Your Money, your Risk!

It’s your Money, Know Who To Trust With It

Yes we all want to be wealthy right? We all want to live the life that most of us dream about, the life where we are forced into decisions because we financially dependent on someone else for the material things that “supposedly bring us joy”. Yes, I still insist that what will and does ultimately make us happy is more than just the amounts of cents and emalangeni that sit in our accounts daily. Our ultimate riches lie also in us being savvy in how we carry ourselves, the decision we make and how we execute on them.

Most investors (yes, I am now already calling you investors) do not really think about who it is that they are trusting with their money, who it is that is making them the promises. It seems that all that they concern themselves with is “what is being said – what is the Promise”

What most do not understand is this principle which has guide my life in all decisions that have been made

“It doesn’t matter what the Promise is, it doesn’t even matter how desperate you are to hear this Promise, all that matters is WHO IS MAKING YOU THE PROMISE”.

Remember the saying that “IF IT SOUNDS TOO GOOD TO BE TRUE, IT USUALLY IS”

So do not just hear the outcome that is being promised, look at who is making the promise, what have they achieved for themselves, what made them succeed if they tell you that they have, would it work for you, is it legal, is it sustainable or a get rich quick scheme that can blow up any minute?

 Be Passionate

I’m a mathematician by volition and should I now admit “by Passion”. I love analysis. I enjoy using abstract data to create or is it formulate solutions. I love comparing apples and oranges, yes – while admitting that they are different, I search for the probability that they may actually insight a similar reaction, may awake a similar sensation in me.

In essence, I take different objects, out them side by side, review their shape differences and sizes, and then make an informed decision based on quantifiable data on which is the best.

I hardly ever use “feelings – I know right, you wouldn’t think so listening to me go on about love and how beautiful it all is, how starry my eyes get as I look at him, hoiw weak my knees, and all else I have told you as a consequent of love. No, I do not JUST use feelings, but –

Feeling plus analyzed repeated actions for me are what build a Character, a life and of course wealth.

Hence

I have never understood why most of us want to hear rather than see. Why most of us believe in what he says, rather than get to know who he is.

 What am I saying therefore?

Before you consider investing with any fund manager, or bank it is your responsibility to learn much more about the organization; rather than just concentrating on the physical location of the offices.

After all, this is your money – your lifetime savings; your retirement you will be signing over.

Making an investment is more than just getting superior returns. It is also about forging a ‘partnering’ with the management, so to speak. It therefore becomes imperative for you to make it your business to enquire not just about the investment house or bank, but more importantly to also get to know the people selling you the product.

Are they good with clients, the service they offer – is it world class. Do they themselves hold any investments “practise what they preach so to speak”? Are they honest in their dealings or do they black mouth others in order to convince you to invest with them? Most importantly, it becomes imperative to know if they are professionals, they understand the product they are selling.

All these are crucial to enable you to satisfy yourself that your money will be secure the way you would like it to be.

Investment on the other side of saving

What is an Investment?

Yes we all want to be wealthy right? We all want to live the life that most of us dream about, the life where we are forced into decisions because we financially dependent on someone else for the material things that “supposedly bring us joy”. Yes, I still insist that what will and does ultimately make us happy is more than just the amounts of cents and emalangeni that sit in our accounts daily.

An investment, on the other hand of saving

An investment on the other hand of a saving, is solely structured for wealth creation. Simply defined, an investment is money that you put aside with the understanding that it will not be needed for many years, the exact number of which differs from one individual to the next.

Investments involve greater risk, but, investments must also yield much greater returns when left alone long enough to ride out the turbulence of the stock market. When you're investing, you give your assets the potential to grow over time. You typically reinvest your interest, dividends, and capital gains earned.

