There are some distinct benefits to reaching financial independence.

It’s the stage where your financial provisions can maintain your lifestyle without relying on a payroll. 

Financial Independence has some distance benefits:

Freedom and Flexibility: 

Financial independence grants you the freedom to make choices without being constrained by financial obligations. You can pursue your passions, take risks, and explore opportunities without worrying about monetary limitations. This flexibility allows you to design a life that aligns with your values and aspirations.

Reduced Stress and Peace of Mind: Achieving financial independence brings a sense of security and peace of mind. You can focus on personal growth, health, and relationships without the constant worry of meeting financial obligations. The absence of financial stress can improve mental and emotional well-being, contributing to a happier and healthier life.

Early Retirement or Career Shift: 

Financial independence enables you to retire early or transition to a career you genuinely enjoy, rather than staying in a job solely for financial reasons. This provides the opportunity to spend more time with loved ones, travel, engage in hobbies, or even give back to the community through volunteering or philanthropy.

The way forward:

Live within your means:

As a rule, income needs to cover your cost of living and include savings for your future financial independence. Unless you win the lotto or inherit and large amount you will never be financially independent without saving. A key measurement in your financial planning is the percentage of your income spent on debt compared to your allocation to savings. A healthy balance is 30% debt and 30% savings, leaving you with 40% for living expenses. You basically are living above your means if you are borrowing more and saving less. Yes, the house and the car are above your pay grade if you are spending more on them than your savings. 

Increase your income:

You can fast-track your future financial independence by finding ways to increase your income. Side hustling with the determination to save the extra cash and not use it to improve your lifestyle needs. 

Save first then spend the rest:

Committing to your savings at the beginning of the month is a far more successful strategy than trying to save what might be left over at the end of the month. You effectively build a realistic cost of living with the peace of mind that you are on the road to financial independence. 

In today’s interconnected world, the risk of falling victim to scams is rising. Scammers have become increasingly sophisticated, making it crucial to be vigilant and well-informed. 

The golden rule in the financial universe is:

If it is too good to be true then it probably is…...

The reality around investing is that it takes time to grow your well-earned money. There are no reliable get-rich-quick schemes. Creating wealth is a function of compounding returns over time. Understanding what realistic returns to expect from various investments is key.

So what should you do?

Here are three essential considerations to avoid being scammed:

Awareness and Education:

Awareness of common scams and understanding how they work reduces the likelihood of becoming a victim. Stay informed about prevalent scams like phishing emails, identity theft, romance scams, and investment frauds. Regularly educate yourself on new tactics scammers employ and learn to recognise red flags and warning signs.

Vigilance and Skepticism:

Maintain a healthy dose of scepticism, especially when approached with unexpected offers or requests for personal information. Verify the legitimacy of any communication or transaction. Scrutinise the source, grammar, and spelling errors. Contact organisations or individuals directly through official channels to confirm authenticity.

Secure Online Practices:

Adopt secure habits to minimise the risk of scams. Use strong, unique passwords and enable two-factor authentication. Update devices and applications regularly. Be cautious with public Wi-Fi networks. Exercise caution when making online payments and ensure you’re on a secure website.

Scamming is here to stay

By staying informed, being sceptical, and adopting secure practices, individuals can greatly reduce their vulnerability to scams. Remember to continuously educate yourself, remain vigilant, and implement secure online habits. These considerations are crucial in protecting personal and financial information, creating a safer digital environment now and in the future.

So if you were offered R3 million on the 1st of this month or 1 cent which doubled every day for the whole of the month which option would you take? Well, if you could delay your gratification for 31 days you will end up with a staggering R10,7 million!

Extraordinary power

When it comes to investing, one of the most powerful forces at play is the concept of compounding. Albert Einstein famously called it the “eighth wonder of the world,” and for good reason. Compounding allows your investment returns to generate even more returns over time, resulting in exponential growth. Let’s explore the power of compounding with a simple example.

