Category Archives: Blog

Don’t spend based on other people’s income

The practice of storytelling is ubiquitous among cultures all across the globe. Sometimes we seem to forget the power that a story can hold over people. We use stories to make sense of our world and to share that understanding with others. When it comes to something as important as finance it is important that the stories we tell ourselves are based in reality.

Yes, the stories that we tell ourselves. We can be forgiven for inflating the truth amongst friends, since most of the time everyone is aware that the story is unbound by facts in the name of entertainment value. But when creating the stories that we tell ourselves, the stories that we make financial and life decisions based on, our brains can play tricks on us.

A notable example of this brain trickery is known as the Relative Income Hypothesis. This hypothesis, developed by an American economist named James Duesenberry, states that an individual’s attitude to consumption and saving is dictated more by their income in relation to others than by an abstract standard of living.

In more basic terms, we base our spending habits on how we think our income compares with those around us – our neighbours, family and friends. A classic case of keeping up with the Joneses, except we have absolutely no clue what the Joneses financial situation looks like compared to our own. So, we create stories.

If our neighbour pulls up in a flashy new car we might be saying to ourselves, “How can they afford THAT?!”, “Their payments must be through the roof!”, “Are they more successful than me?”… only to find out a few days later that the car was on loan from a dealership while their regular vehicle was getting fixed. It is possible we might have even started looking at financing a new flashy vehicle of our own just to see if it would be viable.

That is the power that stories can have on us. We can go from financial contentment to debt in the space of a misunderstanding. It is important to remember that the only financial situation that matters is our own.

But, let’s say the flashy car was your neighbour’s latest toy to keep, would rivalling their new purchase really make us happy? We shouldn’t be feeling like we are stuck in a rat race. If we can nurture an abundance mindset we will see that life is full of opportunities.

If you’re running low on opportunities or feel like you’re financially stuck then let’s get in touch!

What the low interest rate means for you

In light of the difficult times recently, Southern Africa has been awash in low interest rates. When South Africa significantly cut its base interest rate from an already-low 6.25% down to 4.25%, it officially became the lowest interest rate the country has ever had. In late 2019, the Bank of Namibia’s Monetary Policy Committee reduced the rate to 6.5% from 6.75%, then lending rates at Bank Windhoek were slashed further come 2020.

Interest rates, particularly interest rate cuts, typically have complex and far-reaching effects on the market, but what does it mean for you?

From you as a consumer to you as an investor, we’ve rounded up the most significant ways the low interest rate affects you – and how to best capitalise on it.

Cash is not king (when investing…)

In the wake of the devastation of the markets, economy and the enormous volatility in recent history, the interest rate cuts came as a boon to consumers to keep their heads above water. But what is a help to the consumer is a hindrance to the investor. Yes, money not appreciating in value means that goods and services won’t cost more and a household’s day-to-day dollars will stretch further, but any money set away in savings won’t appreciate in value.

Now is not the time to be overweight in cash investments. “If you’ve got money in a bank deposit account, money market account or other “cash-type” vehicle, your interest rate earned will fall by a full 2%,” said Prudential earlier this year. “According to Prudential’s calculations, cash-related investments are now only likely to return around 0.2% p.a. more than inflation over the next three to five years. With its potential returns so much lower, the cash holdings in your portfolio could now be too high if you have a medium- to longer-term investment timeframe, acting as a drag on future returns.”

Risky business

Fortune favours the bold, especially in this kind of market. As we have mentioned above, simply leaving your cash to sit in an account as a means of saving will not get you any richer (in fact, it’s now worth 2% less!) and so higher risk, with higher yield, options need to be considered. For example, things like equities, investing offshore and gold have all found favour recently. 

A debt to pay

A recent communication from insurer Liberty outlined another useful aspect of the low interest rate. “This is the lowest interest rate cycle we’ve seen in a long time – cut off your debt and do not get into new commitments right now,” said Liberty economist Tendani Mantshimuli.

