Okay… some good news if you really look for it…

Last Sunday on the Weekend Breakfast Show (702/CapeTalk), Sam Cowen cornered me to please give her some good news against the backdrop our our ailing economy. I struggled for an answer and left Sam, Africa and our Sunday listeners hanging.

I set out this week digging deep and, with tongue in cheek, and managed to find 3 bits of good news which we can revel in compared to other countries.

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We pay less for petrol                                                                                                  The price for a litre of petrol differs across many countries in Dollar terms. The highest price is found in Hong Kong where a litre costs $1,74 or R24,88 compared to our current pump price which is less than half. The cheapest price is in found in Saudi Arabia at $0,15 or RR2,14.

Source:
http://www.mytravelcost.com/petrol-prices/

We pay less for a Big Mac                                                                                           The Bic Mac index is rated as a simplified indicator of a country’s individual purchasing power. It compares each country’s Big Mac prices. As many countries have different currencies, the standardised Big Mac prices are calculated by converting the average national Big Mac prices with the latest exchange rate to U.S. dollars.

The Big Mac in SA costs the equivalent of $2.09 (R29,89) compared to Switzerland where it will cost you $6.82. (R97,53). The cheapest Big Mac in Dollar terms is found in Venezuela where it costs $0.67 (R9,58).

Source:
http://bit.ly/1ue3caa
We pay less for liquor                                                                                                   On a scale representing 313 countries the cheapest alcohol is found in Guinea and the most expensive place is Singapore. South Africa ranks the 86th cheapest country in the world to buy alcohol.

Source:
http://www.mytravelcost.com/alcohol-prices/

These 3 comparisons give us some comfort that South Africa is still a a great place to be in spite of our ailing economy. You can drive to get and a Big Mac and a glass of wine cheaper than most countries. Yes, of course, if you venture abroad be prepared to suffer the cost due to the weak rand. However, solace is found in enjoying our local cost of living which makes our country still one of the more affordable places to be on the planet.

So there you are, Sam. Some good news……

Interest rates affect you more than you realise

The recent increase interest rates by the reserve bank of 25 basis points leaves us with the clear direction of where the cycle is heading (1,5% over 2 years). What we are reminded of by this hike is that asset classes move in cycles and not in straight lines. We had an extended cycle of low interest rates for the longest time until the first hike in 2014. When a cycle is prolonged we lose sight of the fact that it will change direction at some stage.

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Interest rates affect the performance of other assets which too move in cycles.

Take shares (equities) as another example. The current record levels of the stock markets leave us thinking they are one directional especially after the longest bull run in our economic history. We could easily be lulled into thinking that the markets can only go up. However, this is clearly not the case.

Take the performance of Satrix 40 which tracks the top 40 shares on the local stock market. The return over the past year is much lower at 4,42% versus a 3 year return of 15,34%

Property too is another asset which has turned after stellar upside performance. The current return forecast on  Proptrax which tracks the top property companies listed on the stock exchange is around 5% against highs in the past of 40%.

So let’s understand that asset classes move in cycles and not in straight lines. Interest rates are the catalyst which has an affect on them.

The old adage of past performance does not predict future performance rings true in the investment arena as markets do not follow the path of the rear view mirror. Therefore, be realistic with your expectations on returns into the future.

What goes up must come down.

Money slips like water through our finger tips…….

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What lessons can we take from the current water crisis and apply to our own personal financial planning?

Don’t wait for it to happen

Do we wait for a life changing event to find out of if the provisions we have made are enough provision to see us through?
If you do, then you are treating water and money in a very a similar way.

Right now both money and water are running out. The water crisis is brought on by the devastating drought we are experiencing through the “El Nino” effect. Then there is a devastating financial drought which most South Africans are experiencing brought about through the global economic crisis which has left many with less money.

Anticipate the future
Well why didn’t we anticipate the need for water into the future and make provisions in advance instead of waiting for the crisis and then reacting. The parallel to this is our lack of saving for the future. We tend to live for now and ignore the fact that someday we will need to rely on our investments to see us through. We react only when there is a crisis instead of planning our needs in advance.

Plan for the “must haves”

Water and money are both “must haves”.You cannot get through life without either and they both are becoming scarce.

Do you have enough set aside for the  “must haves”? Money provisions for death, disability and retirement are “must haves” Just as we should be harvesting our water we should be harvesting our money. Both are vital provisions for now and the future.

The short term plan
We now have to cut back on our usage of water to make it last for the future. Similarly we have to cut back on our usage of money to make it last. Our attitude towards water will through necessity have to change, whereby we will learn how to recycle it and use it sparingly. The same applies to our attitude to money. While you can you should  look for ways to save it rather than spend it.

The long term plan

There is no way getting out of it. Both water and money are running scarce they both need careful planning to cater for our needs into the future. Just as the future planning of water needs to cater for an every increasing population we have to carefully plan for our financial future as we are living longer.

It’s about saving for a rainy day, which in the case of water we hope comes quickly.

Choosing the ‘Best’ medical plan ….. no such thing…

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. Know 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.

calculator stethoscope

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.

Your car won’t get you through retirement…

 

Let’s face it. there are some debts that we can’t avoid. Buying a car is one of them.

The car is enticing as there are many deals out there which put you in the driving seat at what seems to be an affordable instalment. However, beware of the total cost that you are in for.

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The easiest way to rob yourself of wealth into the future is to spend too much of your hard earned cash on depreciating assets.

Many people are convinced that their vehicles are assets on the balances sheet when in fact the value diminishes at a far quicker rate than its liability over time.

Cars have no long term value and yet we get obsessed with buying them, spending fortunes just to be seen in them. The reality is that we soon lose the fuzzy feeling of driving a new car and yet have to contend with paying it off in the years to come.

From the time that you drive your brand new car off the show room and onto the street it is worth less. The value continues to depreciate year on year from then onwards. It gets even worse if at the end of your finance agreement you have a the proverbial balloon or residual to pay off. Don’t be fooled, the financial institution has collected the interest on the whole deal throughout the term and you then have to pay more interest when you refinance the balance owing.

 

So how should you approach buying a vehicle?

If you have set aside the must have provisions in your financial plan first and then ensure you have enough to comfortably get through the month for living expenses, then the remainder of your disposable income can be allocated to debt. In other words, the car you can really afford is the one which can be paid for after your savings have been allocated.

It’s a tough call for most. The car you drive defines you, right? However, if you haven’t set aside enough for your future you will have to redefine yourself in a very harsh way having to drastically scale down your lifestyle to get through.

The money you spend on cars in your life will not feed you in retirement. Only the money you saved and invested from them will.