Category Archives: Blog

Common financial mistakes in your thirties

Saving in your thirties becomes increasingly difficult as your financial responsibilities increase. However, sound financial decisions during this phase of life can have profound benefits at a later stage.

Here are some common financial mistakes to avoid:

  • The first is failing to draw up a budget. A proper budget is the starting point of all financial discipline and should be physically written down for later reference. Include your partner in this process as it is important to ensure that you are both on the same page.
  • The second mistake is do too much too soon. Before investing you need to have accumulated enough savings. It is vital to have an emergency fund, which must have sufficient reserves to cover at least a couple months worth of expenses. This should protect you from a debt spiral in the case of an emergency.
  • The third mistake is accruing bad debt. A loan to buy a house is considered “good” debt. Bad debt is using credit to finance furniture, electronics, appliances, vehicles and other items that devalue over time.
  • At the age of 30 retirement may seem like it is still a long way off, but it is important to start contributing to your employer’s pension fund or a retirement annuity. You should try to contribute at least 15% of your gross monthly salary, there are significant tax benefits to such a strategy.
  • It can be easy to fall under the illusion that bad things only happen to other people. Make sure you have adequate life insurance, dread disease, disability and medical cover.
  • Another common blunder is to contend that wills are only for the elderly. Draft a will, review it regularly and don’t forget to tell your loved ones where to find it.
  • Life insurance is important if you have dependents. It is imperative to ensure your dependents will be in a position to maintain their current standard of living if you pass away. Determine the exact amount of life insurance you need and review your cover regularly as your financial needs change
  • Finally, at this stage of your life, you still have a long way to go to retirement and are in a position to take on more equity exposure. It is essential to get proper advice with regards to your investment decisions.

Need some assistance? Let’s get in touch!

Source: www.moneyweb.co.za

South Africans lack confidence when it comes to finances

Most South African consumers feel challenged by their finances, with relatively few saying that they are highly successful at sticking to their financial goals or are knowledgeable about financial matters.

This was revealed when the Financial Planning Institute of Southern Africa (FPI) conducted a nationwide survey, in conjunction with the Financial Planning Standards Board (FPSB) and a global research firm (GfK), to determine South African citizen’s financial attitude compared to that of the average global citizen.

Both primary and shared household financial decision-makers were surveyed, 19,000 participants from 19 countries around the world, the results revealed the following key findings with regards to South Africa:

Consumers have moderate to low confidence when it comes to their finances.
Only 27% feel strongly confident when it comes to their “financial know-how”, or feel highly successful about sticking to their financial strategies. While 38% of the respondents were strongly confident that they will achieve their financial goals. These figures are higher than their respective global averages, but still aren’t promising.

Home ownership and support for loved ones are top financial priorities.
Home ownership and providing financial support for loved ones were the top financial priorities of South Africans. Other predominant priorities included being free of major debt, retiring in their desired lifestyle and managing finances to achieve life goals.

Financial planning services help to get on track financially.
South African consumers stated that the most helpful financial advice services they received were for retirement planning, budgeting, cash flow, debt management and investment planning.

Most consumers think financial planning should be regulated.
While 43% of respondents in South Africa are unsure whether financial planning is regulated (vs. 41% globally), 67% believe it’s important for financial planning to be regulated, compared to 79% globally.

Trustworthiness is the biggest issue when working with financial professionals.
87% of South African respondents believe that trustworthiness is the biggest barrier when it comes to working with a financial planner. Surprisingly, 70% said they don’t know whom to trust when it comes to financial planning even though they saw it as an important consideration.

Working with a CFP® professional helps consumers feel more knowledgeable about financial matters.
In South Africa, 37% of consumers who work with a CFP® professional report feeling strongly confident in their financial know-how. 29% of consumers who work with any financial professional feel this confident and only 25% who don’t work with any financial professional feel this confident.