In addition to this, your home loan costs are lower, because the value amount in your bond is worth less than it used to be when interest rates were higher. It’s a great time to repay your debts faster, but try not to extend debt as it will be more affordable now, but will become expensive when the interest rate increases again and markets strengthen.

Now is the time to save

Compound interest is one of the most wonderful roads to wealth creation – it’s why financial advisers urge people to start saving younger. Unfortunately, it is hamstrung by low interest rates. In our current environment, any savings will take longer than it would have in the past to be worth as much and then to appreciate as much as when rates were higher.

For that reason, it’s even more important than ever to set aside as much for savings as you can, as early as you can, because more than ever you can’t afford to lose out on valuable time that will make you compound interest later. 

Ultimately, like every move of the market, low interest rates have their good sides and bad, opportunities and dangers. That’s why it always helps to stay in touch with your financial adviser who can help you make the most of exactly where you are.

Ways to save when times are tough

Most of us are chronic under-savers even in the best of times. Yet with the current economic environment, lots of previously hypothetical concepts like ‘what if I’m retrenched or have my salary cut?’ are far more concrete – and, unfortunately, more likely to happen.

There’s never been a time when saving is more important, but there’s also likely never been a time when it’s more difficult.

Do you want to put something away for a rainy day (or retirement) but don’t know how to stretch your money far enough to do so? Here are some ideas.

Change it up

Most of us want to budget, but the truth is that it’s tough and can be really… really boring. We want the benefits, but not to cut our creature comforts out of the picture. One of the most effective ways to have your cake and save it, too, is to put away all spare, leftover change. Got a cheeseburger for R53? Put away R7 to make it an even R60. These tiny amounts are not only indiscernible to the average person, even on a budget; they also add up fast.

There are apps and platforms that can help you do this – micro-saving on a daily basis makes it much easier than trying to commit to a large some at the start or end of every month. If you practice a cash-diet – you can even use a jar for these savings. Old-school can be cool.

Vegetate

We don’t have to eat so much meat. In fact, we don’t have to eat meat at all! Tally up your grocery bill, and you’ll often find that by far your most expensive items are from the meat, dairy and egg isles. Find some good recipes online and try to go vegetarian for dinner two nights a week. Calculate how much you would have spent on meat for those meals and put the money in a savings kitty instead.

Hard cash

It’s so easy not to stick to a tight budget these days, when money is nothing more than a few numbers on a screen. To help you save on day-to-day smaller expenses like weekly groceries, toiletries and your daily work cappuccino, try withdrawing the amount of money you’ve budgeted for those items, for that week. Seeing the physical money in your hands and being able to note how much or little is left is a powerful savings tool that can help with splurging only on what really matters to you.

Journalling

Another way to be mindful about not only cutting expenses, but actively saving, is to write down all the money you spend and all the money you put away. Patterns might suddenly become obvious to you that weren’t before: ‘wow, I always spend too much money on groceries when I shop on an empty stomach!’ Knowledge is power in this case, and this mindfulness can help with saving cents and getting competitive with yourself about putting more and more away each month for the future. There are plenty of handy apps for it, or you could buy a hip notebook to jot them down in.

(Don’t) take the credit

If you have them, get rid of clothing accounts, cellphone contracts and credit cards as soon as you can. The interest in repayments on these is excessive – you’re often paying more than double what the item actually costs! Repayments like these also eat up your monthly budget without you even realising. Buy only what you can afford, don’t spend unnecessarily. Try keeping your same phone a little longer (or springing for a reputable second-hand option) and pay off credit card debt as fast and as often as you can.ups

Go pro

When saving and scrimping rands and cents, it might sound like madness to spend money on a financial adviser.

At the end of the day, these are just ideas – no one can grow your savings for you but you, and no one will have the best idea of what method works for you individually except yourself. Still, as a starting point, give these a try. With these tips, some planning and some determination, you’ll reach your savings goals in no time.

Cold hard cash

Debt statistics are growing – this is very likely in part to the fact that a vast majority of us today prefer credit cards over cash. The benefits of credit cards are obvious. They are more convenient and offer more security.

Cold, hard cash, however, can be the best way to organize your spending.

