![]() Last month I talked about Step 3 - Do not take on credit. Let's continue with Step 4 - Keep a record of your spend. The foundation of good personal finance is budgeting. Expense tracking is the twin brother of budgeting. Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. Budgeting is simply balancing your expenses with your income. Track your daily expenses for a minimum period of three months. At the end of each month, sit down and analyse where your money has gone, so you can identify ways of cutting expenses. You will be surprised to find you have been paying every month for something you have not used. There are many ways of tracking your expenses:
2021/5/15, groceries, R522.35 2021/5/16, DSTV, R499 2021/5/16, Nandos takeaway, R136
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Google Play store: Mint - 4.5 rating Goodbudget - 4.4 rating Spending Tracker - 4.5 rating Monthly Budget Planner & Daily Expense Tracker - 4.7 rating If you like to blend expense tracking with gaming, try Fortune City - 4.4 rating 22seven is developed locally in South Africa, now part of Old Mutual - 4.0 rating Apple App Store: Mint - 4.8 rating Goodbudget - 4.7 rating Spending Tracker - 4.8 rating If you like to blend expense tracking with gaming, try Fortune City - 4.5 rating 22seven is developed locally in South Africa, now part of Old Mutual - 4.2 rating
Share with us your story of tracking expenses and budgeting! We'd love to hear how it goes with you.
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![]() Last month I talked about Step 2 - Do Not Spend More Than You Earn. Let's continue with Step 3 - Do Not Take On Credit. South Africa is a westernised economy, its financial system is modelled on the European and American credit system. If you have a steady income and a good credit score, it is easy for you to get credit. Credit is generally defined as a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at a later date—generally with interest. Simply put, when you buy something now and pay it later, you are using credit. Examples are when you use your credit card to buy furniture and TV and put it on budget over 12 months. Based on your income and good credit score, the banks will want you to apply for credit card and give you a credit limit. As you manage the card well, pay the amount due in time, and your income rises, the banks determine that you are creditworthy and increase your credit limit. The banks advertise that the advantage of a credit card is you can get 55 days free of interest, that is the maximum interest-free period you can get. When you receive your monthly credit card statement (by now most banks send the statements electronically), you need to pay attention to: credit limit - the amount granted to you by the bank closing balance - the amount you owe on the credit card at statement date minimum amount due - the minimum amount you need to pay the bank payment date - the date by which you need the pay the bank It is very important to note: IF YOU DON"T PAY THE FULL BALANCE DUE BY THE PAYMENT DATE, YOU WILL PAY INTEREST Many clients I have consulted don't understand this, and they think it's OK to pay interest on their credit card, as they only pay the minimum amount due. But this is not OK! This is poor financial behaviour. Financially smart people understand how credit cards work. They use credit cards to their advantage. They buy things on credit. They pay the full closing balance on or before the Payment Date. They don't pay interest on their credit cards. You need to inspect your credit card statements for the last three to six months. If you pay interest every month, then you need to reset. Reduce or stop spending using your credit card, work on paying off the full balance. Once you have done that, then you get into the habit of paying the full balance by the payment date every month. Set up a reminder or have an automatic debit order to settle the balance. Remember, the amount you owe on your credit card, to you it is credit card debt. To the bank it is credit card asset. It is an asset because they earn interest from you. Currently the banks charge you between 12% to 18% interest on your credit card debt. That's a lot of interest to pay! You don't even earn this kind of return on your long-term investments. Stop giving more money to the bank than you need to! Rather keep that money in your pocket. I have some rules for credit cards, which I advise my clients to follow:
Don't take on credit, it means you get into debt. Apart from financing high-value items such as a property, a car, business or study loans, you should not take on credit. Hi everyone, this is Uncle Kevin. Today I would like to encourage you to start investing today.
