5 FINANCIAL LESSONS FROM 2014

When it comes to debt management you need to have some contingency plans in place for those unexpected and uncontrollable circumstances that can put a strain on your cash flow.

To best plan for the unforeseeable future, we look to the past and identify trends that may recur in the future:

Fuelling Up

Looking back at 2014, we saw the price of fuel rise to an all-time high. Placing major strain on consumers and businesses alike. After a hefty fuel price reprieve earlier this year we experienced sharp increases, with a dip in price predicted for the month of May. With the rollercoaster-like nature of petrol prices we have learned to plan for unpredictability, especially when covering long distances on a regular basis.

Banking Bull

After a handful of near-disastrous outcomes regarding banking organisations last year many have lost faith in the banking system. The affected credit ratings of all banks has resulted in less favourable lending terms, making it harder to meet payment obligations and less likely access a new loans.

Rising Repos

In 2014, South Africans had to deal with two increases in repo rate throughout the year. This directly affected consumer debt and bond repayments. More people were pushed to apply for loans to absorb the rise in repayments due to the limited disposable income that was being depleted at a faster rate. Having provisioned an extra budget would not go unhurt if this were to repeat in 2015.

Unemployment Issues

2014 also saw an increase in the unemployment rate. This means that more people are unable to meet their financial obligations and will most likely turn to the already strained State for support. This, coupled with the striking in major economic sectors, causes a knock-on effect that negatively impacts the financial well-being of South Africans. Making provisions for a volatile market is crucial to avoid falling into a downward debt spiral.

Development Damper

South Africa's high levels of indebtedness, along with other factors such as consumer affordability and rising interest rates, saw the downgrading of the country's credit rating in 2014 by Moody’s Investors Service and other major ratings agencies. This makes it more difficult to attract foreign investment and will likely lead to further weakening of the Rand. 

Negative developments such as this cause debt to rise as well as an increase in the cost of borrowing.

The only constant in life is change, therefore it’s important that you start saving as soon as possible to build up an adequate cash reserve that can bail you out of tough financial situations without plunging you into debt. In need of financial advice? 

I can help you out, let’s get in touch!

AVOID THE ‘NEW DIET’ APPROACH TO INVESTING

Saving is a tricky financial discipline to master. Most people agree that it’s wise to save, but are unsure as how best to do it. They try one way, take a break, then try another. It’s similar to the way many people try to eat healthily. Again, we all agree to the benefits of healthy eating, but few can stick to the right diet for a period long enough to produce significant results.

Just as different diets work for different people, we cannot view investments as a cookie-cut, one-solution-fits-all models. And, just as with dieting, creative and tailored solutions often work best! As a financial advisor, it’s my job to be your financial dietician!

INVESTING IN ETF'S FOR KIDS

If you are interested in investing for your children’s future education, a good way to achieve this is with exchange-traded funds (ETF). It is best advised to have a balanced portfolio spread over multiple asset classes so as to reduce volatility and enhance performance potential. You should consider the following points when setting up education accounts for your children:

10 TIPS FOR FINANCIAL PLANNING

Do you want to begin your 2015 financial year on a good note? Then what better time to review your financial plan!

A financial plan provides you with the financial security to overcome unforeseen events and map out a financial future for yourself. When creating a financial plan you need to identify key achievable goals that can advance your financial situation.

Here are 10 tips for improving a financial plan:

A FRESH START, TO YOUR CREDIT RECORD

Having an impaired credit record is an affliction suffered by almost half of the 21 million consumers in South Africa. This ranges from consumers with defaults, judgements, administration orders and consumers who were three months or more in arrears with account payments.

Recently, between 1 April and 31 May 2014, the South African government implemented a credit information amnesty that benefitted at least 3.1 million consumers.

WHAT WILL IT REALLY COST ME?

The current SA stats for breast cancer reveal that one in thirty-six women has breast cancer. My blog last week spoke about the general costs and overall statistics of cancer, but today I’d like to get a little more specific as to the expected ‘realistic’ impact that breast cancer will have on those who may be diagnosed this month.

Whilst it’s a scary reality, the sooner breast cancer is diagnosed the higher the chance that it can be treated through to full recovery. Breast cancer can run in families, but fewer than 10% of cases are as a result of an inherited family gene.

A DIFFERENT APPROACH TO DREAD DISEASE COVER

One of the reasons that I have my blog and Facebook page is that this industry changes about as regularly as the price of petrol. A financial solution that we relied on five years ago may still apply, but it also may not. There may be better options, better approaches; better products, for your needs. This is a place for me to share some of the newer ways of looking at financial planning.

When it comes to dread disease cover, which in itself is a relatively new kid on the block, and not something pleasant to consider, I have a new way of approaching the way that we could structure your plan.

WOMEN NEED TO PRESERVE THEIR FUND BENEFITS

Why do women need to preserve their fund benefits?

Deep inside every man is the knowledge that women are stronger, more clever and just all-in-all better than us. Men seldom admit it, but they know it.

What’s more is that women live approximately seven years longer than men do, which means that a woman aged 65 will need approximately 15% more than a man of the same age to provide the same pension for the rest of her life.

THINKING ABOUT VITALITY? NOW’S THE TIME TO CHOOSE!

Whilst I work with a variety of products - every now and then a super-duper deal comes along that I simply have to share on my blog!

Discovery Life’s Integration philosophy of incentivising health and wellness management has resulted in powerful outcomes. Engaged clients experience 40% fewer claims than non-Vitality members and lapse rates of engaged clients are 65% lower than non-Vitality members.

In order to ensure continued engagement, Discovery Life is introducing the Double GuaranteedPayBack special offer which applies to all new signups in September and October 2014.