Here are three reasons why you should opt for using cash instead of credit cards for managing your daily budget.

1. Less likely to overspend

Healthier spending habits develop when you use cash. You become more mindful of how much each item costs that you’re putting into your basket, and you won’t want to spend all that you have. More self-control is gained, as you make less impulsive purchases of unnecessary things than you would have if you were using a credit, debit or store card.

Also, cash payments carry no interest rates that you will have to pay back later. You pay the amount on the price ticket, nothing more.

2. Become more engaged with your budget

You will become increasingly engaged with your budget when you work with cash. As compared to the possibility of inconsistent credit card interest rates, with cash you can easily track your expenditure, ATM withdrawal fees and how that favours against your income.

Budgeting and planning your expenditure can be a more enjoyable exercise when you use cash. You can easily reduce your debt too because no interest will be accumulating with every payment you make and you won’t be bleeding money on overspending.

3. Become more creative with your spending

Carrying cash can alter your financial mindset for the better. Since you’ll be limited to what you have in possession and not have the same spending power you get from credit cards, you’ll find that you will become more inventive with your spending.

The longer you challenge yourself to use cash, disciplined spending will become ingrained into your lifestyle as you’ll look for bargains, better deals and more ways to make your money go further.

Studies say that you develop an emotional attachment to items paid for with cash because you feel you made that purchase possible and it was not enabled by your creditor.

Consider the advantages of using cash before swiping your plastic. You can form a better financial identity and live without the drawbacks of credit cards when you go for cash. You can even develop a more mindful approach to your spending because your purchases will depend literally on how much you have in hand.

Three ways to thrash your debt

Effectively managing your debt is one of the best and most proactive ways of ensuring a sustainable financial future. It is deeply gratifying knowing that you’re doing something right when you see your debt shrinking!

The journey of exploring the best ways to manage your debt can improve your attitude and enthusiasm towards settling it. Instead of seeing it as a burden to your financial goals, you’ll recognise that it’s an inspiring investment towards your financial freedom.

Here are three often-cited ways to repay your debt.

  • Snowball method

The snowball method is frequently thought of as the best debt-relief option as it means you start off by paying the smallest debt and then move on to bigger loan amounts. This technique can be valuable for boosting morale and improving your sense of achievement as you start to see the results early on. Your debtor statements are reduced and you will be encouraged to continue with this debt repayment plan.

However, this means you end up paying higher interest costs, because it considers the payment of the debt and not the interest rates around it. To get around this, you can find other ways to refinance your high interest debts.

  • The Avalanche method

This strategy is the opposite of the snowball method. You start off with the biggest debt and finish with the smallest. If you’re looking to save on interest this is the best strategy to employ. 

This strategy requires patience as it doesn’t offer immediate results but, in the long term, you can be debt-free quicker. You need to have the resolve to settle bigger debts. From there you’ll be more motivated because only the small obstacles will be left. 

  • Debt consolidation

Through debt consolidation you can easily keep up with multiple payment deadlines by combining all your debts into one. This involves taking out one large loan, equal to the amount of your entire debt, and paying off what you owe in one place. 

The obvious risk is that you would now be using debt… to get out of debt. However, you will end up owing one creditor instead of many, and could potentially secure a more beneficial interest rate overall. When followed effectively this method can help reduce your debt whilst improving your credit score.

All three of these strategies can be useful for reducing your debt. Discipline is required with all of them because having the best strategy is not enough – you have to follow through with it too. 

If you need help with this – just give us a shout!

Are you a savings statistic?

Most Sub-Saharan African countries are chronic ‘dis-savers’. But, you don’t have to be. Before we look at the options, let’s take a snapshot of recent events.

Last July, the South African Savings Institute gave the country a wakeup call when it said that the average household rate had fallen from 0.5% per month in 2018 to 0.4% in 2019. 

While 2020 figures are not out yet (at the time of this blog) anywhere in the continent, there’s a likelihood of more challenging times – unemployment is rife, little to no growth pervades most asset classes and economies around the world are suffering mightily.

