In partnership with Morningstar - I came across some recent research and thought you would find it valuable. I therefore share it with you and would love to hear your thoughts.. In short, it does a good job highlighting that true financial success comes from two viewpoints: actual financial progress (the numbers) and financial wellbeing or empowerment (the feeling of success or security). These are both important to me, and hopefully you too, as the evidence shows we must achieve both. Current State It would be great for you to think about your financial success via these two perspectives and let me know where you stand on a scale of 0 to 10 for each. I hope we can agree that we’ve made solid progress on both fronts, especially given the challenging last 18 months, but please let me know if that isn’t the case and I’ll do my best to help. Of course, some clients would rather not be involved in the intricacies of their financial plans. Perhaps simply by having us on your team is enough to feel financially empowered. If so, that is great. The importance of financial empowerment To demonstrate the evidence, the graph below compares people who feel empowered by their finances with people who don’t. It shows that people who feel empowered had mostly positive experiences with their finances, even in the lowest income ranges. Those who felt disempowered were less happy than their peers and didn’t reach the positive range until their annual earnings were well above $100,000 (this is US based, so equates to around R1 500 000). I
Source: https://www.morningstar.com/lp/when-more-is-less Achieving both sides of financial health As your adviser, my primary job is to crunch the numbers, but I also like to see myself as your partner in prosperity on your road to financial success. The lesson here is fascinating: A sense of financial wellbeing—as well as the money itself—may be the key to success in our financial lives. So, if there are some behavioural traits, such as reinforcing good investing habits, that I can help with – please reach out to me. For example, as it stands, it is likely you have enough assets to withstand a reasonable economic shock, but that doesn’t mean that you can’t and/or won’t be anxious about your finances. On the other end of the spectrum, I sometimes have clients that aren’t in the greatest place economically, and despite their best intentions, they still spend carelessly because they feel fine about their finances. If we want to be truly successful, we must find a balance between the two. I hope you find this different perspective useful. If you would like me to elaborate further on the above, or any other matter—I’d be delighted to chat. If you would to set up a meeting with Financial Planner please contact Kevin emails: service@daberistic.com tel:(011)658-1333 Written by: Kevin Yeh in partnership with Morningstar
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Last month we talked about setting up an emergency fund. Now let's talk about Step 7 - Money is a means to an end. Money itself has no meaning. Wealth has no meaning if it is not used for the good of people. People have the natural desire to grow, to help, to have a good life, to look after our family, to help our friends, to be happy. Money should be used to enable, to realise all these good things. A miser is a person who is reluctant to spend, sometimes to the point of forgoing even basic comforts and some necessities, in order to hoard money or other possessions. Don't be a miser. Many years ago I learnt from Kim Potgieter, a well-known financial planner in South Africa, six money questions. Since then I have incorporated these in my first meeting with new financial planning clients. These questions probe people's relations with money. You may want to go through them, to reveal your relationship with money. 1. What is the money for? 2. What lessons about money did you learn while growing up? 3. Who are the people in your life that are affected by the financial decisions you make? 4. What past experiences with your advisers stand out in your mind and how had these experiences impacted how you work with your advisers now? 5. If you had all the money that you would ever need, what would you do differently with your life? 6. What does money truly represent to you? Answer these questions truthfully. Then reflect on your answers. Is there anything you would like to change on how you relate to money? How can money make you more secure or happier? There are no right or wrong answers. Every individual is unique. What is right for someone else is not necessarily right for you. The first question is to understand what the money is for. For some, it's about to provide for oneself, or her loved ones. For others, it's about acquiring material things, such as providing food on the table, renting an apartment, buying furniture, a house or a car. Yes for some, it's about achieving certain goals, for example an overseas holiday, to complete tertiary education. Question 2 is about your life lessons about money. It speaks about your upbringing, and the people and things around you that have shaped your ideas about money. Typically people are influenced by adults that raised them: Parents, guardians, grandparents. You cannot choose your parents, but you can learn from the lessons and ideas they shared with you, whether good or bad. Question 3 is about your responsibility. Most of us care for at least one person, in South Africa where unemployment and poverty is rife, you may provide for many people. Your financial decisions will have an impact on those that depend on you for support. Question 4 is about your experience and expectations of a financial advisor. Many people need a financial advisor to guide them through their financial journey. Poor past experience may influence how you want to work with a financial advisor. It is also important to find a financial advisor with the right fit, a person you can trust and relate to, apart from his/her qualifications and experience. Question 5 is a million-dollar question. Maybe you are lucky to win the lotto, and your life is completely changed financially (and you will need a good financial advisor more than ever!). This question also reveals your character, personality and your priorities. Question 6 is such a deep, philosophical question. Answers I have heard from clients include: to have; flexibility; to afford; options; comfort; to make things happen. Once we understand that money is just a medium of transaction, that money is a means to an end (objective), then we will not accumulate money for the sake of it. "Wealth gained hastily will dwindle, but whoever gathers little by little will increase it." - Proverbs 13:11 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:
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