Have you developed a savings habit? Are you saving money every month? Do you know that by consistently investing money every month, you are going to reap the rewards in the long term? Investing is not a short-term game like a 100 metre sprint, but rather a long-term game like a 42km marathon. I would like to use two real-life client examples to demonstrate how you will reap rewards in the long run. Zane is now 43 years old. 10 years ago when he was 33, he had a financial planning meeting with me. He wanted to invest for his child's education. At that time I advised him to take up a Discovery Invest Endowment Plan, R1,000 per month, with the contribution increasing at CPI inflation rate every year. He started the investment on the 1st of April 2011. He has continued with the investment plan without fail. In year 10, his monthly contribution was R1,639. Now 10 years later, at the beginning of April 2021, the investment plan value, after deducting income tax, is R 223,691. The internal rate of return, IRR is 8.39%. Now internal rate of return is the net return received by the investor, net of fees, charges and taxes. So over the 10-year period, Zane has received on average 8.39% return per annum. Which is a good return. The second client, Ken is now 49 years ago. 10 years ago when he was 39, he also had a financial planning meeting with me about the same time, and he wanted to invest for long-term. At that time I advised him to take up a Discovery Invest Endowment Plan, R1,000 per month, with the contribution increasing at CPI inflation rate every year. In year 10, his monthly contribution was R1,639. Now 10 years later, at the beginning of April 2021, the investment plan value, after deducting income tax, is R202,116. The internal rate of return, IRR is 7.13%. There are 3 points I would like to focus on:
Use this link to book a FREE Financial Planning session with Kevin, using Microsoft Teams Online Meeting: https://calendly.com/daberisti... ![]() Last month I talked about Make as Much Money as You Can. This month let's dive into Step 2 - Do Not Spend More Than You Earn. The adage "live within your means" comes to mind here. To “live within your means” simply means to spend less on your lifestyle than you generate in earnings. Your “means” is your income. To live within that threshold, spend less than you earn. This requires self-control. A person does physical exercise to improve his muscular physique. A person does quizzes to improve his mental sharpness. Similarly, one has to exercise his financial muscle, live frugally and save money. Here are some tips to help you save money every month:
I am not saying, "Don't have good material things in life." God blesses us with life and all the abundance in life, we should enjoy having things that make us feel good, better and happy. What I am saying is live within your means. Be content with what you have. Do aim for higher, but spend what you can comfortably afford. Warren Buffett, arguably one of the greatest investors of our time, is a well-known billionaire. He has great wealth, but he lives frugally. He bought his house in 1958 for US$31,500, the equivalent of US$285,000 today, and he still lives in the same house. In a BBC documentary, his daughter said he bought cars that he could get at reduced prices, like those that were hail-damaged. The cars were fixed and didn’t look hail-damaged and became a regular part of the Buffett lifestyle. “You’ve got to understand, he keeps cars until I tell him, ‘This is getting embarrassing — time for a new car,'” said his daughter in the documentary. Buffett also told Forbes in 2014 about his car-buying habits — or lack thereof. “The truth is, I only drive about 3,500 miles a year so I will buy a new car very infrequently,” he said. Remember this the next you’re in the market for a car: Since cars tend to depreciate quickly, it can be better for your finances if you try to keep your well-working car for as long as possible — or at least opt to buy a used car instead of new. (source: Business Insider) Buffett can easily afford to live like these Joneses, one hundred times over. But he doesn't choose to. So what are your reasons for keeping up with Joneses? 5. Resist the marketing and advertising bombardment When you visit websites, listen to the radio, watch YouTube or TV, you will see or hear a lot of advertisements. This is the business model of media business, they get most of their revenue from advertisers. These advertisers advertise their products and services, to make you aware of them, and trying to get you to action.While it is good to be aware of products, services and specials out there, you need to learn to be a smart consumer. Ask yourself:
