Inflation – is the honeymoon over?

The inflation rate is a measurement of the  average cost of items which are closely monitored by the department of Stats. The prices movements of around 400 items are measured to establish the annualised inflation rate. The rate is watched closely by the Reserve Bank which is mandated to keep it in a range of 3% to 6%. One of their mechanisms used is the adjustment of the interest rate to either stimulate or contain the economy.

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Where is inflation heading?
Rising oil prices are beginning to erode the value of our money once again. After the surprising fall from last year the price of oil seems to have bottomed out and is rising once again. The problem is compounded by a weaker rand as the price of oil is quoted in US Dollars, a currency which has significantly strengthened in the same period.
-R10.68 in August 2014 to R12.20. The price of oil was $113 per barrel at R10.68 in August 2014. At present it is $62 per barrel at R12.20.
Our inflation rate has nudged upwards already from 3.9% to 4.0% as a result of the rebound of the oil price and is set to rise even further in the face of rising costs of electricity and food.
Why is contained inflation important?
Well, simply put, it affects the value of your money. If something costs R100 today and inflation is 6% then in 12 years the same item will cost R200 which is double. If inflation is 12% then the same item will cost R200 in 6 years which is half the time.
The higher the rate of inflation the less your money is worth in the future.
What can we do about it?
Get rid of your debt
If inflation rises then interest rates will probably go up. This means that your debt will cost you more.
Invest in inflation beating returns
Your returns should be above the inflation rate if your money is to stay real in the future.
Contain your spending
Inflation is driven by consumer spending. Curtailing your spend will keep more money in your pocket which can be used to pay off debt and improve your savings.

It’s all about the money!……or is it?

At the recent passing of a very wealthy client I spent time reflecting on of what money was all about. He had a very sizeable estate which was left to his two children as he had just lost his wife to a terrible disease shortly before he died. All he had at the end of his life was a lot of money. He hadn’t found the time or real reasons to enjoy the benefits whilst he was alive.

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Money is a means to and end
Money on its own is just money. So if you focus on money all your life all you will have at the end of your life is just money. Money should translate in to an objective to be meaningful, otherwise, “What’s the point?” Understandably, money is needed to maintain our lifestyles but as you move through your life cycle is your money providing enjoyable outcomes along the way?
Peace of mind is the ultimate
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When you really think about it we all just want peace of mind at the end of the day. We take comfort in the knowledge that we have enough provisions to maintain our lifestyles no matter what happens along the way. It doesn’t mean that we have to provide for an excessive lifestyle either. Contentment can be found in maintaining a very ordinary lifestyle not worrying about your financial future, Still being in a position to take those holidays, send your children to school, buy the car etc.. all without worrying about how you are going to pay for it.
Aim for something realistic
So, it becomes more important to clearly define what your lifestyle objectives are and then start to save towards them. It takes a hard and realistic conversation with yourself to discover what you really want and then why you want them. The higher you aim the more you will have to provide for over time. So, the answers will be found in compromising on the size of the house and car even the type of school for the kids. Things you can comfortably afford within your means which lead to enjoying yourself and sleeping well at night.
Enough versus Excess
Catering for a moderate lifestyle is more realistic and easier to cope with as it is probably far less stressful and demanding than providing for than an elevated one. It boils down to providing ENOUGH to enjoy your life along the way rather than giving up so much more to enjoy EXCESS somewhere in the future.

 

 

3 reasons why you will never be financially independent!

 

Financial Independence is achieved when your investments reach a point where they can generate sufficient income for you to live off.
It puts you in a space where you don’t need to earn an income any more. It empowers to to do the things you really want to.
Many of us don’t get anywhere near being financially independent. We, instead, assign ourselves to having to work for as long as possible compromising on our standard of living along the way.
Here are some reasons that stand in the way.
Living it up
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If you are borrowing to maintain your lifestyle your standard of living is too high relative to your income. You should be able to service your debt comfortably after having firstly set aside the appropriate amount for savings.The cost of your total debt should not exceed 30% of your monthly income. If it is higher then you probably should be living in a smaller house or driving a cheaper car. The higher your debt the more you are paying the bank instead of yourself. The opportunity is lost in diverting interest repayments to compounding investment returns.
The idea that we will all make it one day
Many of us dram that one day in the future we will strike it rich in some business or win the lottery. We then don’t see the need to save along the way which ends up in starting to save to play catch up and often ends up being too late.
The only realistic way to have a chance of building enough capital is to take full advantage of compounding. The sooner you start saving the less it will cost you as the power of compounding increases exponentially the longer you save. Its the only magical way to reach financial independence, but it does need time to make it happen.
Ignoring the value of money
Ignoring the value of money now and into the future will stand in the way of being financially independent. Many of us are more ready to spend now rather than save for the future. Think how hard it is to earn your money and how easily you seem to part with it.
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As the costs of living rise into the future the value of your money needs to keep pace to compensate. Furthermore, your investments need grow ahead of inflation if you want to get wealthier and set you on the path to financial freedom.The future cost of living needs a hard and honest evaluation especially with the essentials like medical aid, electricity and even water. Just these three necessities alone will take a huge slice out of your income needs into the future. The value of your money is important now but will become even more so into the future if you truly want to become financially independent.

Your Home Access Bond still a great deal…

When deciding upon an investment the main aspects to consider are:

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 accessible

Costs – the charges applied to the investment. Mainly the fund manager, the administrator and the advisor.

Tax –  taxes applied to the returns as well as capital gains tax when you sell the investment.

The following comparison includes the common investment options available based on general returns and costs and clearly shows that the home access bond is a great place to save your cash in the short term.

Home Access Bond still a great deal.......

The value is found in saving the interest applied to your monthly bond instalment. The bank rules off at the end of each month and applies interest to the average balance in the month. By having a higher balance through your extra savings the interest applied for the month is lower and so the rest of the instalment pays off more of the capital owing. The effective rate saved is the rate of interest that the bank charges you. In the comparison the current prime lending rate is applied.

Where else can you get 9.25% interest, guaranteed, no costs, no tax and immediately available?