LIMBO WITH THE LINGO

Whether you’re casting your line off the end of a pier or buckling your seatbelt, we all deal with risk and return. Somehow, when it comes to emerging markets, nominal vs real, risk-adjustments, multi-asset portfolios, protection strategies and bull vs bear markets we panic amidst an onslaught of lingo that overwhelms us.

Basically, when it comes to investments, it helps to bring things back to casting your line off the pier or buckling up, because we’re in for a bumpy ride.

GAIN CONTROL OVER YOUR MONEY

There is a myth that Ostriches, when faced with danger, bury their heads in the sand. Although it is not found to be true in nature, many of us tend to behave like this when faced with our monthly budget…

Financial behaviourists actually call the avoidance of perceived risky financial situations by pretending they do not exist, the Ostrich Effect. This tendency to pretend that all is well or ‘bury our heads in the sand’ instead of pro-actively managing our finances is one of the reasons why so many people are in deeper debt than they should be. Turning a blind eye to your finances is the first place where you will lose your control over your money.

If you want to stop being behind every month then you need to take back your control of your finances. You don’t need more money to regain control, you need to manage your income and your expenses better – that’s all!

CHECK YOUR RETIREMENT PLAN TODAY

I’ve written several blogs on planning for retirement and this is yet another to add to the quiver.

Why is this so important? Because financial planning and provision for retirement is often relegated to the bottom of the budget and is only seriously considered when it is seriously too late.

RECOVERY MONEY

Unless you've already had a debilitating illness, the last thing you think about is your health failing you for anything longer than your hospital stay. As a result, we tend to only include a hospital plan, and perhaps some GAP cover in our financial planning. But what happens if the accident means that you can't work for six months?

Your hospital and GAP cover may take care of most of your in-hospital expenses (costs incurred whilst you're admitted), but how will you cover your monthly costs?

Difficult as this subject may be, stats show that we’re all going to have an unexpected brush with some major illness at some point in the future. It might be you, it might be your partner, or it might be someone close to you that you will need to support.

For many of us a tragedy of this magnitude it will have a profound effect on both our physical health and on our financial health. The wise question to ask is: how do I keep paying the bills when I'm ill?

Well, let me share the solution with you about a real breakthrough in our financial planning artillery. No, it’s not just 'another insurance product'... it’s so much more.

CRITICAL ILLNESS | ARE YOU SUFFICIENTLY COVERED?

Women submit more critical illness claims than men.

RISKSA published an online article that shed some light on an area of financial planning that appears to be largely overlooked, or at least, underestimated.  A key consideration for every financial portfolio is to insure your most valuable asset - your ability to earn an income.

PLANNING FOR THE UNEXPECTED

How can you plan for the unexpected… and, if you’re expecting it, then how can it be unexpected? 

Well, those are good questions!

Planning and arranging your spending plan to include the ‘unexpected’ is a wise approach to take. When we talk about unexpected costs we generally mean services or commodities that are over-and-above what you would normally expect, but might be able to find out with some deeper digging.

DON'T THROW YOUR MONEY AWAY

The number of people who are currently saving is declining, research shows. Last year MasterCard conducted a survey to discern consumer purchasing priorities and the research revealed that saving is a forgone priority in an increasing amount of household budgets.

The biggest barrier-to-entry in any budget for savings is the belief that there is no ‘extra’ money to save, and as a result, the money is channelled into commodities, accommodation, groceries and other expense pockets. In most cases, however, this perception is not accurate and is based on emotions rather than true budgetary figures.

BUY OR RENT?

In an article published on Fin24 earlier this year, it was said that homes are expected to become less affordable this year (2014). John Loos, household and property sector strategist at FNB Home Loans, said the following:

"After six years of improving residential property affordability, 2014 could be a year in which this improving affordability trend is reversed mildly, and in which affordability becomes slightly more challenging," said Loos.

Now, I don’t sell Home Loans – so why is this of interest to me as your financial advisor? Simple. I’m here to help you invest your money wisely; whether it’s with me or not, that’s my métier. When I sit down with you, we don’t only talk about products and investment vehicles: we talk about life. We talk about challenges, family, work and opportunities on the road ahead. So right now, let’s talk about your choice in a home.

MIND THE GAP

For those of you who have travelled on a tube in London, you’ll know the familiar sound of the lady saying “Mind the gap.” as you step on and off your tube. In fact, even if you haven’t travelled to the Big Smoke, you’ve probably heard about it.

However, when people buy health cover they’re very seldom told to mind the gap. I always try to make it very clear to my clients that the gap in their cover exists and that there will always be a shortfall in the medical plan payouts for in-hospital costs, but this fact is so quickly lost in the multifariousness of all the other ‘more important’ considerations within a well-balanced financial portfolio. There is no one constantly reminding you to ‘mind the gap’.

HOW ARE THE MARKETS LOOKING?

Fluctuations in the markets are one of their defining characteristics.  Various factors contribute to the vicissitudes of investor behaviour, both locally and globally, and many of these are psychological factors that are strongly influenced by perceptions – and an interest rate hike will surely shake the boat. 

It’s always good to know how your investment portfolio is constructed and variety is important to encourage an overall positive return.  When local markets are up, global markets might be down and vice versa.

Here’s a little bit of what’s been happening in the past six weeks.

FUEL PRICE ADVICE

What goes up must come down… except for the fuel price!

A little over a week into the new month and all drivers are already feeling the weight of the escalating petrol and diesel prices.  Reaching record heights last week, petrol pumps are now set at over R14 per litre (R13.95 at the coast), and this excludes the increased fuel levies that will be imposed from April, as announced in the budget speech at the end of February.