Imagine you have R1000 to invest and you decide to start investing at two different times, five years apart. In the first scenario, you invest R1000 today, and in the second scenario, you invest R1000 five years from now. Let’s see how the power of compounding works over time.

Assuming an annual interest rate of 8%, after 10 years, the investment made today would grow to approximately R2159 due to the compounding effect. On the other hand, the investment made five years later would only grow to around R1470 over the same period. The difference between the two investments is quite significant.

Start as soon as you can

Starting earlier allowed the first investment to benefit from ten years of compounding, resulting in a larger return. This showcases the power of time in the world of investing.

The outcome vastly improves if the returns are higher over a longer period.

This example highlights the importance of starting to invest as early as possible. Even small amounts invested early can have a substantial impact on your future wealth. By harnessing the power of compounding, you can potentially build a significant nest egg over time.

In conclusion, compounding is a remarkable phenomenon that can significantly enhance the growth of your investments. It demonstrates the value of starting early and being patient. By harnessing the power of compounding, you can set yourself on a path to long-term financial success. So, start investing today and let the power of compounding work its magic for you.

In times of economic uncertainty characterised by high inflation, rising interest rates, and an unpredictable future, renting a property has emerged as a favourable alternative to buying. While homeownership has long been hailed as a symbol of stability, renting offers distinct advantages in the face of volatile economic conditions. Let’s explore the key benefits of renting during difficult times.

Flexibility and Mobility:

Renting provides unparalleled flexibility, allowing individuals to adapt quickly to changing circumstances. In uncertain times, the ability to relocate swiftly for job opportunities or personal reasons can be invaluable. Renters are not tied down by mortgages or property ownership, giving them the freedom to explore different areas without the burden of selling or managing a home.

Mitigating Financial Risks:

Property buying entails significant financial commitments, such as down payments, closing costs, and ongoing maintenance expenses. Renters, on the other hand, can allocate their resources more strategically during economically challenging periods. Individuals can allocate their savings towards other essential needs or investments by avoiding long-term financial commitments, providing a buffer against inflation and potential financial risks.

Maintenance and Repairs:

Owning a property involves the responsibility of maintenance and repairs, which can be costly and unpredictable. In contrast, renters enjoy the advantage of having landlords or property management companies handle these burdensome tasks. In difficult economic times, when unexpected expenses can strain budgets, avoiding the financial responsibilities of maintenance can be a significant relief.

Access to Amenities:

Renters often have access to a wide range of amenities, such as gyms, pools, and community spaces, without the burden of ownership. These facilities can enhance the quality of life and provide an added sense of community, especially during times when external activities and entertainment options may be limited due to economic constraints.

Conclusion:

In times of economic uncertainty, renting a property offers numerous advantages over buying. Flexibility, reduced financial risks, alleviation of maintenance burdens, and access to amenities make renting an attractive option for individuals navigating uncertain times. By opting for rental housing, individuals can preserve their financial flexibility and adaptability, ensuring a more secure and stress-free living arrangement amidst economic turbulence.

Inflation can put a significant strain on our finances, forcing many individuals and families to explore ways to save money. However, canceling insurance policies, although tempting, can have severe consequences that outweigh short-term financial relief. This article highlights the risks associated with canceling insurance to meet the rapidly rising cost of living amidst inflation.

Risks of Canceling Insurance 

Insurance serves as a crucial safety net, protecting individuals and families from unforeseen risks and financial burdens. Canceling insurance policies, such as health, auto, or home insurance, exposes individuals to various risks. In the absence of health insurance, even a minor medical emergency can lead to exorbitant healthcare costs. Similarly, forgoing auto insurance increases the likelihood of financial ruin in the event of an accident. Additionally, canceling home insurance leaves homeowners vulnerable to the devastating consequences of natural disasters, theft, or property damage.

Consequences of Canceling Insurance 

The consequences of canceling insurance extend beyond immediate financial implications. Individuals may face legal consequences, fines, or penalties without proper coverage. Canceling health insurance, for instance, can result in limited access to healthcare services, compromising overall well-being. Moreover, being uninsured or underinsured may lead to significant financial setbacks in the future. In the event of an accident, individuals may be held personally liable for damages, leaving them financially crippled for years to come.

