The risk of losing everything is very possible with the current heavy rains all over the country. There have been reports of severe flooding which has destroyed property and taken lives leaving families devastated and financially ruined.

Insurance is the easiest way to cover this potential loss. Insurance is necessary if you do not have sufficient capital to replace the loss. It is expensive if you never claim, however, if you have a loss it is the best value for your money.

If you are not insured as many South Africans are, then you will need to carry your own risk. You will need to assess the replacement value of your property very carefully and make a plan to provide for the potential loss. You can conduct your own cost/benefit analysis and choose to set aside an amount which you would have paid to an insurance policy and save it yourself.

Emergency Fund                                                                                                          The starting point in any sound financial plan is a contingency fund for emergencies. The larger this fund the lower the risk you run of not being able to replace your property.

Many people try to self-insure this way. Saving extra cash in your bond or money market account is ideal. If you are a victim of a flash flood you can access this fund easily to replace your household items. You may be able to salvage some things but you need to understand the financial impact should you lose everything.

Prioritise Your Inventory                                                                                                            Draw up a detailed inventory of all your belongings at current replacement costs. Prioritise the more important items such as fridge, stove… as these are essentials for the family over, say, the TV and sound system and will have to be replaced first. So aim to save up for these items first.

Having provisions in place for unforeseen life-changing events is what financial planning is all about. Catering for the short and long term will provide you with the peace of mind that you and your property is protected no matter what disaster may come your way.

When deciding to invest on your own you must be prepared to do your homework.

Here are some investments which you can consider investing directly into.

Money Market Account                                                                           

For contingencies and emergencies, it is important that you have ready access to cash. A money market account offers you access to your money at an interest rate which is normally better than fixed deposits. Banks have certain conditions which you need to explore, such as minimum balances to keep the account open and how often you make withdrawals. Ideally, you should have this account accessible on your Internet banking profile so that you can manage your savings more easily.

RSA Retail Bond
A bond is an investment in debt. Effectively you are lending money to the government for a specified period. In the case of RSA Retail Bonds, the periods are 2, 3 and 5-year options. The interest rates are generally higher than the current money market rates and there are options to link your rate to inflation. This is an ideal investment for those needing the interest to supplement their pension as the interest can be paid out monthly to investors who are 65 and older.

Exchange Traded Funds (ETF)
In the universe of investments choosing the right fund manager can be daunting. There are so many styles and objectives by which funds are defined. An easier approach is to invest in an ETF which invests in the average of the market. There are many types such as SATRIX 40 which offers the top 40 shares listed on the stock exchange by the size of the company. For as little as R300 per month, you can participate in quality stock market shares.

Understand the investments you make as thoroughly as possible beforehand. That way you will enjoy the power of saving over time using the magic of compounding.

Most of us have an idea that we will retire at 65 and live happily ever after planning golf a few times a week and travelling around the world and back again. Nothing further from the truth when you take a look at the stats of South Africans at 65 and their degree of financial independence.

In the 3 decades that I have been in the industry, the statistics haven’t changed.

47% rely on their families for financial support
31% have to carry on working
16% rely on the state for a pension

This means that only 6% of South Africans are financially independent at age 65. This means that only 6 % of us can maintain our lifestyles after age 65 for the rest of our lives. What makes this statistic more challenging is the fact that we are on average living much longer than our parents. So the 6% probably waters down to half.

The stats are overwhelming. Retirement is an illusion for most of us.

Furthermore, many of us have the dream to retire by the coast and open a coffee shop which will provide us with the purpose and the income we need for the rest of our lives. Be careful! More often than not the business is a lot tougher than you imagine. Coffee shops need a lot of coffee to cover the rent and expenses leaving very little behind for an income to maintain your monthly needs.

In many cases, it would be a better proposition to keep the pension and use the bank’s money to float the business (if you can secure the finance). If you cannot get a loan then that would speak volumes to the feasibility of the business because if the banks are not interested then the chances of making it are diminished.

Pension funds are inalienable which means that your creditors cannot touch them if the worst happened and you went insolvent. So the sweet spot is found when you lend from the bank and keep your pension fund. At least you have something to fall back on.

Whether it’s just retiring or working at the coast it boils down to how much you need to maintain your monthly lifestyle and how long you will need to provide. The ravages of inflation will place extra pressure on you as well.

The reality is that most of us will have to keep on working. Not a bad thing as it creates a purpose for us to get out of bed every morning. Just be aware of holding onto your pension for as long as you possibly can. You don’t get a scone chance to build it up again.