If at least three of your answers to the questions above are “Yes", then buy. If not, you may want to reconsider your buying decision. 6. Resist the temptation of buy now and pay later. Many retailers give you easy terms, you can pay for something over 6, 12, 24 or even 36 months. I describe these as financial shackles. These easy terms come with interest and charges. For the financial astute, these are poison. For the financial illiterate, these are gospel. I would like to give a couple of real life advertisements to illustrate (by the way, I have nothing against these companies used in the examples): Exhibit 1: Incredible Connection, HP Envy 13 X360 RYZEN 7 4700U 8GB 512GB 2-1 laptop. Retail price R21,999. You can pay as little as R1,375 (small print: pm (per month) x 24 months, Rate 23.75%, credit price R33,000) The keyword here is "as little as". This means this is the minimum you would pay, and possible you could pay more than this. Just simple arithmetic, R33,000 over R21,999 means you pay 50% more for the same laptop, for the luxury of "buy now, pay later". Exhibit 2: Dial-A-Bed, Simmons Healthsmart Plush Queen Mattress Standard Length, Retail price R26,599 (on special). Or pay on credit "from" R2,522 per month. When you click on the link for credit, 12 monthly repayments (including interest charged at 20.50%* per year and excluding Mobicred's set-up and service fees). The keyword here is "from". This means this is the minimum you would pay, and you will definitely pay more than this due to additional fees and charges. Just simple arithmetic, R30,264 (R2,522*12) over R26,599 means you pay 14% more for the same mattress, for the luxury of "buy now, pay later". This is before fees and charges. The only exception to this is when you buy a house or a car. For most people, we don't have the money upfront to buy a house or a car, which cost a lot of money. It will then make sense to take out a home loan or vehicle finance to afford it. For people that understand money and interest, they make it. For people that don't understand money and interest, they pay it. 7. Save for the thing(s) you need or want. f you need or want something, save up for it. Use a separate savings bank account for this purpose. Save money every month, and transfer the savings to this savings account. See it grow. Accumulate. When you have saved up the money, use that money to buy that thing. If you do so, when you buy that thing you want with the money you have saved up, it gives you a sense of achievement and satisfaction. So, what is your story? Write to us to share with us. Finance Minister Tito Mboweni gave his budget speech on 24 February. Overall it is a taxpayer and investor friendly budget. Old Mutual has a nice summary of tax changes, we share with readers below. ![]() Here’s what you need to know about your IT3B and IT3C certificates: The IT3B certificate is all about the income you’ve generated from your investment. It’s going to reflect: Local dividends: this is the amount which has been paid to you in dividends from JSE listed companies in the last tax year. We automatically pay 20% dividend withholding tax on these for you, so this appears on your certificate to let SARS know that it’s done and dusted. Make sure you disclose this on your tax return and that’s it - finished and klaar. Foreign dividends: this represents any dividends you received from JSE listed companies which earn money overseas. We’ve paid the 15% dividend withholding tax on your behalf, but you still need to disclose this on your tax return. Taxable dividends: This represents REIT (Real Estate Investment Trust) distribution and applies to those of you who hold shares in a company that invests in property. Interest: This amount of interest, which you earn on local and foreign investments, is considered as income and you'll need to declare it to SARS. Bank Accounts Interest: This is the interest you earn on your bank accounts and deposit accounts. Any interest you earn in a year over R23 800 (R34 500 if older than 65) is taxable when you submit your tax return. The IT3C certificate is all about capital gains. How much did your investment grow? Did you sell anything? Did you earn any profit by doing so? You’re only taxed on shares or unit trusts that you sell. Your IT3C certificate is going to show: A list of companies or unit trusts you’ve invested in; How many shares/units you have in each and how much you bought them for. Because you can buy shares for a certain price on one day, and then buy more of the same shares on another day when the price is different, the cost per share is going to be shown as an average of those prices – to keep things simple! So if you bought 1 share at R50 on Monday and another at R100 on Wednesday, you’d have two shares which you paid R150 in total for. Even though they were bought at different prices, the average cost per share is going to be: R150 divided by 2 shares = R75.00 per share. If you’ve sold a share at a higher price than when you bought it, you’ve made yourself some dosh haven’t you? SARS is going to want in on that. ‘Proceeds’ is going to reflect the amount you sold your shares at and ‘Profit/loss’ is going to reflect how much money you made or lost in that sale. The good news is that SARS is only interested in this amount if it is greater than R40 000 – that’s when you’ll start getting taxed on it. Adapted from: Easy Equities Morningstar has published this excellent article on Slow and Steady Wins the Race - It Is OK to Build the Wealth Slowly. It talks about the importance of perseverance, patience and compound interest in building wealth. Building wealth is a journey, it is like a marathon. It is not a 100m sprint. We share with the readers here. |
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