smart money management

7/21/2019 Smart Money Management

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SMART MONEY MANAGEMENT

EXECUTIVE SUMMARY

After completing this chapter !o" #ill "n$erstan$ the principles of

#ealth creation% the importance of personal &nancial management% the

tr"e cost of $e't an$ the steps to ta(e to achie)e &nancial free$om*

These steps incl"$e ta(ing a loo( at !o"r c"rrent spen$ing ha'its

eliminating $e't an$ then loo(ing at p"tting asi$e sa)ings* The ne+t step

is to set personal &nancial o',ecti)es an$ then compare !o"r c"rrent

&nancial position to that of !o"r &nancial o',ecti)es* -inall! #e loo( at

getting the 'est possi'le ret"rns for !o"r mone! '! loo(ing at the

)ario"s tra$itional in)estment )ehicles an$ #h! it is important for !o" to

e$"cate !o"rself a'o"t the share mar(et*

INTRO.UCTION

There are h"n$re$s of strategies an$ approaches to ma(ing mone! on

the share mar(et* Some in)estors ha)e their fa)o"rite /form"la/ for

in)estment s"ccess #hile man! others ha)e rea$ )ario"s 'oo(s an$

papers* Some approaches #or( #ell some #or( intermittentl! an$ some$o not #or( at all* This lesson is an attempt to s!nthesise #hat #or(s

an$ to e+tract some of the most important elements of this acc"m"late$

e+perience so that !o" ma! 'ene&t from it*

The challenge is to learn as m"ch as possi'le the eas! #a! '! a$opting

a recepti)e attit"$e% an attit"$e that searches for ans#ers rather than an

attit"$e that is imme$iatel! c!nical an$ negati)e* Some of #hat follo#s

ma! seem )er! m"n$ane an$ o')io"s at &rst !et these simple an$

apparentl! o')io"s i$eas often $etermine the $i0erence 'et#een

s"ccess an$ fail"re*

Some in)estors nee$ to learn their lessons the /har$/ #a! '! &rst1han$

e+perience* It seems that some i$eas ,"st cannot 'e easil! a'sor'e$

from a 'oo( or lect"re '"t ha)e to 'e $ri)en home '! a material loss in

the share mar(et* Other i$eas appear eas! to "n$erstan$ at an aca$emic

le)el '"t act"all! re2"ire in)estors to gain the sort of g"t1le)el

"n$erstan$ing #hich onl! reall! $e)elops #ith practice an$ personal

in)ol)ement*

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3rescri'ing in)estment r"les for a s"ccessf"l in)estment ma! 'e

possi'le% ho#e)er these r"les ma! ha)e to 'e amen$e$ as )aria'les in

the economic str"ct"res 4i*e* monetar! an$ &scal polic!5 change* E)en if

these r"les #ere applica'le each potential in)estor has "ni2"e

circ"mstances* Most in)estors are ris(1a)erse an$ attempt to ma+imisetheir #ealth* As a principle in)estors ma+imise #ealth '! ma+imising

ret"rn an$ minimising ris(* 6hate)er the in)estor 7s "ni2"e

circ"mstances the primar! r"le is to ha)e an in)estment o',ecti)e*

Setting &nancial or in)estment o',ecti)es forms part of the #hole

$ecision1ma(ing process* The in)estment $ecision process comprises an

arra! of acti)ities #hich ma! for instance res"lt in the ma(ing of a

$eposit or the p"rchase of shares* Attention sho"l$ 'e gi)en on ho# to

in)estigate anal!se an$ select an in)estment that #ill 'e satisfactor!*

8"t 'efore procee$ing #ith the in)estment $ecision an$ learning more

a'o"t s"ccessf"l share mar(et in)estment principles the in)estor nee$s

to assess his personal circ"mstances* Therefore it is a$)isa'le to &rst

ha)e !o"r personal &nances in or$er*

6EA9T: CREATION

Creating #ealth is not eas!* S"ccessf"l in)estors nee$ $iscipline

patience a little l"c( an$ perhaps most of all ; (no#le$ge* This lesson

intro$"ces long1term strategies "se$ to '"il$ #ealth* It is $esigne$ to

impro)e !o"r "n$erstan$ing of in)esting* Setting !o"rself on the path to

&nancial free$om in)ol)es more than o#ning a parcel of shares or '"!ing

an in)estment propert!* To ens"re &nancial sec"rit! !o"r in)estments

sho"l$ 'e part of a comprehensi)e approach* Remem'er it is !o"r

mone! to gro# or lose*

In a fast1changing #orl$ the sta(es are high for in)estors* Retirement

f"n$ legislation has "n$ergone signi&cant changes #ith )irt"all! all

pension f"n$s no# operating on the $e&ne$ contri'"tions 'asis an$ the

portfolios are mar(et relate$* This str"ct"re p"ts the responsi'ilit! of

choosing the /right/ portfolios on the sho"l$ers of the in$i)i$"al #ho has

either a )er! limite$ (no#le$ge of the share mar(et or none at all*

Secon$l! terms s"ch as #ealth management an$ margin len$ing are

increasingl! 'ecoming a part of e)er!$a! lang"age* The Internet has also

altere$ the #a! people thin( a'o"t an$ act on in)estment strategies* Of

co"rse some things $o not change< sprea$ing ris( across )ario"s asset

classes is still the gol$en r"le*



The fact that !o" are rea$ing this lesson is a goo$ sign* It means that

!o" are serio"s a'o"t getting !o"r &nances in or$er or topping "p !o"r

in)estment pool* Ta(ing time to "n$erstan$ in)esting #ill $ramaticall!

