Lessons we can take from the 2018 Budget….


The 2018 Budget speech created a lot of hype against the backdrop of major political change in our country for the better….. without question.

From my point of view I found the budget proposals pretty clinical and distant from the current situation which South Africa finds itself. Easy routes were taken to close the deficit and opportunities were missed to raise the anticipation of radical change. It was by no means a bold budget.


It’s not just about money….
This brings me to comparing things to our own personal financial planning. The ultimate outcome of a successful financial plan is… peace of mind, which our budget proposals aim to achieve but don’t get there. We are left to hope that things will play out to improve our economy and well being of South Africans. Questions are left about the political will to enact on the proposals. We need to believe that our precious resources will be allocated for the benefit of South Africans. This is the new message from our new president. Can the responsible players deliver?

It’s about peace of mind…
Peace of mind over money is found when you don’t worry over it. You are secure and safe in the knowledge that if and when a life changing event occurs you have financial provisions that will see you through. So, a successful financial plan is not about having a lot of money as much as it is about have enough to maintain your lifestyle. Obviously the higher you raise the bar on the way you live the more you will need to maintain it. If that leads to worrying about things then you haven’t found success.

It’s about having provisions to cope when needed…..
The 2018 budget proposals do the job of rationalizing income against expenditure and proposing ways to balance it over time. They don’t convince us that we will get there. We still have to borrow more money to balance it. The soundness that whatever financial disaster may occur we can handle it is not there. If a devastating collapse in the markets of 2008 happens again do we have the capacity to cope with it? If we have a natural disaster (Cape Town doesn’t get enough water) can we cope?

The budget is laid down and now we have to work with it. It delivered a timid and clinical approach. We weren’t left with peace of mind that we are in control no matter what befalls us. Like a successful financial should do…..

Manage your cards efficiently for that little extra…..

Using your credit and debit cards more efficiently can save you a lot if you get to understand them a whole lot better.

Debit Cards                                                                                                                Debit cards are linked directly to your bank account. So when use it to buy something
the money is immediately debited off the balance in your account. Pretty useful for those who
are weiry of overspending during the month.

Credit Cards                                                                                                              Credit cards work a bit differently. The bank allows you a limit to use the card for during the month. However, you need to pay back the amount owing at the end of the month otherwise you pay interest in the region of 22% per annum. The bank gives you a period to make this payment before it levies the interest. So you need to be aware of the balance and make your payment in time to avoid the costs.

At the outset it appears that debit cards are the way to go. Less hassle as you are spending your money and don’t need to worry about getting into a debt which costs you interest.



Manage your cards efficiently for that little extra…..


But wait a bit……there are fees to consider

The debit card charges you for each transaction that you make whereas credit cards don’t. So here is where you can take charge and earna bit extra.

If you planned your month more carefully setting aside an amount of money which you intend to use then you should use your credit card
for all transactions saving you a fortune in transaction fees. Come the end of the month you have the money set aside to settle the balance
and avoid the interest.

So the outcome of using a credit card wisely is that you are using the banks money free of charge. You can get extra mileage if you keep the money in your access bond or a interest bearing bank account. You could get even more savvy by linking these accounts to your internet banking profile so that you can keep an eye on the credit card balance and transfer the balance immediately when you need to.

Understanding the way these cards work can turn the costs into a benefit…..

Assume you make 20 transactions on your debit card in a month. You pay R4 per transaction which amounts to R80. Using your credit card will save you this R80. If you
have a spend of R10 000 in a month and keep this in your bond @ 10% then you receive and extra R80. You then have made R160 for the month. If you reinvest this savings into an investment earning say 5% then you will have R10894 after 5 years.
(@10% you will earn R12 347.

So now you can see how getting savvy with your plastic can make a difference if you really set you mind to it. It takes focus and discipline.

We need a rand that satisfies Goldilocks…..