Alternatives to Insurance Cancellation

Instead of completely canceling insurance policies, individuals can explore alternative ways to mitigate the impact of inflation. These options may include negotiating lower premiums, adjusting coverage limits, or exploring discounts and bundling options. Additionally, seeking financial advice, budgeting effectively, and exploring cost-saving measures in other areas of life can help navigate the challenges posed by inflation.

Conclusion

While inflation can strain our finances, canceling insurance policies to meet the rising cost of living is a risky decision with severe consequences. Protecting ourselves and our loved ones through insurance coverage is essential, ensuring financial security and peace of mind in the face of unforeseen circumstances.

As interest rates continue to rise, homeowners with mortgage bonds may find themselves facing increased financial pressure. The recent increase this week by another 0,5% takes the prime lending rate generally charged to bondholders to 11,75%. The rate was at an all-time low of 7% in September 2021and now your bond costs you 40% more. 

Putting into perspective, a bond of R1 000 000 in 2021 cost R7 753. Now the same loan costs R10 837 (R3 084 more). The reality is that bonds are paid with after-tax income. So if you are working on extra income like a side hustle to keep up with your new repayments you will need to earn up to 40% more to cover the tax. 

As these high rates are likely to be around for the foreseeable future whilst inflation (CPI 6,8%) is still way out of the band of 3% to 6% we should look at ways to mitigate the high cost of this debt. 

Work with your access bond

If your bond and your current account are linked to your internet banking you have a super effective tool to tackle the debt in the long run. Your current account earns no interest and your home loan is charging you say 11,75%. At the end of each month, the bank calculates the average balance in your bond and takes the applicable interest from your monthly instalment first and then the very little left over is paid towards the loan. So during the month, you should keep as much as possible in your bond and as little as possible in the current account. The higher average monthly balance means that from your next instalment, you will pay less interest and more off on your loan. Over time this will build up extra funds which you can access at any time. If you leave this alone you could find yourself saving fortunes by shaving off years on your bond. 

This plan doesn’t cost you anything. You simply are warehousing as much as you can in the bond through the month and trickle-feeding the minimum into your current account for day-to-day living as and when you need to. 

Example: 

A bond of R1 000 000 @ 11,75% over 20 years has a monthly repayment of R10 837.

If you improve your monthly balance in the bond by only R1 000 you pay up your bond 5 years earlier saving you R468 171 in future repayments. 

A measure of last resort

If you cannot keep up with the repayments having cut back as much as possible on your expenses then sooner than later you should have a meeting with the bank to negotiate and explore ways to reduce the monthly repayments.

The options to consider:

1. A relief period where you pay the interest only for a period
2. Increasing the term of the bond.
3. Negotiate a lower interest rate. 

Be aware that any of these options will help in the short term but will effectively cost you more in the long run. Once you get back on your feet you should pick up the access bond strategy to recover and avoid these extra costs. 

We are in a tough economic period and it is far better to make a plan now around your home loan whilst you can. The consequences of doing nothing will be harsh as creditors narrow down on you to attach your property.

“Sell in May and go away” is an investment adage that suggests that investors should sell their stocks in May and reinvest them in November, as the period between May and November is typically associated with lower returns in the stock market.

Historical data have generally supported the “Sell in May and Go Away” adage over the years and since 1945. The S&P 500 Index has recorded a cumulative six-month average gain of 6.7% in the period between November to April compared to an average gain of around 2% between May and October.21 Mar 2023

Here are three reasons why you might consider following this advice:

1. Historical trends: The adage is based on historical trends in the stock market, which show that the period between May and November tends to be associated with lower returns compared to other times of the year. According to some studies, stocks have historically underperformed during this period compared to the rest of the year.
2. Market volatility: The period between May and November is often associated with greater market volatility, which can make it more difficult for investors to navigate the market. By selling your stocks in May and waiting until November to reinvest, you can potentially avoid some of this volatility and minimize your risk.
3. Seasonal factors: There are several seasonal factors that can impact the stock market during the summer months, including lower trading volumes, vacations, and decreased investor participation. These factors can lead to a slower market, which can contribute to lower returns.