It is easy to lack confidence when you don’t feel that you have the “financial know-how”. It is also easy to be overconfident. What it comes down to is not only financial knowledge, but understanding - that’s what I’m here for. I will take you through the necessary processes to formulate achievable financial goals and make you feel financially confident again!

Retirement doesn’t happen at 65…

Retirement planning is only one component of a holistic financial plan and although retirement has a higher probability than all the other risk areas, this is the area we find people being the worst prepared for. Retirement doesn’t happen at 65… it happens when you make it happen!

Planning for retirement is much like planning a flight in a light aircraft. Before you embark on this journey you have to check if your aircraft is in a good enough condition to make the trip, what the weather conditions will be like so that they can be used to your favour and that you have enough fuel in your tank to reach your destination.

This process can be compared to going to see a financial adviser and doing the maths. However, as you fly en route to your destination, things are bound to change. You have to constantly measure your progress and adjust your plan. Setting up a retirement plan is therefore only the first step along a protracted journey.

When formulating a plan you should seek a long-term engagement with a financial adviser that you trust to assist you on your path. Here are a couple of pointers to head you in the right direction:

  • If you plan on retiring at 65, time and errors in assumptions play havoc with the numbers over such long periods. Therefore, err on the side of caution with your assumptions about life expectancy (longer rather than shorter), retirement age (not later than 65 or your company policy), inflation rate (CPI is too low in my view) and expected returns (use very long term historic numbers and adjust downwards).
  • Be specific in your goals. Spend time pondering what you want your life to be like at retirement and plan to reach these goals. Remember though that this plan will need adjusting as you go along.
  • Be sure you match your tolerance for risk with your investment strategy. Bad outcomes are often not the result of bad long-term performance of the investment but because of the investor’s reaction to short term volatility.
  • Be aware of your costs. There are generally three types of fees on an investment (i.e. fund manager fees, platform administration fees and adviser fees). Make sure you are comfortable that each fee taker is worth their fee by looking at the value proposition of each.
  • After five years or so, start using actual money weighted returns instead of projections. There is no sense in projecting at 12% if your actual return over the past five years was 8%. (Some interpretation of the period in question and subsequent returns is obviously required.)
  • Ask the adviser to show you the impact of different average growth rates as well as different retirement dates to understand the profound impact changes like these have on your plan. Extending your retirement age from 60 to 65, for example, can completely wipe out a big shortfall. Remember that there are many different approaches to reaching your goals if you are coming up short. Increased contributions is only one of them.
  • Think holistically about your planning. You can consider direct shares, unit trusts or property as an alternative investment, if it suits your tolerance for risk/volatility. You would do well to take note of the geographical allocation of your investment too. We find many people’s portfolios are very badly diversified from a geographical perspective.

Most importantly, monitor your progress at least once a year. Not checking whether you are on course or not can have a detrimental effect on your projected plan.

Need to formulate a retirement plan? Let’s get in touch!

Source: www.moneyweb.co.za

Retail Distribution Review – Prepare for advice fees

For the first time in South Africa, financial advice is set to become a billable service. Known as the Retail Distribution Review (RDR), the first phase will be implemented later this year (2016), introducing some significant changes for both consumers and financial advisors alike.

As with all change, some sound preparation and a positive outlook will make for a smoother adjustment. One of the main changes in mindset is to accept that making direct payment for financial advice is fast becoming a reality.

RDR forms part of the Financial Services Board’s (FSB) framework that seeks to ensure fair outcomes to customers and tries to minimise potential conflicts between the interests of customers, product providers and advisors.

It is important for consumers to be aware that charging direct payment will be in place of commission based fees, which many consumers don’t generally think of as payment for advice.

Consumers are likely to face various different methods of charging by advisors. They could be billed at an hourly rate, just as they are billed when they consult a lawyer or a medical professional. Alternatively, they could be charged per consultation session or be billed a fee that is linked as a percentage to the size of the investment, similarly to the way a real estate agent would operate.

