Ways to spend your year end bonus…if you are lucky enough to get one!!!

If you are fortunate enough to be paid a 13th cheque or receive a year end bonus then here are some ideas on how to spend it wisely this festive season:

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Save First then spend the rest
Save a portion. For as little as R1000 you can invest in the Top 40 shares listed on the JSE. Re-invest the dividends over time and take full advantage of compound interest over the next 10 years.

Debt is a good starting point
Have a look at your expenses and short list your debts. Make a pact with yourself that no matter what you will not go deeper into debt this holiday season.
Over draft, credit card outstanding shortfalls in tax, personal loan, bond
Any expenses which are high interest bearing debt need to be targeted first.
Pay a portion of your bonus towards debt

Gifts
Try and contain yourself this season by buying smaller and more interesting gifts. On-line buying is cheaper and less impulsive as you can carefully consider each purchase in the comfort of your home. You save on petrol, parking and that meal you normally have at the mall during your shopping. Think about a mall voucher…. this can be used to snap up the bargains after the Xmas rush when shops go on sale across the mall.

Credit Card
Use you credit card wisely this season. Budget an amount you will be spending on gifts this season and put this amount into your credit card. You will save on transaction fees and be able to control spending by keeping an eye on the balance. Remember the rule you set that you will not go further into debt. Watch your balance and make sure it does not increase.

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Look for discounts on offer if you pay up front
School fees
Golf fees
Store accounts

Watch out for the early sales
Often stores go on sale just after the festive season.
If you hold back a bit with some money then you will have opportunities to pick up some bargains.

Take your holiday when everyone gets back
Out of season rates are a lot cheaper. So perhaps staying at home whilst the madding crowds are queuing for ice creams on the the packed beaches is a more sane option. Then booking a quiet week or two when the schools start will give you so much more of a decent break. There are so many local places where you can holiday. Space bank you unused time share and prepare to take up some of the late offers. Some weeks are ridiculously cheap if you are prepared to take off at short notice.

Buy your basics in bulk with friends and family and save
Plan some household items amongst yourselves and buy them through a wholesaler.
The unit price will be much cheaper than buying at the local stores.

It boils down to ATTITUDE. Holidays are much more pleasurable if you are in control.

What is Financial Planning?

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It all begins with a plan. Financial planning is a process of measuring where you are now relative to where you would like to be somewhere in the future and implementing the necessary steps to get you there.

Peace of Mind

The main benefit of a successful financial plan is not really found in how much money you have or will accumulate. Money after all is just money. It is what money does and can do for you that makes the difference. If you had enough money to support your lifestyle no matter what life changing event occurs, then the ultimate benefit to you is peace of mind. Peace of mind now and along the way into the future that should you encounter a life changing event you can maintain the lifestyle that your plan sets out to cater for.

Life Changing Events

Life is not perfect and is unpredictable. At times when you least expect it a life -changing event can occur. Lets take a look at some of the typical events, which could affect you.

• Death – the death of someone upon whom you depend for income. The impact could be disastrous as funds required for maintenance of your day- to- day needs comes to a sudden halt.

• Disability – if you are temporarily or permanently disabled through an accident or even an illness, you have yourself and your family to provide for.

• Retrenchment – losing your job can be devastating. The pressure of find a new income gets worse the longer it takes to find a new position.
• Retirement – This is an inevitable life-changing event, which is very difficult to avoid. We are living longer and the pressure is on all of us to save as much as we can for our retirement years. The longer you live the more you will need.

• Marriage – Taking on the commitment to build a life together needs careful financial planning to ensure that financial independence is achieved early

• Divorce – Successful marriages are hard to come by with two thirds ending in divorce. This life changing event has a devastating financial implication on the family.

• Economic crisis – Whether this is brought about by weather or politics or a global melt down, can your financial plan with stand the correction and sustain the recovery.

Financial Planning questions

In relation to your financial provisions you need to answer the following questions:

Where am I now?
Where do I need to be now and in the future?
How do I get there?
The main principle to follow is “If you can measure it, you can manage it.”

The process of financial planning starts with calculating the net worth of your current financial provisions and measuring this against what provisions you need now and into the future should a life-changing event occur. The shortfalls and/or the surpluses that are identified provide areas in the plan where you should be allocating your disposable income.

Youth struggle to create wealth

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Youth are between the proverbial rock and hard place. Without an income how can you begin to save. Wealth creation is based on investing over time taking full advantage of the power of compound interest. Most of our youth can barely make ends meet let alone set aside savings for the future.
This should be a lesson in itself for those that do have jobs. The most important thing in your financial life is to decide upon an amount to save every month and then stick to it without compromise.
Save first and spend the rest is about as simple as it gets. If you set aside your savings on the first of the month you can spend these rest on anything as you know that your investment is in place already. Realistically, your income after tax and savings is actually your true income upon which you should create your standard of living.
Our youth seem to get it wrong with idea that financial success stems from debt and they fall prey to easy loans to fund things they really can’t afford. If you borrow to fund your lifestyle you effectively are living about your means. Particularly if you have not saved anything,

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The message is simple. Live within your means after saving first. Keep your debt under control. When borrowing for a house or car make sure you can comfortably afford the repayments (after saving). Interests rates move up and down. Ensure that you can keep up even if rates move upwards by a few percentage points.
Your income is hard earned and needs to be managed carefully. If you measure it you can manage it. Our youth must learn to budget effectively managing their expenses carefully against their income. Opportunities to cut back on expenses should be identified which in turn will free up more money to save. Paying off debt as quickly as possible will also free up disposable income for savings. After all, it is better to earn interest on your own savings instead of giving to the bank. wherearethejobsTimes are tough and debt is not the solution. In fact it has become the problem with most SouthAfricans. Prevention is much better than cure when it comes to falling into the dreaded debt trap.
Delaying your gratification and maintaining financial discipline are key ingredients to attaining financial independence in the future.