The rand has recently strengthened extraordinarily against our weak economic conditions. The strength points to changes on the political front which are more promising for South Africa’s future. Investors like certainty. By weeding out corruption and presenting confident and well intentioned leadership our economy will open up to foreign investment which leads to a stronger currency.
However, crazy as it seems, the rand shouldn’t get too strong and needs to find a level somewhere in between strong and weak. It’s a Goldilocks currency which shouldn’t be too hot or too cold but just right. Let’s explore some of the effects.



Why we want a strong rand?

The good news is that the pump price of petrol will fall on Wednesday by 43c. This is as a result of the rand’s surprising strength of late, trading under R12 to the US$.

Essentially, we are dependent on the oil price which is quoted in US$ and the exchange rate of those dollars to the rand at the time we purchase the oil. The cost affects many industries in the country that particularly rely on vehicles to transport their goods and services. Therefore, these costs are directly affected improving the value of rand’s purchasing power into the future (inflation).
Unfortunately, prices go up very quickly when the oil price goes up but somehow they don’t come down that quickly when the rand falls.

Why we want a weak rand?

Resources                                                                                                              Exports are our life line. Especially resources, as we produce many commodities for world consumption. There is currently a upward tick in the resources cycle as global demand improves. A weaker rand improves the price we get for these exports which has a direct impact on our mines’ profitability, which in turn maintains and creates jobs.

Tourism                                                                                                                    Tourists find it cheaper to visit us with a weaker rand as their currency goes much further. Tourism creates and maintains employment which in turn adds to the growth our economy.

What can we do?

Economics is one thing and all we can do is work with the things we can control.The rand at these stronger levels will keep interest rates lower, so take advantage of the lower rates by paying off your debts quickly.
If you see an improvement in your disposable income then save it rather than spend. The savings will make you less reliant on debt in the future making it easier to keep up with the cost of living when the rand weakens sometime in the future.

30/30/40…Allocate your income wisely……


Working hard for your money needs careful consideration over how to use your income effectively. If you allocate carefully you will ensure that you are living within your means and not above them.

Does a car salesman ever question whether the car you purchase is too costly and you should consider buying a smaller cheaper option and save more for yourself?
The same applies to the bank when applying for a mortgage. The bank works out the maximum you can afford to buy for and does not encourage you to buy smaller and save more.


Well, you should take charge of your own story and choose use your money according to your plan and not be enticed by the money lenders. After all, they make money out of lending to you and the more the merrier.

Before you spend you need to make provisions for life changing events and unforeseen expenses. This includes, life assurance, pension, medical aid, short term insurance and savings. A broad allocation should be 30% or more of your income to these provisions.

The cost of your debt which includes credit cards, home and car loans and any personal loans should not exceed 30% of your income. This ratio keeps your debt healthy and affordable allowing for sharp increases in interest rates.

The balance of 40% of your income should be used to live on during the month. You have already provided for savings and so you can spend the rest.

Following this formula will ensure that you have investments which provide towards your financial independence into the future. Your debt will be your target to payoff as soon as possible which will result in you having more to live off or more to save into the future. Hopefully you will choose the latter….

Your Personal Balance Sheet…

The beginning of a new year is a great time to update your personal balance sheet.
The excercise is invaluable in your personal financial planning as it creates a snapshot of your actual worth in relation to what you own and what you owe. Your so called “Net Worth”.


All it takes is a sheet of paper with two columns listing the current value of all your assets on one side and your liabilities ( the outstanding loans) on the other side. Subtracting the total liabilities from your total assets leaves you with a current value of what you are actually worth. This net worth provides you with a realistic view of how well to you are doing with your financial planning. If the figure is growing year on year then you are on the way to improving your wealth. If it is not growing you are effectively getting poorer.

Bear in mind that your net worth needs to improve above the inflation rate to keep its value. So if inflation is running at 6% then your net worth should being improving above this rate year on year to keep your net worth value real.

Ways to improve your net worth are found in:

Reducing your liabilities.
Targeting your loans and getting rid of them sooner. Interest on debt is often higher than the returns found on investments. Especially, when one considers the risk needed to achieve the return.