Often you are prepared to take a little more risk with investment money than you are with your savings. With the opportunity for growing your money comes the risk that your account value may decrease. If you have many years before you need the money to reach a goal, such as your child's college education or your retirement, you may have time to recover from small decreases in value. So in essence the reality is that;

When you "invest," you have a greater chance of losing your money than when you "save." Unlike insured products, the money that you invest in securities, mutual funds, and other similar investments is not risk free. You could lose your "principal," which is the amount you've invested. That’s true even if you purchase your investments through a bank. But when you invest, you also have the opportunity to earn more money than when you save.  There is always a tradeoff between the higher risk of investing and the potential for greater rewards.

That is why most people do not become wealthy, that is because they refuse to take the risks that are associated with the journey towards wealth, and yes it is a journey, and not a marathon.  

 

Growth

 

When you invest, you are buying an asset that you expect to grow in value. Since the value may fluctuate, it is always best to invest money that you probably won’t need in the near future. You will want to be able to sell when the market conditions are favorable, and not on short notice.

Investment choices range between (and we will discuss these in detail soon)

§  Individual securities — such as stocks and bonds

§  Pooled investment products — such as mutual funds and exchange-traded funds

§  Estate planning and real estate

§  Retirement plans

§  Rare investments like art pieces and precious metals

You will need to find investments that fit your goals, time horizon, and risk profile. If the investments you choose make you nervous or uncertain about your future, you may be in an investment profile that’s too aggressive for your risk tolerance.

Getting the most from your money means understanding the difference between saving and investing — and how to use both. Saving alone may not provide the opportunity to grow your money at a sufficient rate. Yet, relying solely on investing could leave you without easy access to enough money in an emergency.

Understanding the difference between saving and investing helps you put your money to work toward your goals and then ensuring that goals are not just dreams but that they become achievable

An investment against saving!

What is an Investment?

An investment, on the other hand of saving is solely structured for wealth creation. This is money that you put aside with the understanding that it will not be needed for many years, the exact number of which differs from one individual to the next.

Investments involve greater risk, but, investments must also yield much greater returns when left alone long enough to ride out the turbulence of the stock market. When you're investing, you give your assets the potential to grow over time. You typically reinvest your interest, dividends, and capital gains earned.

Often you are prepared to take a little more risk with investment money than you are with your savings. With the opportunity for growing your money comes the risk that your account value may decrease. If you have many years before you need the money to reach a goal, such as your child's college education or your retirement, you may have time to recover from small decreases in value.

When you "invest," you have a greater chance of losing your money than when you "save." Unlike insured products, the money that you invest in securities, mutual funds, and other similar investments is not risk free. You could lose your "principal," which is the amount you've invested. That’s true even if you purchase your investments through a bank. But when you invest, you also have the opportunity to earn more money than when you save.  There is always a tradeoff between the higher risk of investing and the potential for greater rewards.

When you invest, you are buying an asset that you expect to grow in value. Since the value may fluctuate, it’s best to invest money that you probably won’t need in the near future. You will want to be able to sell when the market conditions are favorable, not on short notice.

Investment choices range between

§  Individual securities — such as stocks and bonds

§  Pooled investment products — such as mutual funds and exchange-traded funds

§  Estate planning and real estate

§  Retirement plans

§  Rare investments like art pieces and precious metals

You will need to find investments that fit your goals, time horizon, and risk profile. If the investments you choose make you nervous or uncertain about your future, you may be in an investment profile that’s too aggressive for your risk tolerance.

Getting the most from your money means understanding the difference between saving and investing — and how to use both. Saving alone may not provide the opportunity to grow your money at a sufficient rate. Yet, relying solely on investing could leave you without easy access to enough money in an emergency.

Understanding the difference between saving and investing helps you put your money to work toward your goals and then ensuring that goals are not just dreams but that they become achievable

Are you Investing or Saving?

Investments Simplified

Are you Investing or you are Saving?

What is the difference?

Most of you have been waiting impatiently, claiming to be ready – asking when are we going to really discuss the types of investments. I am glad to say that “finally, we are here”.  It is now time to get to the most exciting part of all this. We have built the block, one by one; we have crafted our inner beings and prepared ourselves for the way forward (at least I hope that we have through the different topics that we have explored thus far). Now it is time to talk about Investments. Are you ready? I now that I am…..