However, it’s worth noting that this adage is not a hard and fast rule, and there is no guarantee that you will see better returns by selling in May and going away. It’s important to consider your individual investment goals, risk tolerance, and investment horizon before making any decisions about buying or selling stocks. It’s always a good idea to consult with a financial advisor or do your own research before making any investment decisions.

Essentially, the financial plan for young people follows the same approach as for everyone. It answers the questions:
Where am I now?
Where do I want to be?
How do I get there?

The difference in the plan for young people is that it should cater for their probabilities of needing provisions in the short and medium term.
The probable life-changing events which occur in the short term such as:
Buying a house
Buying a car
Getting married
Having children

The emphasis in the plan for young people is therefore on accessibility to funds. Which in financial speak is called liquidity.
The investment instruments should therefore allow access.
Unit trusts cater for this and are ideal starting points for young people.
Try to avoid policies as they are restrictive.
A retirement annuity, for example, binds you for too long into the future and if you need cash you won’t be able to access funds until 65.
Unit trusts allow you to stop and start without being penalized on your cash value

The risks that should be addressed in the plan are provisions for
Disability
Medical aid
Short-term cover for the car

Don’t ignore your pension fund benefits
As you may be duplicating on the disability cover

The financial benefits of cohabitation play a role in how people live in the US. About 2/3 of people who have moved in with a romantic partner say finances and logistics contributed to their decision and the share is even higher for younger couples.

And while the decision can help one’s pocketbook 10 of those that moved with a romantic partner later regretted the decision according to a survey of more than 3000 consumers conducted by HarrisX, a polling firm for realtor.com. 

Sharing costs has a huge benefit

In theory, the cost per person is halved as there are many expenses which are shared.

Rent, lights and water, rates and taxes, transport, TV, Kitchen utensils, furniture etc…

Considering that if one were on their own they would have to spend money on these items for themselves only, The survey found that couples saved around $1000 per month. 

It must be more about something other than the money

When analysing the research it is apparent that moving in together is not all about the money. Relationships definitely hold the key to successful cohabitation. As the research shows 48% didn’t work out:

So living together is a challenge which needs to be well thought through. Whilst the financial benefits are very real the relationship will still be tested to the point where the money doesn’t matter anymore.

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The harsh but necessary increase of 0,5% in interest rates by the Reserve Bank this week was harsh and unexpected. It does, however, show how determined the MPC is to bring back inflation into the target range of 3% to 6%. 

Dealing with rising interest rates can be challenging, but some strategies can help individuals manage the impact on their personal finances. 

Refinancing loans

If you are struggling with repayments on your bond or vehicle you may do well to approach the lender and explore the options to refinance the loan/s over a longer period of time. This will result in a lower repayment which could help in coping with your monthly cost of living. 

Debt consolidation

Another option to consider is approaching your bank holding your bond and exploring options to lend more against the value of your house. The additional amount can then be used to settle all of your debts. This amount now sits in your new access bond at a much lower repayment than the combined repayments you used to pay. However, you must be mindful of repaying the loan sooner than later as it will cost you much more in the long run.

Building and emergency fund

Extra cash should be saved in your access bond or a money market account. Aim towards 6 months of your living expenses. If you refinance or consolidate you should have extra to save. Rising interest rates have a positive effect in these spaces and you should capitalise on the window of opportunity as interest rates are likely to rise even further before they come down.

Cut down on spending

Adjusting spending habits and cutting back on discretionary spending can also help reduce the impact of rising interest rates on personal finances. Easier said than done in the face of steep price increases in food, fuel and electricity (the odd times between load-shedding). 

Overall, dealing with rising interest rates needs you to face it head-on by being proactive and making a plan. You can mitigate this by being mindful of the impact of rising interest rates and ways to soften the landing.