Another look at South Africa’s Household Saving Rate shows that it decreased to 0.20% in the fourth quarter of 2019. That means, of every R1000 coming into every household, R2 or less was being saved. (according to Trading Economics)

Desperate times

In the current economic climate, we are finding that very few people have an umbrella to help them weather the storm.

Last year, even before the current lockdown impact, over 80% of people did not have sufficient savings to last just three months if they lost their job.

Or, when faced with an unforeseen emergency of around R10 000, many people would have to ask family and friends for help, or take out a loan or cover the emergency costs with credit.

Numerous studies, including the well-known True South one a few years ago, show that many of us don’t have sufficient income protection cover or any other form of insurance, leaving us completely vulnerable when (not if) disaster strikes.

Are you one of the many or one of the few?

You are part of the greater statistic, and aren’t financially protected and prepared enough, if one or more of the following is true of you:

  • You do not have an emergency savings fund
  • Of every R10 000 you earn, R200 or less is saved
  • You do not have life insurance or income protection insurance
  • You do not have a financial plan worked out with a professional financial adviser

The good news about saving is that it’s never too late to start and more is always better. So, if any of the above sounds familiar, let’s have a virtual coffee and help you secure a sturdy financial future.

The long haul

Saving is not just about a plan – it’s a behaviour.

Part of this behaviour is rooted in our mental ability to overcome our own fears. We reduce these fears by mentally preparing for life goals and recognising that we have what it takes to achieve them.

Mentally preparing for long term savings is like preparing for a long-distance race or a trip. You start exercising today so you can cope with the physical demands of next year’s marathon. You sort out your travel necessities now so you don’t struggle with them when you have to go on your trip.

The same goes for your long-term savings. Starting to save today helps to accumulate more wealth for the future; anticipating and providing for the expenses that you expect to incur.

Here are four ways to help you prepare for a financially secure future:

1. Set a goal and start saving as soon as you can

Establishing a monthly budget helps you develop healthy spending habits, reduce your expenditure and have more to invest. Having a goal is a big part of this process because it’s really hard to save if you don’t know what you’re saving for.

The value of saving early is that you’re creating an opportunity for your money to work for you longer through the value of compounding interest.

2. Start working on your debt

Being engaged with your budget means being engaged with your debts too. Actively dealing with your debt now, frees up money to direct towards your future. Picking a debt management plan that will work best for you and your unique goals is the first step.

Diminishing your debt should be one of your goals. Seeing your debt decrease will encourage you to save and build more wealth for your future self. There are various strategies you can use to settle your debt in a way that works best for you.

3. Stick to your retirement plan

It’s like sticking to the road map, even if there is construction along the way. Having a retirement plan can help you look into your future more optimistically because you’ll be comfortable knowing steps to ensure it have already been taken. This can be really hard when markets bottom-out or there is a major crisis – but this is when it’s even more important to stick to YOUR plan.

If you’re struggling to stick to your plan, consider doing your research on the various retirement plans and consult your financial adviser for help with balancing your investments or maximizing your tax advantage in order to build a substantial investment portfolio whilst creating more liquidity for your current situation.

4. Adopt a more positive outlook on your finances

Developing a positive outlook towards money begins with you understanding that a life of abundance is created by starting to enjoy what you have instead of focusing on what you think you need. It’s about stopping to smell the roses on your long-distance run, or taking a break to drink in the scenery on your road-trip.

Learn to make saving a part of your lifestyle. Recognise that short term savings can be good but prioritizing long term savings can create a more sustainable future for you. See it as a way of ensuring you have more spending power in the future.

Partnering with a financial adviser can help you put a plan into place – but also change your behaviour and attitude when it comes to money to make sure that your complete financial plan supports the life you want to lead and the legacy you wish to leave.

Soup’s on ain’t a soupçon!

As the days draw shorter, the sun stays hidden for longer and the colder weather encourages us to hibernate away, coupled with constrained financial conditions, we can be forgiven for falling into the trap of thinking smaller, trying to save both money and energy.