 

First discussion point - Are you an investor?

Whenever you look at yourself – do you see an investor? Do you know what we mean by an investment? Take a moment and think about it, what is an investment? And, would you say that you qualify as an investor? I only ask because in more instances than I would have liked, many confuse “savings and investments”.

And in this society, I find that, many use the words interchangeably like they mean the same thing, and that many more are savers, but very few are actually investors.

 

So what is an investment?

Most of us instinctively may know that saving and investing are not the same, but do we understand the difference? Clarity in this distinction can greatly impact one’s financial wellbeing; can define a winner and a mere survivor. Realizing these differences is vital. Knowing the difference, and when to choose each, can help you reach your financial objectives. In the end, when you actually have decided to invest – know that a mix of both may be the optimal strategy.

The key to fully understanding and putting these into practice lies in these two words: risk and liquidity.

 

Savings

These are low risk funds that must be liquid (available) when you need them. The purpose of saving money is so you can have it for a specific purpose within a short time frame. When you are saving, you are concerned primarily with securing your money, while not losing any of its value. Typically, savings are earmarked for an emergency or a short-term goal. While saving money may preserve your money’s nominal value, opportunities to grow your money are limited.

When you save, you look for a low-risk place to put your money. Depending on your choice, you might earn interest or none at all. How much interest you earn may be less important to you and your needs, than is the opportunity to preventing any loss of money or having access to your money on short notice without penalty.

Saving choices range from the likes of

§  Savings accounts

§  Money market accounts or money market mutual fund

§  Certificates of deposit (CDs)

§  Treasury bill or short term bonds

In this listing, where is your money? If it falls within this category, you have not started investing.

Live to Impress and You will always be Broke!

To have money – You cannot live to Impress

Most of us are blinded so much by the notion of trying to impress others that we forget to really look into our own financial buckets before we spend. We are so busy worried about what she thinks, what he will say when we wear the same dress to the party that we wore last year to the other function, what they will think when we don’t order the shoe that they are all placing an order for, what she will say when we………. The excuses to be irresponsible never end with people I find.

Here are my questions

-       Does she contribute to your financial lifestyle?

-       Will you grow grey hairs on your face if they talk, laugh at you or look down upon you?

-       Will the sun stop shining because you didn’t attend the party you couldn’t afford a dress for?

-       Do you stop breathing because they stopped talking to you; or worse still

-       Say you yield to their pressures and spend Willy-nilly – will they be there to clean up your mess when the shylocks and banks start knocking loudly at your doorstep? Will she, he?

If your answer is no, you have no business worrying or even spending one second considering them in your decision thought process. They do not matter in the larger scheme of your life, therefore do not make them any more important than they actually are

The Mistakes we Make

Yes, we are all human and therefore fallible to being in a position where we will continue to make financial mistakes from time to time - that's just part of life. However, knowing about common mistakes beforehand can reduce your odds of making them. Understanding what it is that is likely to lead you to your downfall can save your skin.

Let us therefore briefly take a look at some of these common spending mistakes:

§  Buying On Impulse

If you are like me, and you will buy a can of coke, a snack and/or a bar of chocolate in the checkout lane every time you go to the grocery stores or filling station and you go to the grocery store twice a week, that seemingly inconsequential purchase is costing you E200 a month, or almost E2400 a year.

And if I am like you, I will be buying that occasional beer every evening, that bottle of wine to enjoy as I distress, and if this becomes a habit – I end up distressing every evening and spending e50 a day which will by week end be over E300 for I will finish the bottle (hopefully not in one day but over a week). That becomes a bill of E1,000 a month on alcohol and by year end, you have spent over E20,000 if you include the weekend binges that happen now and then. Write it down, you will be shocked. 

Add a few other impulse buys at a few other stores over the course of a month and no matter how inexpensive they are individually, they will add up to a number that will shock you.