Acquiring high growth assets.
Investments that grow consistently over time should be targeted. Especially, those which compound your growth. In other words, investments which produce returns which you reinvest, effectively buying up more. Compound interest is a magical phenomenon in the financial world and needs consistent positive returns over the longest possible time to make its magic.

Three Big Questions in 2017….

2017 was certainly a year of uncertainty from which many questions were asked.

Here are three of the biggest questions asked from my desk.


Should I invest in Bitcoin?                                                                                              In hindsight you would have made a fortune. Investing rests on the risk you are prepared to take in relation to your expected return. Therefore, the call is into the future. The surge in the price of Bitcoin to these dizzy heights is a phenomenon to say the least. Yet, do investors really know what they are investing in. Markets do not go up infinitely in a straight line. The fundamental problem with Bitcoin is that investors are speculating on past performance and have a straight line mentality. Some time sooner or later the momentum will shift leaving the newer entrants hung high and dry. The momentum could well shift to fear when the price falls so be very careful.

Is Gold the next best thing?
Ideally, this investment has the protection of the rand weakening as the price of gold is priced in US$. The question looms around the global appetite for gold. The price has been range bound between 1300$ and 1200$ for a while and there is an anticipation of the price moving upwards sharply in the event of a correction in the markets. Be aware of the dynamics – Rand/$ exchange rate and price movement in US$.

Is the rand doomed?                                                                                                      Just when you think that the rand is going to weaken it does the opposite. The recent strength to the R12 to the US$ range proves that our currency is very resilient. This has a direct effect on our inflation numbers and in turn also affects your investment performance with many funds which invest offshore.

The year has been governed by uncertainty and surprises. 2018 will be packed with surprises of this I’m sure. Keep on a fundamental course and try not to be lulled into speculation.

Invest with and away from the rand…..

Our Rand continues to surprise

Just when you think the rand is heading in a particular direction it turns the corner and surprises.

A while ago just after Minister of Finance Nene was fired the rand easily weaken to nearly R17 to the US$. We all then assumed it would continue with some predictions of R20 to the US$. Panic struck and many South Africans took money out of the country in the fear that the rans would devalue dismally.

But then the opposite happened the rand took a turn and started to strengthen over a short period of time to levels in the range of R13 to R12.

When President Zuma reshuffled has cabinet recently firing our Minister of Finance, Pravin Gordhan we saw the rand weaken off again but this time it settled in the R14 range and never got anywhere near the previous weakness.

Now we have been downgraded with a key political event taking place in December and see that the rand has now strengthened to mid R13 levels.

Can we make sense of the direction that the rand chooses. Back to fundamentals. The rand should depreciated at a rate of the difference in inflation of our trading partners. We do most trade with Europe so technically we should weaken by around 4% per annum against the Euro. The same applies to the US and other countries.



Pundits have calculated that the rand is probably 30% under valued. So there is a lot more potential for it to strengthen than weaken if technical analysis is still valid.

A weak rand has some positive effect on our exports but at the same time hurts more on our imports and where we see it directly is in the petrol price which is heading to over R14 a liter next Wednesday. This in turn fuels inflation which make everything that much more expensive.

So…what should you do? Essentially you should spread your exposure between local and offshore investments.
The offshore exposure can be made indirectly through range hedge stocks such as Billitons and Anglo America. Even Resource ETF’s would provide some hedge against the rand.
Otherwise there is a huge universe of options to invest directly. This require more homework so need more understanding and detail.

The rand will continue to surprise and to work with it you need to invest in it and away from it.

So how close are you to a downgrade?

S&P Global Ratings downgraded South African local currency debt to “junk” territory on Friday, citing a further deterioration in the country’s economic outlook and public finances, sending the rand tumbling.

Essentially the downgrade points to the risk investors face when lending money to South Africa. Our economic weakness questions our ability to repay the loans we make.



Not much the man in the street can do about it. We rely on our finance authorities to navigate a way back to being upgraded. In my opinion we should have been more focused on improving things to avoid the downgrade instead of now having to dig our way out of it.