A great place to save in the short term is your home access bond. With home loans of around 10% by saving extra in your bond you effectively get this rate as a return on your money.
Why? Well because the bank calculates the interest owed from the average balance in your bond during the month. It then takes the interest from your monthly instalment and allocates what is left behind to pay off your loan. So the extra paid into your bond is not only accessible, but it also reduces the amount of interest you pay.

When assessing an investment you need to consider the following:

Risk – the possibility of losing capital
Return – the yield of the investment over time. This could be interest from cash deposits or bonds, rental income from property or dividends from shares.
Liquidity – how freely are the funds available?
Costs – the charges applied to the investment. Mainly the fund manager, the administrator and the advisor.
Tax – taxes are applied to the various returns as well as capital gains tax when you sell the investment.

When taking all these aspects into account it becomes obvious that the access bond is by far the most effective vehicle in the short term. Especially while interest rates are on the up. In this cycle shares and property and bonds tend to fall while interest-bearing accounts tend to rise.

Where can you currently get 10% tax-free without risk or costs and your money is immediately available to you?

Some may argue that the other assets are more effective over the long term. However, for the foreseeable future, it is difficult to find an investment which can yield a net 10% return.

Your access bond is a worthwhile place to save your hard-earned money.

When you retire one day you have two basic options when choosing a pension. You either hand over your retirement fund to a product provider and let them provide a pension for you for the rest of your life or you can choose to manage your own fund through your retirement. Let’s explain the two options:

The Life Annuity    

This is a structured pension based on the amount of money you have accumulated and your life expectancy. The product provider will offer you a pension for the rest of your life. Should you die sooner than estimated then the balance of your pension capital goes to the pool. You can take out a guarantee on your pension for a period. The longer the period the lesser the pension. If, for example, you choose 10 years, then the pension will be lower, but should you die, say in year 8, then the remaining 2 years of pension will be paid to your nominated beneficiary.

The Living Annuity 
This pension allows you to invest in a wide choice of funds. You decide on your pension by making a choice between 2,5% and 17,5% of the value of your fund. When you die the investment passes onto your beneficiaries. The big risk is drawing down a pension at a higher rate than the investment performance. If you achieve, say, a 10% return and draw down a 12% pension, then you effectively are eating into your capital which will result in your pension drying up a lot sooner. You need to monitor your living annuity carefully, constantly assessing the returns and the percentage drawn down.

So which one should I choose?
If you are convinced that you will live longer than the average, a life annuity is probably the better consideration. The guarantees on the pension need to be studied and understood before committing. Ultimately, the life annuity provides certainty for your retirement around which you can plan more effectively. However, you essentially give the assurance company your money and compete with the statistics of life expectancy.

If you want control of your pension and are prepared to keep involved with the investment during your retirement years, then the living annuity is your better option. The pension drawn should be carefully considered along with the funds chosen. Be realistic about your expectations of returns taking costs into account as it is the net value that matters.

Depending on your total provisions available at retirement you could consider a combination of these options. Your choice of pension is a very important financial decision to make and you should seek advice from a professional financial planner to help you find the appropriate solution.

Financial planning is all about making provisions for expected and unexpected events in the future. The nearest expected event on our calendar is the festive season which is just around the corner.
If you haven’t been saving for this costly event during the year then you have 4 pay days to go to create a nest egg to help yours through.

Savings for this short term need to be easily available and safe from the risk of losing any capital. Certain investments such as shares, property and bonds need more time and therefore should not be considered.

Here are 3 ideal places to stash your cash:

Access bond
My favourite for the short term as the money is easily available and effectively earns the rate of interest that you pay on the bond. You should save as much as possible here allowing you easy access to your extra cash over the festive season. You can access it at any time as and when you need money over the holidays and there is no risk at all.

Credit Card
Now is the time to make a move and pay off the credit card bringing it into a positive balance. You will do better with the extra money in the access bond as the interest earned on credit balances in the card are lower (around 4%). The big advantage is that when you get to the festive season you won’t have a noose around your neck charging you an interest of 24%.

Money market account
This investment is normally better than the different savings accounts on offer by the banks. It generally offers higher interest and is more accessible which is what we are aiming for by December.
You should open up a money market account with your bank and then manage it next to your current account on your Internet banking profile. For the next 4 pay days, when you get your salary, keep as much of your money in the money market account during the month and as little as possible in your current account. Transfer from the money market accounts to the current account as and when you need to. Effectively earning some interest instead of nothing in a current account.

You can take charge of your financial needs by planning for them. If you save even a little for the next few months your festive season will be that much better than having nothing at all and having to make the fatal mistake of borrowing to get through.

The management of the emolument attachment order known as a garnishee order has been changed through a judgement from the Constitutional Court. Essentially the decision of whether a salary can be attached by a garnishee order can no longer be made by the clerk of the court. It has to be made by a magistrate.