Saving for children’s education

imageParents want the best for their children and education is top of the list of priorities with many households. Many parents are turning to private schooling over government schools as the trust and confidence and quality of education is found in the former. The question is, where do you find the money to pay for private education.

I spoke to Jenny Crwys-Williams on her show on Radio 702 this afternoon and we uncovered some of the huge costs of Private Schools. The Ridge in Johannesburg was one of the most expensive at a whopping R60 000 per year. The figures extrapolated to over R600 000 to educate a child to grade 7.

I was on Midlands Meander at the time and passed by Michael House so thought I would do some research on the costs. Found the First year to be R206 018 with the “Acceptance fee, and Development Levy” included.

Jenny’s question was, “How does one save for this type of expense?”

My answer was:

Save as madly as you can to build up as much capital as possible to soften the financial blow. Your ally is compound interest which needs as many real returns as possible over time.

Be Realistic

Realistically, parents do not have much time to save. From birth to the first day of school there are only 5 years or so and then education costs cover the next 15 years plus. If you decide to borrow money to fund education you simply pay much more for it, so this is not the ideal solution. The funding should come from your monthly household income which means you will need to balance your budget carefully and honestly giving way to other living expenses the more you allocate to education.

Target a stage of Education

You could consider saving madly from birth to grade 7 using the capital that you mange to accumulate towards affording a better secondary education. With the power of compound interest and saving from birth through primary and secondary school you could accumulate a substantial amount which could help towards a better option for varsity.

Where do you save?

There are many investment vehicles which will help you save towards education costs. Unit trusts, exchange traded funds, endowment policies to name a few. You should seek the advice of qualified financial planner to help you choose an appropriate option.

One of the lessor considered options for providing funding towards your education costs is your access bond. If you saved extra in your bond you immediately earn the same rate of return that your bank is charging you. No costs, no tax, no risk of losing capital and immediate access to funds when you need them.

Careful planning for your children’s education into the future will ensure that you find the right balance of quality and affordability.

Choosing an appropriate medical plan

At this time of the year most medical aid schemes offer choices of plans to their members for the new year. There are many plans in the ranges of the various medical schemes and this makes choosing the appropriate plan that much more difficult. I chose the word ‘appropriate‘ deliberately, as many members want to know what is the best plan for them.
Well, from my point of view, one can only know what is best when you are able to compare with hind sight. No one knows what medical expenses they will incur in the future so it is difficult to know which plan is best. An appropriate plan is one which is likely to provide benefits relative to your health and your affordability.

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You get what you pay for

Essentially, medical aid is insurance. Schemes work on the principle of contributions received covering claims paid out. The variety of plans offered differ in price because of one reason – benefits. So it stands to reason that you get what you pay for. The more the plan costs the more the benefits compared to cheaper plans.

Don’t choose your plan purely on cost

Study the benefits in line with your likely usage and then compare costs. Are you likely to be a high user or low user of medical your medical aid. The higher your likely usage the more comprehensive your plan should be. Conversely, the lower you anticipate claiming the more essential plan your plan could be. Be carful of very cheap plans that promise hospital cover. You get what you pay for, so you probably will find a limit in your hospital cover. The better plans have unlimited hospital cover which means you won’t have to leave after a few days. You can stay for as long as the procedure and recuperation requires.

Cover the big bills

Especially, if affordability is a problem you should choose a plan that covers you adequately when being admitted to hospital. The cost of surgery is horrendous in many cases so much so that hospitals won’t even admit you if your does not cover you sufficiently.

Covering the small bills

Many schemes offer medical savings accounts for the claims out of hospital. Doctors, dentists, medicine, glasses/contacts, etc. These bills are smaller than those in hospital and you won’t have to sell your house if you claim for these. Here is where you can make your plan fit your budget. Low users can have a smaller savings account than higher users. Lower users can also consider excluding a comprehensive scheme which insures for claims once the savings account is exhausted. The saving is in the premium through the year which in turn can be used to offset bills if the savings account is depleted.

Manage your wellness

A fact of life is that the more healthier you are the less you will claim. Schemes offer wellness programs which are really worth it if you work with them. They aim at rewarding you for being healthy offering a definite value proposition which could compensate for the cost of your plan. The trick is to get involved and keep up with the program.
Understand your medical aid plan before you make your option. Many members choose a popular plan and only realise what they are actually covered for when they come to use it. If you choose an essential plan for the right reasons you won’t be disappointed when claiming because your expectation will be realistic.

If you are in any doubt consult your financial planner for advice.