When it comes to cooking for the family – here’s a great idea to stretch out a little, as if the sun is shining warmly again.

Soups! They are jam-packed with vitamins to help you fight against the flu, the ingredients are basic, it’s affordable, you can keep it for ages if frozen and… it’s a great hot meal!

Warm, hearty foods on a cold day both comfort and sustain. Slow cookers can be bought for relatively cheap and use little energy – so set the soup up before you head out, and arrive home to a delicious aroma – and a delicious supper.

Let’s be honest, convenience is expensive; cooking from scratch means that you can buy vegetables and other ingredients in bulk while they’re on special and cook up batches of soup or stew that can be kept in the freezer for another few days. (Fresh fruit and vegetables are one of the most price variable foods, so it is generally better to buy what is in season.)

The other great thing about soups is that most vegetables can be used in their entirety (leaves, skin and all), without wastage or extensive prep time.

Hosting a soup party is a great winter alternative to a braai. Both have a casual atmosphere and instead of everyone bringing their own meat, guests bring soups, breads and cheeses.

Serving with soup mugs instead of bowls is a great way to keep things informal and everyone can dish up for themselves. There are literally thousands of soup recipes online to keep everyone happy – from hearty to creamy to spicy.

Once everyone has settled down – let the games begin! With everyone gathered around, soup mugs in hand, it’s the perfect time to introduce a game. There are lots of free smartphone apps that can work for group games, the trouble is finding a good one (I would recommend Heads Up!). If you’re a bit more old-school then feel free to break out a board game or cards.

The point of this blog is to highlight that it’s still possible to have a healthy meal and some good old-fashioned fun without spending a fortune on a fancy, formal dinner. Food is an everyday necessity that can be effectively used as an area for cutting down on costs, without sacrificing on nutrition and taste.

When Rona hits your wallet

Whilst we may try our best to keep our bodies safe from the flu – we may overlook the sluggish money myalgia that can hit us around this time too! You might have financial flu…

Every winter our communities are hit by different strains of coronavirus (root of the common cold and flu). COVID-19 is the latest strain that initially impacted our health systems, and then quickly affected our financial systems and virtually every other area of society, politics and the economy.

As with our bodies where some of us are more resistant than others and show very little symptoms, our financial situation may be more or less resistant to financial flu. We might handle financial stress very well, and bounce back quickly, but some of us may not.

People around the world are currently under financial stress – which will lead back to physical and emotional stress too.

This typically shows up in the difficulty an individual or household could have in meeting financial commitments due to both a shortage and/or misuse of money.

Many of us with financial flu may find that we are stressed continually about our finances, specifically around things like: short-term debt, car and credit card payments; extended family obligations; not being able to save; not having enough for any emergencies; and school or university fees.

Being able to list these different stresses helps us talk about them and deal with them, one at a time.

In 2017, Sanlam’s Benchmark survey cited that short-term debt was the biggest source of stress. Not much has changed.

Viresh Maharaj, CEO of Sanlam Employees Benefits: Client Solutions, rightfully pointed out that this stress would be considered an epidemic if we were referring to a disease. “If this was the flu, then 70% of South Africa said they’ve got the flu at the same time, it would be headline news.”

In most countries the middle class is the backbone of the economy and pays a substantial part of the country’s tax system. A lot depends on this sector, so these levels of stress are concerning.

If you are feeling like this resonates with you, and you’re showing similar symptoms, one of the conversations you might like to have is around conspicuous consumerism, as well as demanding economic conditions. The advertising industry has created “a culture of consumption on steroids” that needs to be addressed. Maharaj also ascertains that “while the National Credit Act includes various checks and balances… it doesn’t address the fact that being able to pay for something is not the same as being able to afford something.”

The findings from the Sanlam survey suggest that many middle-class citizens may struggle to meet short-term goals, which may have a knock-on effect of limiting their capacities to ensure they have enough funds to properly provide for their retirement.

Many individuals seem to be focusing on immediate financial concerns, and socio-economic constraints mean that the retirement funding issue isn’t being resolved. In the survey, over 60% of respondents “said they would work beyond retirement age, while 73% said they would reduce their current standard of living.”

