The cost of raising a child….

Recent stats from the UK show that it costs the average British household GB 7 026 per year to raise a child from birth to 5 years old. That’s around R130 000 per annum.
Research on South African middle income households show that it costs around R90 000 a year to raise a child. On a straight line projection that’s over R1 600 000 by the time the child reaches 18 years old.The main costs involved are education, clothing and extra muriel activities, such as ballet classes, playgroups and soccer clubs.
These should all be treated as lifestyle costs and, therefore, should be funded through your monthly income and not from debt. If you can’t afford to send your child to the best school or buy the best branded clothing, then you need to re-evaluate your affordability and compromise. Quite often our choices pander to keeping up with the Jones’ as the school that our children go to or the branded clothing that they wear give us a certain standing in our social circles.This comes at a huge cost as you factor the cost of borrowing to strive to raise your child beyond your means. Yes, we are great parents because we sacrifice so much for our children, but at what price for our own financial independence in the future. It has the probable outcome of having to depend on the very same children during our retirement which is the case for 47% of people in South Africa when they reach the age of 65.
What can you do to help absorb the costs?
The costs can be subsidised by setting up a savings account which you can use for those unforeseen expenses, like school tours and extra muriel activities, and, and, and…..All you can do is try and save what you can when you can. A fund for the children which you can add to monthly and from time to time.
Cutting back on the many presents on birthdays and Christmas and rather setting aside a portion of the savings in the fund. Getting gran and grand pa to do the same. Pulling back on the branded items will go a long way to reduce costs and create more savings.
Where to save? 
You need to keep your investments accessible, so, unit trusts are a useful vehicle. The new tax free savings accounts are probably even better as they have should have a better yield on a like for like basis. Take full advantage of your R22 800 tax emption on interest by having a contingency fund in a money market account. This is your first port of call for unforeseen expenses, so that your can leave your other investments to carry on compounding.
My personal preference for the disciplined saver is the access bond which earns a reasonable return by saving your money at the same rate that the bank is charging you. Your have immediate access to the funds when you need it and there are no taxes or costs to consider.
The great experience of raising children will be so much more worthwhile if they are backed by a lifestyle that you can comfortably afford.


Sell in May then go away?

This has been a strategy applied by investors in the stock market over the years.It is a classic market adage which is also known as the Halloween Theory as the time to renter the market is after Halloween. (End of October). The saying dates back to old England, when the stock brokers would go on summer vacation in May and not return until September.

According to the Stock Trader’s Almanac, the Dow Jones Industrial Average has had an average gain of 7.5% during the November through April period and a gain of only 0.3% over the May through October period, going back to 1950.
Even though the worst crashes in history have occurred in October, on average, October is not the worst month of the year for stocks. In October of 1929, the market dropped over 24% in two days, and that two-day drop is still the worst in history. On October 19th, 1987, the Dow dropped a record 22% in one day. In October 2008 the Dow dropped over 22% in eight trading days.
What to consider when investing in the markets…
What is your time horizon?
The first question that needs an answer is, “How much risk can I afford to take?”
This needs to be measured against your financial planning taking your life style objectives into account. For example: If you are retiring in a few years time and need the capital you have accumulated to provide an income then you need to be less exposed to the risks of the market than a younger person who has, say, 10 to 15 years to go.
Invest or speculate…
The markets are not for the short term unless you want to speculate which is just another name for gamble.
When you invest in the markets you are buying shares which need time to provide you with dividends from their profits. Over time, if these profits are consistent enough, then the share price will tend to move upwards because of the company’s performance. Better still. the dividends should be re-invested creating the magic of compounding. Time in the markets, in theory, smooths out the fluctuating performance and reduces risk.
Past performance is not relevant
Having explained some theory, be very aware of the current risks that have developed in the markets. The extra ordinary performance at the current record levels against the back drop of weak economic fundamentals has created many questions around the sustainability of the share prices. Do not be enticed into these markets too quickly based on the past stellar performances. Taking a loss on your capital is a lot more painful than losing out on a few percentage points on your returns.
Sell in May has historic relevance, but how different are these markets to their historic performances?  It’s the big question!  So, be very, very, careful and do a lot more homework!

The magical rule of 72.

The number 72 has an uncanny ability to calculate the future value of money. imagesSo put away your financial calculator and let’s do some mental arithmetic.

Future value of your investment.
If you want to know how quickly or slowly for that matter your money will double in value then simply divide the expected rate of return into 72. The result is the number of years it will take.
For example:
You invest R10 000 at an expected rate of return of 12%.
It will take 6 years for your money to double to R20 000.
If your return is only 6% then
It then take 12 years for your money to double.
When checking this on the financial calculator the value of the investment after 6 years is R19 738 and after 12 years is R20 121.
Future value of money
The rule of 72 can also be used to establish the impact that inflation has on your money in the future. If you divide the inflation rate into 72 then the result is the number of years it will take for your money to halve in value.
For example
You have R10 000 saved under the mattress earning no interest and the inflation rate is 6%.
In 12 years your money will be worth R5 000.
If the inflation rate is 12% then
In 6 years your money will be worth half.
Checking this on the financial calculator the value at 6% is R4759 and at 12% is R4 644.


Moms…be careful not to give the kids too much on mother’s day….

imagesMother’s day is all about being spoilt by the children and some mom’s will be so overwhelmed by the love and attention. Just incase you want to reciprocate, Mom’s… beware there are limitations.
Be careful Mom’s not to give away your children’s inheritance too soon, the tax man will charge you a fortune.You can only give up to R100 000 per year after which your will have to pay 20% in donations tax.
You can give and receive any amount to your husband but when it comes to the children SARS puts the breaks on.
So if you suddenly bought your child a million rand house and a fancy German car then SARS could be after you in terms of how necessary and reasonable the donation was towards the upkeep of your child.
When you really study the taxation formula of donations tax you realise that it is a form of tax to stop you from offloading your assets before you die, thereby avoiding estate duty. You see, when you die your estate is taxed after exemptions, costs and liabilities at a rate of 20%. The easiest thing you could do if this was not in place would be to give the children everything just before you die. This way SARS won’t get much. So, donations tax is a mechanism put in place to ensure that SARS gets its slice of the revenue whilst you are alive. When you die SARS will collect the rest.
So, mom’s, enjoy the day and just be aware of that impulsive urge to give your children too much. It could cost you more than you realise!!!