There's nothing wrong with buying snacks or that bottle of wine now and then, but if you notice by reviewing your budget that you are buying it at a rate of 52 packs a year, you can plan to buy these in bulk at wholesale stores if you must for a third of the price and save money. Or better yet, you can reduce your intake on these that society has classified unhealthy (I who was I to disagree?).

Writing down even those minor E10 purchases every time can help you spend more wisely in the long run.

§  Becoming the Victim of the “I want to look rich” syndrome

We all have had this experience. You go out to do something or buy something expecting it to cost a certain amount of money - an amount you've budgeted for - but when you get home you realize that you ended up spending much more. How does this happen?

Perhaps you decide to go out with some friends on a Saturday night and you think you're just going to a bar, but once you get there the group decides to go out to eat as well, or to surprise another friend who is located some 15km away from where you were originally planning on being, and behold, you do not want to disappoint or show that you may not have catered for the additional fuel. After all, you are already along for the ride, so it's easier to give in to the pressure to join in on the food and trip rather than be the odd one out. In that same scenario, after you've had a couple drinks, money may not seem like such a big deal and you may buy everyone a round against your normally better judgment.

These things happen, and you won't always be emotionally strong enough to prevent them.

However, if you know that you have a tendency to buy more than just one thing when you go to the store, or if you know that your friends have a tendency to change their plans at the last minute, either avoid these activities or create a bigger budget for them ahead of time.

§  Being so Frugal it Makes You Miserable

Budgeting is like dieting: If you try to deprive yourself too much, you will just binge later and throw all your hard work out the window. A spending binge can set you back far more than treating yourself occasionally, so go for the occasional minor splurge. Buy that bottle of wine or those new flowers for your yard. Let yourself take a vacation. Just keep your treats within your spending limits and you'll be fine. This may mean you're saving E1,000 a month instead of E1,500, but it's better than saving E1,500 a month for six months, making yourself miserable in the process, then going out and blowing E5,000 in the seventh month.

 

§  Ignoring the Time Value of Money

It is true that sometimes the cheapest way is not the best way. If milk, bread and eggs are cheaper at one grocery store like Shorprite as most argue, chicken, butter and cereal are cheaper at another like Superspa, I am not convinced that means that you should go to both stores every week to get the best possible deal on each and every item. The time it takes for your to move around, the fuel utilized if you need drive to each does not justify the few cents that you will save from each item.

Besides, unless you have incredible self-control, you will probably be tempted to buy something at the second store that wasn't on your list, thus defeating your whole purpose.

Moving Forward

You may have made the mistakes in the past we all agree, as I have for many times and been caught in a cycle of robbing peter to pay rob, yes – you made mistakes. The key to successful planning however, like life itself, is to learn from them and move forward.

Like riding a bicycle, budgeting and self-control is a leaned habit. Once you get the basics and stick to them you will soon be flying. So – lets go……

Next we start looking at Investment Options!!

Your Route to your goals ...... Budgeting

A good budget will help you do all of the following: ................

 

7.    Pay Off High-Interest Debt
Any debt that costs more than you can earn from your investments after taxes should be paid off as quickly as possible. As a general rule, the only low-interest debt is mortgage debt or a student loan for those that have one. This is considered "intelligent debt" “I will come back to this notion” since your money can earn more for you if you invest it than what you'd save by paying off the loan. If your mortgage interest rate is 8%, your credit card rate is 20% and your investment return rate is 10%, pay off your credit card first, then invest anything remaining.

We will explore this further as we discuss in detail the different types of debt – and get to define what an asset is and what is a liability? Remind me Please.

8.    Invest direct from source or use automatic systems

Many of us argue that it is impossible to put money aside once it hits our bank accounts and can be accessed easily. Most are honest.

I therefore encourage that you use source deduction into an investment vehicle, have an arrangement with your employer to allow that your money is automatically invested before you receive your net. By having money deducted beforehand into your pension plan, or by setting up your own automatic monthly transfer from checking to savings, or having a set debit order into your investment account with the likes of African Alliance, your money will be out of sight and out of mind.