Customers pay for an advisor’s time, trust and relationship and quantifying these essential elements is found in every point of contact between myself and you - this is partly why I manage a website and newsletter that are dedicated to staying in touch with you.

We will all need to understand that fees are just a different way of paying for all that myself and my team offers. The FSB believes that the RDR will form a win-win situation for all parties involved.

Three Trends set to Shape Professional Industries

I found a great article talking about some of the major themes that are predicted to influence professional industries this year. A big part of running a successful business is staying up-to-date with current trends that are affecting the marketplace.

Here are three trends that are set to be prevalent this year:

Trust as the key competitive advantage

It is said that no publicity is bad publicity, however that was before the dawn of the internet. The value of trust is increasing in all aspects of business and marketing. Nowadays, through digital media, there’s a far wider range of reference point to decide whether a brand is trustworthy or not.

Trust equals consistency over time, it is hard to win and quick to lose. A business can’t earn trust overnight, but it can make the decision to demonstrate dependable and transparent dealings with employees, customers and investors.

Employees as critical brand assets

Employees are the lifeblood of a company and they play a leading role in shaping the perceptions of the business for which they work. This is one of the reasons why social media blunders (such as derogatory remarks) commonly lead to employees being fired.

People regard employees as credible and trusted sources and genuine employee advocacy is an effective means of building a trusted brand. Marketers have always embraced a multi-channel strategy and employees should be considered as one of those channels.

Cold calling as an antiquated method

Statistics show that 90% of prospects ignore any form of cold contact. Online advertising is becoming more particularized and industries are becoming more globalized. Cold calling is becoming even more of a shot in the dark. Without any sort of established trust most people are likely to view this tactic as an annoyance.

At the same time, 85% of executives now rely on social media to inform their buying decisions. We are likely to see a big shift towards social selling in 2016 with sales teams adopting targeted and informed approaches.

There are already signs of these trends being relevant and it is up to us to adapt.

In need of financial advice? I can help you out. Let’s get in touch!

Another 5 Financial Reflections for 2016

Looking forward to another year of financial success means embracing monetary mistakes of the past. More importantly, you need to be honest with yourself about where you currently are and where you want to be.

Here are another 5 Financial Reflections from 2015, for 2016:

Don’t let yourself be pressured into buying designer goods
Branding is such a huge part of the modern consumer society, yet there are generic products that deliver exactly the same level of quality. Buying high-ticket items might make you feel good about yourself in the short term, but in the long run your frugality makes more sense.

Learn to say you’re broke when you are
There is no shame in admitting this, especially when you consider how many people are living above their financial comfort level on credit. If your friends want to go to an expensive restaurant, don’t be afraid to suggest a bring-and-braai at your place rather; or delay the excursion until you have sufficient cash flow available.

Make the most of what you’ve got
Scavenge your wardrobe, some of the clothes that you haven’t been wearing are probably still in good nick. Check to see what you have before rushing off and buying new stuff. Fix things that are broken, reupholster, add a fresh coat of paint, and if all else fails look for second-hand bargains.

We live in a throw-away culture, avoid ostentatious display and appreciate the small things in life.

Be honest with yourself about wasting money
You can easily lose hundreds of rands on buying coffee every morning, going to convenience stores regularly and not eating the food in your fridge before it goes off. These are avoidable expenses that don’t need to be completely eradicated but can definitely be reduced.

By lowering your costs on daily commutes, meals, conveniences and personal luxuries you could quickly accrue a sizeable emergency fund.

Only use credit for emergencies
First, you need to consider what you define as an emergency. A malfunctioning gearbox, a burst water heater, a sudden visit to the doctor’s office. Once you start buying everyday items, such as groceries, on credit there should be warning lights going off in your head. Don’t think of credit card limits and overdraft limits as your money, it’s the bank's money that you’re using and it’s best not to forget it.

Turn your reflections into resolutions and forge a firm financial future for 2016.

In need of financial advice? I can help you out. Let’s get in touch!

Source: fin24