTH it?
Financial blogger BRENDAN DALE explains what a professional financial adviser can and cannot do for you
IT SEEMS that the biggest barrier to accepting good financial advice is trust. Part of the problem is the lack of clear distinction as to what a personal financial planner/adviser actually is.
Without finding someone who you can unreservedly place your trust in, you’ll always find yourself second-guessing your money decisions, or theirs. The unnerving part of it all is that the results of poor investment decisions are generally only felt many, many years later.
If there is one good example of where “spending money to make money” actually holds, it’s in paying for good financial advice. Personal financial decisions permeate almost all aspects of our lives: l Can we afford a house and how much it will cost over the next 20 years? l Do we have sufficient life cover? l Where are we investing our money? l Will our children be okay is something happens to us? There are limits, though, of what financial advisers can and cannot do for you. It’s good to understand these, and to also know your own limits.
What can an adviser do for me? Not all advisers are equally qualified or experienced. Depending on an adviser’s skillset, he or she will be able to offer the following: l Guide you through complex income tax legislation to minimise your tax. l Comprehensively quantify the amount of life insurance, disability cover, and critical illness cover you need, and advise you on appropriate products. l Help you select appropriate medical aid and gap cover for your family. l Put together a holistic financial plan, including long-term retirement planning, goals, and strategies. A good adviser can fairly accurately quantify what your retirement financial needs are, and how much you’ll need to save to reach that goal. l Rebalance your portfolio annually and help you stick to your investment plan. l Assist with drawing up your will. l Changing jobs, might leave you with a handsome pension or provident fund balance; something that an adviser can advise on. l Debt can easily become insurmountable. A good adviser can assist you with working your way out of a crippling situation. l High investment fees can decimate your long-term investing. An adviser can find lower-cost investment products that meet your needs. l Risk is not to be avoided if you want any chance at a healthy longterm retirement balance. Rather, it should be managed. A good adviser will help you do this through the appropriate diversification. l Short-term insurance can be so complex, it’s sometimes useful to find someone who can explain things to you.
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l If getting money offshore is on your list of personal financial needs, an adviser can help you find investments that are suitable. l Importantly, advisers act as sounding boards when things get hairy.
What can an adviser not do for me? An adviser cannot guarantee your investment returns. A good adviser will commit to nothing in so far as investment returns go, unless it’s specifically a guaranteed return and that guarantee is from a bona fide financial institution.
If your adviser claims to know what the market is going to do, you might want to consider finding someone else. remember that in the course of your investing, there exist an infinite number of alternate realities, wherein you had an infinite number of investment decisions. You’ll never know what any of these might have yielded, and therein lies a noteworthy point of consideration.
We rely on financial advisers not just to do the measurable and observable items we’ve listed above, but to also help us stick to our well-thought-out investment plans.
One could only guess the effects of a panicked sell when political uncertainty made you question your adviser’s recommendations, only for the situation to casually blow over, leaving just yesterday’s newspaper and your ill-conceived financial blunder as a reminder as to why we have structured and well-thought-out investment plans in the first place.
Limiting your gauge as to whether or not the fees you paid your adviser was “worth it”, relative to the performance of your investment portfolio is not fair. To do this would require you to equally consider what your investment portfolio might have yielded had you gone off on your own tangent and succumbed to the human biases that make being human one of the biggest obstacles to long-term investing.
So are financial advisers worth it?
For some aspects of your finances, definitely! For everything, probably not.
Money Quiz
Test yourself on your financial knowledge
1. If you put R100 into an investment that offered compound interest of 10% a year, how much would you have in total after 10 years (rounded to the closest rand)? a) R110 b) R200 c) R223 d) R259
2. What is a beneficiary fund? a) A type of pooled investment b) A type of bank deposit c) A fund for widows and orphans d) A pyramid scheme
3. Sir Isaac Newton lost a fortune in what speculative investment failure? a) The Dutch tulip mania crash of 1637 b) The South Sea Bubble of 1720 c) The Wall Street Crash of 1929 d) The dot.com bubble of 2001
4. What is the repo rate? a) The rate you receive on a 12-month fixed deposit b) The rate banks borrow from the Reserve Bank c) The rate a bank charges its most credit-worthy customers d) The rate banks charge on property repossessions
5. What are you taxed on? a) Property transfers, subject to a threshold b) Alcohol and cigarettes c) Your estate, when you die, subject to a threshold d) All of the above
6. From what age can you have a bank account? a) Any age b) 12 c) 18 d) 21
7. What can short-term insurers cover you for? a) Your vehicle b) Your personal belongings c) Your house d) All of the above
8. What is a living (inter vivos) trust? a) A fund for widows and orphans b) A family trust you establish during your lifetime c) A trust established through your will d) A type of unit trust fund
9. Which regulatory body regulates financial advisers? a) The Department of Trade and Industry b) The SA Reserve Bank c) The Financial Sector Conduct Authority d) The SA Revenue Service
10. What is the maximum amount you can save per year in a tax-free savings account? a) R10 000 b) R24 000 c) R36 000 d) There is no limit.