The test

The magistrate has two tests to look at:
Whether it would be just and equitable to grant a garnishee order
What the debtor will be able to afford.

Debtors still have to pay

The judgement does not in any way mean that debtors no longer have to pay. What it aims for is the fair and equitable attachment of one’s salary to make sure that they pay their debt and can continue affording their lifestyle into the future.

What is unsecured lending?

Unsecured lending differs from secured lending in that there are no assets attached to the loan. Banks own your home and your car until you pay the debt in full. If you default they have the asset which they can sell off to recover the debt. As an unsecured loan has no security the risk is that much higher for the lender so to compensate a much higher rate of interest is charged. These rates can be as high as 38% effectively per annum.

So, there is another layer added to the control of lending in SA. Magistrates will be involved in deciding on the fairness of attaching your salary to secure the unsecured loan. Affordability will be central to the decision.

Loans are not bad

Loans are not all bad if you can comfortably afford them. If you borrow to get out of debt then you are in trouble. Short-term loans can be useful for unforeseen expenses provided you can repay them quickly. Of the current 20 million credit-active South Africans half are three months or more in arrears on some form of debt.

The big problem is that they are excluded from borrowing in the future which has a huge effect on the economy.

Be careful

We should tread wearily when considering a loan. The cost of debt diminishes our ability to save. Saving for the future is the only way to improve our financial independence.

Here are three areas women should focus on to further their investment prowess:

Women are more cautious
Women tend to be more risk-averse than men when it comes to investing. Women tend to be cautious and hold their investments longer than men who look for higher returns in more frequent trades.
Given that one can afford to be more aggressive with their investments over a longer time horizon a cautious strategy is likely to lose out on higher compounding over time.

Financial knowledge
It is accepted that women generally have less financial knowledge than men. This probably stems from the traditions of the past where the male was the breadwinner and the wife focussed on the needs of the family.
Financial independence is for everyone and the more knowledge one has the better the investment decisions will be. Financial information is available everywhere from advisors and consultants to the Internet. All it takes is the will to seek and find the information required to develop a meaningful financial plan.

Women need to be more selfish
Sacrificing everything for the family is admirable to say the least but without setting enough aside for the future the struggle will never improve. Living from hand to mouth gets more difficult as the cost of living rises at a faster pace than salary increases over time.
Women need to find ways to save more for the future. Not only for their family needs but for themselves. They need to work towards their own financial independence to attain financial freedom in the future.
This can only be achieved by saving and investing more effectively over time.

Insure the more expensive vehicle in your name instead of your spouse as you are more likely to get better rates on the car. Many households have two cars and Dad generally has the expensive 4×4 and Mom the runner. Insurance companies recognise that women drivers are safer than men when it comes to the probability of having an accident. Their lower risk leads to lower rates on the insurance policy. To insure the car with Dad as the second driver. You’ll save on running costs too…

Separate accounts not joint – there is a serious estate problem having one account with signing powers only for the wife as a joint account in the will be frozen in the estate in the event of death. This could leave the surviving spouse in a position where there is no access to cash. Estates can take ages to wind up and the last thing you need is to battle with cash to get through the months it takes before the proceeds from the estate are released.

Have your own contingency fund for emergencies and unforeseen expenses. Not only your own banking account but also a savings account in your own name which you can access for emergencies. This amount should cover between 3 to 6 times your monthly expenses. The funds should be reinvested in a money market account with your local bank so that you earn some interest. Ideally, the account should be linked to your Internet banking profile alongside your own personal account. This will enable you to transfer the required funds at a click of your mouse giving you complete control of your funds.

Here are 4 important financial aspects that women should be aware of when constructing a financial plan.
Death
If the worst happened to Mom then how does this affect the family? Who looks after the children and the home? The cost of finding a childminder and keeper of the home needs to be factored into a life assurance policy. If mom earns an income this to needs to be replaced.

Disability
The same applies should Mom become disabled. The provisions also need to include Mom and the cost of her disability as well.

Dependency
Build your own portfolio alongside your spouse to create financial interdependence and tax efficiencies. Instead of relying on your husband to provide in the event of death retirement or disability, you should balance the family portfolio between yourselves. This allows for interdependence as should a death, disability or even a divorce occur, the spouses will each have their own provisions in place to maintain their lifestyles.

Divorce
In the case of a divorce, make sure that there is a policy in place covering the maintenance in the event of death and disability of the ex. Also, ensure the policy is owned by you so that you are notified by the assurance company of any default on the payments. You should also ensure that you are the nominated beneficiary so that the proceeds of the policy are paid directly to you outside the estate.