However, we don’t have to be part of this statistic. Now’s the season to get our financial flu jabs and build up our immunity to making costly financial decisions. Protect yourself from any kind of flu this winter by seeking advice and taking the appropriate measures to ensure your long-term financial wellbeing.

How to emotionally distance when investing in tough times

Current investors have seen more ‘interesting times’, more black swans and market freefalls, than any other generation gone before.

From the 2008 global financial crisis, followed by the longest bull run in history, to Brexit, several downgrades for South Africa and then the COVID-19 pandemic, today’s investors have run the gamut. Their emotions have run the gamut too, whether they realise it or not.

Our brains on investing

Like being chased by a lion or falling in love, our management of money produces very specific chemical reactions in the brain that are as primal as they are underappreciated. Take a look at how CNBC describes it:

“In his book, “Your Money & Your Brain,” journalist Jason Zweig explains that financial losses are processed in the same part of the brain that responds to mortal danger. As investors see their investment portfolios plunge, our amygdala kicks into high gear. The amygdala plays a crucial role in processing and steering our emotions, such as fear and anger, allowing us to respond quickly to dangerous situations. The ongoing communication between the amygdala and rational input given by the prefrontal cortex can be stunted in times of emotional threat, such as a financial loss. This communication disruption is also known as the amygdala hijack, and, essentially, the prefrontal cortex is disabled, preventing us from making sound, rational decisions.”

First, become aware of the problem

What’s interesting about investment is that, unlike a lion attack or falling in love, almost everyone thinks that they’re not being emotional. Not understanding the basic ‘trading psychology’ as it’s known behind the amygdala hijack lends it power.

We all know the age-old adage of ‘buy low and sell high.’ Never is that more applicable than in market carnage such as that caused by COVID-19 and the 2008 financial crisis. To sell during a bad time, could be to take the biggest loss and miss the biggest opportunity in modern investment history. And we know this, logically, we do. So why do so many people sell anyway?

Because to sell is, for the amygdala, to escape the ‘lion’. It just wants to get out – it doesn’t care that such an emotional move could cost us our retirement.

But if one is aware of the problem, of the trading psychology behind our amygdala screaming at us to sell, it becomes a little easier to emotionally distance ourselves from the decisions.

Emotionally distance

One of the challenges that we all face is overcoming the powerful impulses to escape the lion.

We need to remind ourselves firmly that our emotional urges are not us.

And they are not sacrosanct, we can choose to obey them or ignore them.

Language helps a lot. Instead of thinking ‘I am freaking out’, think rather ‘my brain is freaking out.’ An investor who knows trading psychology thinks: ‘my brain is short-circuiting because of what it perceives as a dire situation’. An investor doesn’t think: ‘I need to get out.’

Also, look for inspiration. Keep a quote by Warren Buffett next to your desk when you do your day-trading, or whatever it might be. Thinking with the wisdom of others, even if it is by proxy, distances yourself from the tunnel vision which is so easy in a moment of panic, which tricks us into thinking that the way a problem appears to us is the only way to look at it. For example, to look at COVID-19 or Brexit stock market crashes as a disaster rather than an opportunity.

Don’t aim for being a robot

The aim here is not to suppress all emotions until you have none as an investor. Completely emotionless investing, as most experts will tell you, is a myth. Feel the fear, but don’t let it master you. Emotions are important, but we need to be able to deal with them in a positive manner.

Get help

Good, solid financial advice is invaluable – especially in tough times when emotional reactions are likely. Seek out a financial advisor who understands volatility and let their experiences work for you.

Ensuring that you don’t make any investment decisions or portfolio changes without your adviser’s input is also a handy way to not act in the spur of the moment. You may wake up at four in the morning worrying about your retirement, convinced that you need to dump all your equities immediately, but in the cold light of day such kneejerk reactions might look very, very different.

Ultimately, it’s you and not your emotions that are in charge when it comes to managing your money. Keep that in mind and you’ll be able to weather the storm ahead.