For long-term investments, put the money somewhere illiquid like in a fixed term unit trust so that so that you won't be tempted to steal from your future self.

For short-term, you'll need to keep the money accessible, but don't make it too accessible. For example, if your checking and savings accounts are at the same bank, it's all too easy to rapidly transfer money from your savings into your checking account. If you have these accounts at two different institutions, the transfer will take time, and that time delay may be enough to cause you to rethink your decision if you're trying to spend your savings on something you shouldn't. you could also park your funds in money market (a superior call account) which by definition while liquid and save, is an investment that can buy you the time needed to change your mind on your spend.

9.    Reduce Spending in a Particular Category

Remember how we said that budgeting isn't about deprivation, it's about putting your money to its highest and best purpose? One of your new budgeting goals might be to reduce your spending in a particular category, now that you know where your money is going, so you can put that money toward something that is a higher priority for you.
 

10.    Plan for Major Changes

As mentioned earlier, a budget lets you model in advance how a major purchase or life change will affect your finances. Instead of wondering if you can afford a house or panicking about whether you and your spouse can afford to live on one income while the other stays home to raise a child, you'll have the data you need to crunch the numbers. You'll find out before you make any change whether you can afford it and what sacrifices you might need to make.
 

11.     Experience the Freedom of Having Money in the Bank

By helping you sock away money each month, budgeting is an important tool for achieving financial freedom. The ultimate freedom, of course, is being able to retire, but along that winding road are opportunities for many rest stops if you have money in the bank. Those stops might include:

having a child

• starting your own business
• going back to school
• taking an extended vacation

Budgeting makes it easier to achieve all of these goals!

Your route to your goals .......continued

Achieve your goals with a budget – continued

 

As already stated, budgeting makes it easy to establish both short- and long-term goals and track your progress toward them. A good budget will help you do all of the following .......continued

 

5.    Start a Rainy Day Fund

To make sure that unforeseen expenses don't cause your goals to careen off track, build up some cash reserves. Three to six months' worth of expenses is a good cushion. This will help protect you from a sudden loss of income, an unexpected car repair bill or the like.

We all have those expenses that come for us unexpectedly. Maybe you develop a serious toothache and your dentist informs you that you'll need a root canal and a crown. While you may have dental cover through your medical aid, you're still going to have to fork over at least E500 unbudgeted for funds to get the work done. How can a budget help you handle an expense like this?

If you're new to budgeting and don't have any emergency savings yet, or if your savings have already been depleted by another recent emergency, your budget will help you determine what expenses you might be able to postpone or shift around to help you pay the unexpected bill.

For example, maybe like me, you pay your car insurance once a year and it's due next month, but you can opt to pay half now and half in six months instead to free up the cash to pay your dental bill. Or maybe your situation is tighter than that, but you can see that if you cut next month's grocery bill from E700 to E400 and go out to eat once instead of twice, you'll be able to start making a dent in your dental bill. Also, you may not have to pay the bill immediately. Payment of almost any emergency expense can be postponed by at least a couple of weeks by putting it on a credit card or asking the service provider to let you make two or three payments over several weeks or months. Of course, if you put the expense on your credit card, you should pay it in full when the bill is due if at all possible to avoid paying the exorbitant interest rates that a credit card attracts.

Your budget will also give you an idea of how long it will take you to replenish your depleted savings once you pay off your dental care.

6.    Get the Most Out of Your Money

Chances are you spend at least 40 hours working each week, and that doesn't include the time you spend getting ready, the time you're forced to be away from home because of commuting and lunch time, or the hours of free time that get lost because you're too tired from working all day to enjoy them. If you're going to dedicate that much of your life to earning a living, you owe it to yourself to make sure your money is going to the things that are most important to you.

A budget helps you track all your expenses - large and small. It lets you find out how much you spend on everything from coffee breaks to music downloads to fuel to clothes. If you discover that you're spending E1000 a month on clothes, charging these to the store cards knowing still that you cannot afford them, and that horrifies you because you haven't been able to afford a vacation in three years, you will know what to do. And because you know where your money is going and you'll continue to track it, you'll finally be able to save up for that vacation.

