Lessons we can take from the 2018 Budget….

 

The 2018 Budget speech created a lot of hype against the backdrop of major political change in our country for the better….. without question.

From my point of view I found the budget proposals pretty clinical and distant from the current situation which South Africa finds itself. Easy routes were taken to close the deficit and opportunities were missed to raise the anticipation of radical change. It was by no means a bold budget.

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It’s not just about money….
This brings me to comparing things to our own personal financial planning. The ultimate outcome of a successful financial plan is… peace of mind, which our budget proposals aim to achieve but don’t get there. We are left to hope that things will play out to improve our economy and well being of South Africans. Questions are left about the political will to enact on the proposals. We need to believe that our precious resources will be allocated for the benefit of South Africans. This is the new message from our new president. Can the responsible players deliver?

It’s about peace of mind…
Peace of mind over money is found when you don’t worry over it. You are secure and safe in the knowledge that if and when a life changing event occurs you have financial provisions that will see you through. So, a successful financial plan is not about having a lot of money as much as it is about have enough to maintain your lifestyle. Obviously the higher you raise the bar on the way you live the more you will need to maintain it. If that leads to worrying about things then you haven’t found success.

It’s about having provisions to cope when needed…..
The 2018 budget proposals do the job of rationalizing income against expenditure and proposing ways to balance it over time. They don’t convince us that we will get there. We still have to borrow more money to balance it. The soundness that whatever financial disaster may occur we can handle it is not there. If a devastating collapse in the markets of 2008 happens again do we have the capacity to cope with it? If we have a natural disaster (Cape Town doesn’t get enough water) can we cope?

The budget is laid down and now we have to work with it. It delivered a timid and clinical approach. We weren’t left with peace of mind that we are in control no matter what befalls us. Like a successful financial should do…..

Manage your cards efficiently for that little extra…..

Using your credit and debit cards more efficiently can save you a lot if you get to understand them a whole lot better.

Debit Cards                                                                                                                Debit cards are linked directly to your bank account. So when use it to buy something
the money is immediately debited off the balance in your account. Pretty useful for those who
are weiry of overspending during the month.

Credit Cards                                                                                                              Credit cards work a bit differently. The bank allows you a limit to use the card for during the month. However, you need to pay back the amount owing at the end of the month otherwise you pay interest in the region of 22% per annum. The bank gives you a period to make this payment before it levies the interest. So you need to be aware of the balance and make your payment in time to avoid the costs.

At the outset it appears that debit cards are the way to go. Less hassle as you are spending your money and don’t need to worry about getting into a debt which costs you interest.

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Manage your cards efficiently for that little extra…..

 

But wait a bit……there are fees to consider

The debit card charges you for each transaction that you make whereas credit cards don’t. So here is where you can take charge and earna bit extra.

If you planned your month more carefully setting aside an amount of money which you intend to use then you should use your credit card
for all transactions saving you a fortune in transaction fees. Come the end of the month you have the money set aside to settle the balance
and avoid the interest.

So the outcome of using a credit card wisely is that you are using the banks money free of charge. You can get extra mileage if you keep the money in your access bond or a interest bearing bank account. You could get even more savvy by linking these accounts to your internet banking profile so that you can keep an eye on the credit card balance and transfer the balance immediately when you need to.

Understanding the way these cards work can turn the costs into a benefit…..

Assume you make 20 transactions on your debit card in a month. You pay R4 per transaction which amounts to R80. Using your credit card will save you this R80. If you
have a spend of R10 000 in a month and keep this in your bond @ 10% then you receive and extra R80. You then have made R160 for the month. If you reinvest this savings into an investment earning say 5% then you will have R10894 after 5 years.
(@10% you will earn R12 347.

So now you can see how getting savvy with your plastic can make a difference if you really set you mind to it. It takes focus and discipline.

We need a rand that satisfies Goldilocks…..

The rand has recently strengthened extraordinarily against our weak economic conditions. The strength points to changes on the political front which are more promising for South Africa’s future. Investors like certainty. By weeding out corruption and presenting confident and well intentioned leadership our economy will open up to foreign investment which leads to a stronger currency.
However, crazy as it seems, the rand shouldn’t get too strong and needs to find a level somewhere in between strong and weak. It’s a Goldilocks currency which shouldn’t be too hot or too cold but just right. Let’s explore some of the effects.

 

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Why we want a strong rand?

Oil
The good news is that the pump price of petrol will fall on Wednesday by 43c. This is as a result of the rand’s surprising strength of late, trading under R12 to the US$.

Essentially, we are dependent on the oil price which is quoted in US$ and the exchange rate of those dollars to the rand at the time we purchase the oil. The cost affects many industries in the country that particularly rely on vehicles to transport their goods and services. Therefore, these costs are directly affected improving the value of rand’s purchasing power into the future (inflation).
Unfortunately, prices go up very quickly when the oil price goes up but somehow they don’t come down that quickly when the rand falls.

Why we want a weak rand?

Resources                                                                                                              Exports are our life line. Especially resources, as we produce many commodities for world consumption. There is currently a upward tick in the resources cycle as global demand improves. A weaker rand improves the price we get for these exports which has a direct impact on our mines’ profitability, which in turn maintains and creates jobs.

Tourism                                                                                                                    Tourists find it cheaper to visit us with a weaker rand as their currency goes much further. Tourism creates and maintains employment which in turn adds to the growth our economy.

What can we do?

Economics is one thing and all we can do is work with the things we can control.The rand at these stronger levels will keep interest rates lower, so take advantage of the lower rates by paying off your debts quickly.
If you see an improvement in your disposable income then save it rather than spend. The savings will make you less reliant on debt in the future making it easier to keep up with the cost of living when the rand weakens sometime in the future.