Wealth 101 Episode 1

Try a new one each month?

Ran out of cash at the New Year’s bash? Too much month at the end of your money? Party animal with poor credit? Maybe not, but every financial “doh!” adds up. Maybe it’s time for a few New Year’s resolutions …for your finances.

 

Even if you aren’t, your inner accountant is with us on this. #JanuWorry is a thing and South African democracy is at a critical juncture. You can’t predict the polls and their impact on the economy, but you can vote with your wallet. This is the first offering of “Wealth 101”, a series of blog pieces about fantastic financial management. Put your money where your mouse is with 12 tips to protect (and build) your wealth, bit by bit(coin).

 

How to?

First up, make this your money mantra for 2018: “Defeat Debt, Spend Less, Save The Rest, Invest”.

 

Then, apply at least one of these to every economic decision using these tips and tricks:

 

  1. Spend less

Building wealth starts with owning the difference between what you want and what you need; what you have, what you hold and what you build. For example, you NEED to eat; you wantconvenience meals. Eating at home is healthier and cheaper than eating out. The math is mad. One meal out can cost the same as five meals in. DIY dinner means extra cash for the retirement annuity!

 

  1. Save more

Buying higher quality less often means more saving. That’s because quality goods last longer and require fewer repairs and returns. Consider summer shoes. Instead of buying 3 no-name pairs at R200 each that might soon break, invest a single pair of hard-wearing hemp slip-ons at R400 each. That R200 saving could go to another pair  to smashing your overdraft (see 5. below).

 

  1. Track your spend like a sniper

Gurus of gain teach us to spend less than we earn but to do that you need to know more abouthow you spend.  You can do this by tracking your spend and we’re talking EVERY purchase. You’d be surprised what smokes or chocolate end up costing over a month, and where the bulk of your bonus really went. There are some useful apps for this. We love Spending Tracker (charts!), GoodBudget (set limits!), and Splitwise (share the bill with your friends). They’ll soon show you when you’re shooting yourself in the financial foot and where you’re cashing in.  If you’re a couple, you can collaborate, or even better, compete! Applies to friends, fam and colleagues too, of course.

 

  1. Cash hack – credit card win

Credit cards are not evil if you exploit them. The first rule of credit club is: don’t use credit (for everyday expenses). “For 2 years we used our credit card for the points we earn and its benefits,” says a debt-free cent-saver, “but we pay it off in full each month.”   Err on the side of caution though, debt becomes expensive fast! When in doubt, credit’s out.

 

  1. Pay it back in cold, hard cash

Speaking of credit, a R1 million property with a bond at 10.5% interest over 20 years will cost you nearly R2,5m overall. You pay more for the credit than the property itself. Set up a debit order to help pay off your debt as soon as your salary is in. And then, eat in, because debt is bound to cost more in 2018.

 

  1. Credit Hack: pay the worst first

Before you lose yourself in your loans, try paying off the highest-interest ones first to avoid the perils of compound interest. Then pool them into one with a reputable debt consolidation serviceand save on admin fees.

 

  1. Deep in debt? You’re not alone.

We declare that if you’re drowning in debt, the law can protect you… to a point. Anyone can applyfor Debt counseling with these certified service providers but certain criteria must be met to qualify. If your application is successful, you’ll receive support and advice to help you through the credit crisis. With such a status, creditors can only charge limited interest on an account in arrears.  Consolidating payments can reduce administrative fees, and when you’re in the red, less red tape makes all the difference.

 

  1. Reduce stress (and risk)

Even if your debt is clear, your cash flow can have accidents. An Income Protection Policy to cover your salary will indemnify you for a few hundred rand a month.  If illness or injury means you can’t earn, you’ll still be able to pay the rent and bills. It’s peace of mind at a low price.

 

  1. Invest in bulls and bears

Wealth is wild, but cash doesn’t create wealth by itself. Try trading in stocks and bonds to convert cash to capital. It’s a vast subject that a stock broker can guide you through. Don’t be afraid to start small. It’s well worth investing money you can afford to lose because changes in the market, in the global political climate and public sentiment all, affect your profits. This handy quiz from the JSE(Johannesburg Stock Exchange) and its tailored tutorials will boost your confidence so you can start coining it sooner.

 

  1. Buy bitcoin. Now.

Once laughed at, the now-lauded digital currency is fast gaining a reputation as - ahem - the next bit thing at $20k apiece. Cryptocurrency is unpredictable but less cryptic than it might seem though it takes a little  getting used to. It’s a volatile asset with high risks and high returns so it suits certain types of investors. Are you bitcoin’s type? You are if you want to invest in a currency that’s cheaper, safer and easier to use, but some fear its seemingly unstoppable rise will end in an inevitable crash and subsequent collapse.  We suggest you move fast, but not speed dating-fast. And keep it casual at first; there’s also ethereum, ripple and the eco-friendlier Burstcoin

 

  1. Can you say RA?

Slower and steadier than virtual stocks, a Retirement Annuity (or Pension Fund) grows with you and is more than an asset, it’s a tax-deductible investment that lets you can claim tax back. This means it counts as a saving as well. And why shouldn’t investing in your future be a bonus?

 

  1. Do property properly

Why rent when you can own? While volatile interest rates and rampant inflation make this a contentious issue, the property offers potentially huge returns. It also requires an equally huge capital outlay and profits can be slow depending on the opportunity and your experience, but they’re generally steadier than the stock market’s are and you can live in this asset, too.

 

TLDR? Try this list:

  1. Spend less
  2. Save more
  3. Track your spend like a sniper
  4. Cash hack – credit card win
  5. Pay it back in cold, hard cash
  6. Credit hack – pay the worst first
  7. Deep in debt? You’re not alone
  8. Reduce stress (and risk) with income protection
  9. Invest in bulls and bears
  10. Buy bitcoin. Now.
  11. Can you say RA?
  12. Do property properly

 

Remember:

  • Sometimes we’re better at forming new habits when we chop it into chunks. Rome wasn’t built in a day and bitcoin didn’t go ka-ching Take your time and profit from the process. Literally.
  • Learn more by following financial and fintech thought leaders and publications of repute and bloggers.
  • Get a reliable financial advisor with a proven track record and a solid reputation. S/he should come at an affordable rate (relative to your policies and investments) and, by law, keep your financial reality and best interests in mind. It’s called Treat Customers Fairly and it’s an act designed for you.
  • Follow “Wealth 101”, our blog series exploring wealth-generation. This is part one and you are already profiting from it. Metaphorically. Here’s to making money out of metaphor!