7.    Save for Fun Things, Too

If all your savings are going toward dreary activities like paying off debt and saving for unexpected car repairs and medical bills, your only incentive to save might be the fear of what will happen if you don't. Fear is a great motivator, but it is neither fun nor sustainable. Sooner rather than later you will get a brave spell and therein lies your doom, for you will start spending out of pocket (budget).

So even if you are indebted up to your eyeballs and are committed to getting out as quickly as possible, it is still very smart an initiative to plan some rewards into your program. You may think that a E1,000 vacation is setting you back, but consider what would happen if you didn't take that vacation. You might go on a spending binge one day to compensate for how deprived you've been feeling under an avalanche of bills, and not only might it cost more than the vacation would have, but you won't get the several days of relaxation that a vacation could have brought.

Yes we must budget for our vacations. And no, we do not have to wait until we have a lot of money to afford to take one – we make vacation time a priority, budget and save for it and allow ourselves to enjoy a moment in our life’s walk. That, I find becomes the one sure way to enhance the mind to stay focused enough o want to continue sticking to a budget.

Budgeting - Your route to attaining your goals

Achieve your goals with a budget – How?

Most people look at budget as a means to an end, as something that is set to frustrate them and not allow the flexibility to enjoy their money. That is I find, part of the larger problem with society, we do not embrace Just How Powerful a Tool a Budget Can be.

A budget that is structured correctly and its spent accounted for is by far the greatest tool that one can have to enable that we succeed in making money. It is the greatest Tool one will ever have at their disposal, and the best part is – You Set your own budget. No one can force it on you. It is truly dependent wholly on you.

To best manage your Spend, understand therefore also that budgeting can help you achieve your goals. An important part of effective budgeting is setting goals and using your budget to help you achieve them. Your goal might be as simple as saving up enough money for tickets to a soccer game like the E250 that we now need to pay to watch the Kings Cup (well, no one could have foreseen how hefty this one would have been), or as arrogant as retiring by 40 (I hear many say they want to retire at 40 – that is until they hit 35 and realize that they are not even half way to affording their lifestyle – let alone retirement). Or it might be both!

Budgeting makes it easy to establish both short- and long-term goals and track your progress toward them.

A good budget will help you do all of the following:

1.    Get Beyond the Next-Paycheck Mindset

When you're always thinking about the arrival of your next paycheck, that probably means you're burning up your current paycheck and spending the next one (whether by mentally accounting for where it will all go or by putting purchases on credit cards) before you even get it.

If this situation describes you, it's likely that you're living beyond your means and will need a very holistic change, first of your mind, then of your habits. Since no job is truly guaranteed, and thus neither is your next paycheck, making it a goal to fit your expenses into your current income is an important one. This way, even if you lose your job tomorrow, at worst you'll be starting at zero - you won't already be in a hole.

2.    Make short and long term projections

A budget will help you plan for short-term expenses, like your monthly bills, and mid-term expenses, like vacations, as well as long-term expenses, like buying a house, paying for a child's college education and putting money away for retirement. When you have a spreadsheet or notebook in front of you showing how much money you expect to make over the next few months (or years), how much of that money goes out every month and how much you have left to save each month, you'll always know when you need to cut back on spending, when you can afford to loosen the reins and how long it will take to save for major goals. And if you're not happy with the numbers, knowing what they are will help you take steps to improve your situation, whether that means focusing on paying off credit cards to increase your monthly cash flow, or getting a promotion or switching companies so you can make enough money to afford everything you need and want.

3.    Substitute short term items according to priority

For a short-term goal, such as being able to afford tickets to a soccer game next month, you may simply be able to substitute one expenditure for another. If you normally go out to eat, you can trade a meal for the game. If your budget is tighter than that, you may have to take a more drastic measure like cutting your grocery bill by eating lots of pap, beans and rice-based dishes and cutting back on more expensive items like meat and cheese.