So how would stand up to a review?
In a very similar way banks and money lenders assess our ability to pay back debt. Income, (which is our personal GDP), is measured against our exposure to debt (credit cards, cars, personal loans, mortgages etc…). The higher the cost of debt the more risk you present to the institution.

Avoid your own personal downgrade.
Take action by assessing what you own credit rating is. There are many credit bureaus which offer a free assessment for you. Once you know where you stand you can make a plan to improve your situation.
Step one
Stop going further into debt.
It is a great opportunity in the current weak economic environment to payoff debt as the high cost of interest offers higher returns than other asset classes. Where can you, for example, get a solid return of 24% which is being charged on your credit card.
Step two
Rank your various debts by the interest rate you are paying. Target the higher one first and then use the savings to payoff the next highest.
Step three
Look for opportunities to be less dependent on debt. This will be found in working realistically on your spending habits. If the cost of your debt is above 30% of your income then you are living above your means. (SA’s debt is currently 60% of GDP). It’s better to earn interest than to pay it. So after your debt has been settled invest the money you so readily paid the bank and save it for yourself.

Easier said than done. South Africa has a long hard road ahead to work its way towards an upgrade. Getting yourself back to a healthy status will be just as hard. It is a problem than doesn’t get better until you take charge and turn it around.

How Real is Retirement?

If less than 10% of South Africans at 65 end up with sufficient capital to retire, then retirement is an illusion for the remaining for most of us. So what are the options?

Depend on your family
The problem is that families are under financial pressure to make ends meet and an extra dependent will add to the pressure. This is probably the last option you will want to take as all members of the family will have to make a financial sacrifice.

Depend on the state
Not much to look forward to from a state pension. The cost of living escalates at a far greater rate than the state pension increases every year.

Carry on working as long as your health permits                                                    This is the only real solution for many people. The ideal space to be in would be a business that you create for yourself by doing something that you are passionate about that generates an income which you can live off. You then rely on your health to keep going for as long as possible. If you are driven by passion then this could be longer than you think.

Don’t give in to the paradigm  of 65….                                                                             Just because your pension fund made you retire at age 65 doesn’t mean that you have to adhere. If you are prepared to think outside of conventional thinking and plan and prepare in advance your life can begin at 65. Or even before it…There are many more years ahead that you have to cater for. It’s not only about the money but also about the reason or purpose you have to get out of bed in the morning for the rest of your life.


Retirement isn’t in the frame                                                                                 Getting set in your new found self, taking 65 out of the picture will give you the advantage of looking past retirement and into a new chapter in your life.

If you put your mind to it there are many possibilities. It will take courage and hard work which may be a far better result than struggling on a dwindling pension throughout your retirement.

3 Reasons why Bitcoin is not for you

The amazing performance of Bitcoin since 2010 has left many investors wishing they had got involved and others wandering if they should. The cyber currency has been nothing short of amazing as $1000 dollars invested in 2010 would have returned $90 million in 2017.

Here are 3 reasons why you should not get involved with Bitcoin.

If you don’t understand what Bitcoin is
It’s too easy to get lulled into an investment through hype and speculation taking a chance not clearly understanding what you are doing. Bitcoin is very technical and takes a lot to get your head around. As it is a very new concept it needs a lot of research before getting involved.
If you think Bitcoin will increase as it has in the past
The outstanding return in value has no guarantee of continuing following the principle that past performance is not an indicator of future. Sure there are many reasons given as to why it is a no brainer, however, you need to be astute enough to understand that markets do not go up in straight lines. As more cyber currencies launch (so far there are 876) the market will have more choice and Bitcoin’s dominance could diminish.


If you don’t have funds you can afford to lose
The risks are extremely high. You rely on the speculative bet that all the hype placed on Bitcoin will play out. It defies conventional thinking as there is no tangible asset. Just an amount in a wallet which moves up and down in value in cyberspace. The graph shows how these movements can swing in the short space of one week. So, if you are using must have money which you can ill afford to lose you are asking for trouble.
Whilst Bitcoin is less conventional, the conventional approach still applies. If it sounds too good to be true then it probably is. So be wary and do your home work and find out as much as you can before getting involved.