Rands & Sense
Understand your credit profile
NOW more than ever, it’s critical to take control of your finances. Accessing your credit profile is one of the best ways to glean instant insight into financial pain points and opportunities.
In uncertain times like these, it is important to know where you stand with your personal finances. l What is a credit score? If you’ve ever taken out a loan, registered a bond or applied for a credit card, you’ll most likely have a credit score. Your score tells prospective financiers how much of a “risk” you are in terms of your past debt repayment behaviour and ranks you as low, medium or high risk. l What is it based on? It takes into account your total debt and debt repayment history: late or outstanding amounts owed, the frequency and type of credit you’ve applied for, any court judgments against you, and how much of your available credit you currently use. l Why should I care about my score? If you’re “high risk”, your chances of accessing credit are greatly reduced. You’re also likely to be charged a higher interest rate on credit agreements. And you may jeopardise future job prospects – some employers will check your credit score. l What if I don’t have any credit? If you have no active credit, you will have no payment history on record, which may result in a finance being declined as the creditor is unable to see if you are able to meet your financial commitments. l How do I check my score? You are entitled to a free credit report that shows your score and outlines areas for improvement. It’ll show you how much interest you’re paying on credit agreements and allow you to compare your rating against an average score. l If I’m high risk, what can I do about it? The best way to improve your credit score, or to maintain a good one, is to make sure that you pay off your debt on time and never miss a payment. A financial planner will be able to provide you with a plan to get you on a stable financial footing again. As a last resort, you may have to enter into debt review to pay off your outstanding debt.
Anything else to be aware of? With identity theft on the rise, it’s vital to check your credit profile often. It’s the best way to ensure that no one has used your identity to open a credit agreement in your name. If this has happened, report it to the police immediately.
Sanlam and other financial institutions can provide you with a free tool to help you understand your credit profile and ensure that you are aware of your credit standing to make the best financial choices.
20 Information click on the links to visit the website
Here are sources that can help you with financial education, give you more information on savings and investments, and afford you recourse if you have a consumer complaint or a complaint against a financial services provider.
FINANCIAL EDUCATION Financial Sector Conduct Authority MyMoney Learning Series https://www.fscamymoney.co.za South African Savings Institute #WaysToSave https://waystosave.co.za/
OMBUDSMAN & REGULATORS BANKING Ombudsman for Banking Services ShareCall: 0860 800 900 or phone: 011 712 1800 Email: info@obssa.co.za www.obssa.co.za
CONSUMER ISSUES National Consumer Commission Toll-free: 0860 003 600 or phone: 012 428 7000 Email: complaints@thencc.org.za www.thencc.gov.za
Consumer Goods and Services Ombud ShareCall: 0860 000 272 Email: info@cgso.org.za www.cgso.org.za
CREDIT AND DEBT Credit Ombud MaxiCall: 0861 662 837 or phone: 011 781 6431 Email: ombud@creditombud.org.za www.creditombud.org.za
National Credit Regulator ShareCall: 0860 627 627 or phone: 011 554 2600 Email: complaints@ncr.org.za or (debt counselling) dccomplaints@ncr.org.za www.ncr.org.za FINANCIAL ADVICE Ombud for Financial Services Providers phone: 012 470 9080 or 012 762 5000 Email: info@faisombud.co.za www.faisombud.co.za
INVESTMENTS Financial Sector Conduct Authority ShareCall 0800 110 443 or 0800 202 087 Email: info@fsca.co.za www.fsca.co.za
LIFE INSURANCE Ombudsman for Long-term Insurance ShareCall 0860 103 236 or phone: 021 657 5000 Email: info@ombud.co.za www.ombud.co.za
MEDICAL SCHEMES Council for Medical Schemes MaxiCall: 0861 123 267 Email: complaints@medicalschemes.com www.medicalschemes.com
RETIREMENT FUNDS Pension Funds Adjudicator ShareCall: 0860 662 837 or phone: 012 346 1738 Email: enquiries@pfa.org.za www.pfa.org.za
SHORT-TERM INSURANCE Ombudsman for Short-term Insurance ShareCall 0860 726 890 or phone: 011 726 8900 Email: info@osti.co.za www.osti.co.za TAX Tax Ombud ShareCall: 0800 662 837 or phone: 012 431 9105 Email: complaints@taxombud.gov.za www.taxombud.gov.za
PROFESSIONAL ORGANISATIONS Fiduciary Institute of Southern Africa (FISA) phone: 082 449 2569 Email: secretariat@fisa.net.za www.fisa.net.za
Financial Planning Institute of South Africa (FPI) Phone: 011 470 6000 Email: info@fpi.co.za www.fpi.co.za
South African Institute of Tax Professionals (SAIT) Phone: 012 941 0400 Email: info@thesait.org.za www.thesait.org.za
FINANCIAL DATA
◆ For the latest financial market indicators, go to https://www.iol.co.za/business-report/ market-indicators
◆ For the latest quarterly unit trust performance, go to https://www.iol.co.za/ personal-finance/collective-investments