increase !o"r chances of s"ccess*

:ere are three points to consi$er<=* Yo" $o not nee$ a lot of mone! to get starte$ as an in)estor>* It is ne)er too earl! to start thin(ing a'o"t !o"r &nancial nee$s for

retirement*?* It is ne)er too late to start &nancial planning an$ sa)ing*

3lease "n$erstan$ that #e are #ealth e$"cators ; NOT &nancial a$)isers

or planners* Therefore #e cannot an$ $o not pro)i$e !o" #ith speci&c

&nancial a$)ice a'o"t in)estments* 6e 'elie)e that !o" are the 'est

person to "n$erstan$ an$ $eci$e ho# to manage !o"r o#n &nancial

a0airs* 6e 'elie)e that proper research personal "n$erstan$ing an$&nancial e$"cation are the fo"n$ations for achie)ing &nancial free$om*

6e enco"rage !o" to "se the information !o" rea$ an$ hear to research

)ario"s possi'ilities to $isco)er #hat in)estment )ehicles an$ '"siness

opport"nities are right for !o" at this an$ f"t"re points in !o"r life*

There is perhaps no more important $ecision than to ta(e charge of !o"r

o#n &nancial f"t"re* 6e li)e in a #orl$ of opport"nit! an$ !et most

people are '"rie$ in cre$it car$ an$ other $e't* 6e are s"rro"n$e$ '!

people #ho are getting rich '"t most of "s are r"nning on the spot* If

!o" can rea$ this !o" are literate an$ ha)e a comp"ter% then !o" arepart of the /#ire$ generation/* Yo" can 'ecome as &nanciall!

in$epen$ent as !o" #ish to 'e*

3RINCI39ES O- 6EA9T: CREATION

Mastering these principles #ill get !o" on the path to &nancial free$om

faster* To ma+imise !o"r #ealth creation s"ccess #e strongl! recommen$

that !o" start #ith the &rst principle an$ #or( !o"r #a! thro"gh theprinciples* :ere are the Top =@ principles to #ealth creation<Principle # 1: Set Goals

-irst !o" m"st esta'lish !o"r goals in #riting* T#ent! !ears of research

ha)e fo"n$ this to 'e critical to s"ccessf"l #ealth creators !et B of

people $o not set goals an$ then #on$er #h! the! fail* In =?D

Napoleon :ill p"'lishe$ the res"lts of his st"$! 4in his 'est1selling 'oo(

Thin( an$ Gro# Rich5 of America 7s most s"ccessf"l men to &n$ a

form"la for creating #ealth* Napoleon :ill concl"$e$ from his t#ent!

!ears of research that B of people #ho faile$ to create #ealth $i$ so



largel! 'eca"se the! $i$ not ha)e a goal to #or( to#ar$s* S"ccessf"l

#ealth creators $i$

Goal setting so"n$s so simple !o" #ill 'e tempte$ to s(ip past here* .o

not 8eing foc"se$ is there'! a po#erf"l #ealth creation force that fe#

people harness re$"cing their &nancial sec"rit! an$ free$om* Yo"accelerate !o"r s"ccess #hen !o" learn from s"ccessf"l people* Ver! fe#

#ealth! people set o"t #ith a goal to simpl! 'ecome #ealth!* Mone! for

mone! 7s sa(e #as not #hat got them starte$ an$ not #hat (ept them

going* Achie)ing their $ri)ing goals pro)ing their a'ilit! to themsel)es

the lo)e of achie)ing an$ impro)ing their personal 'est #as #hat

mattere$ most* That is #h! goal setting is so important* Yet so fe#

people set goals for themsel)es* 6hat moti)ates !o"F Mostl! li(el! it #ill

not 'e reaching a certain Ran$ s"m '"t rather 'eing a'le to a0or$

certain choices in life for e+ample< ta(ing a !ear o0 an$ tra)elling

aro"n$ the #orl$ a0or$ing to start !o"r o#n '"siness e$"cate !o"r

chil$ren gi)e !o"r (i$s a hea$ start in life etc* Ma(e !o"r goals speci&c

an$ meas"ra'le so !o" can see !o"r s"ccess an$ foc"s on achie)ing it*

-or e+ample<

• Too general 1 /To 'e rich #hen I retire/

• Speci&c an$ meas"ra'le 1 Sa)e R=1million an$ to tra)el aro"n$ the

#orl$ in m! &rst !ear of retirement*Speci&c an$ meas"ra'le goals are m"ch easier to 'rea( $o#n into

smaller achie)a'le components so that !o" can monitor !o"r s"ccess*

Goals sho"l$ 'e challenging '"t not "n'elie)a'le ,"st o"t of reach '"t

not o"t of sight* -or e+ample if !o" are c"rrentl! @ !ears of age an$

!o" #ant to sa)e R=1million '! the time !o" reach age H !o" can #or(

o"t e+actl! ho# m"ch mone! !o" nee$ to sa)e each month in or$er to

reach that goal on time*

.eci$e to 'e &nanciall! s"ccessf"l* This is $i0erent than #ishing hoping

#anting or e)en $esiring to 'e rich* Ma(e a commitment that this is

going to happen -inancial free$om is not an acci$ent or matter of l"c(

an$ it "s"all! re2"ires some incon)enience* :a)e !o" $eci$e$ to achie)e

this goalF

• 6hat $o !o" #ant for the f"t"reF

• 6here $o !o" #ant to li)eF

• :o# man! chil$ren $o !o" #antF

• Are e+pensi)e o)erseas holi$a!s importantF



• Challenge !o"rself to 'e o"t of $e't '! a speci&c $ate*

• Ma(e a commitment to sa)ing an e+act amo"nt each month*

• At #hat age $o !o" #ant to retireF

• 6or( o"t !o"r goals an$ tr! to assess at #hat age the! are

attaina'le '"t 'e realistic*

• Are !o" comforta'le ta(ing ris(sF

• .o !o" ten$ to #aste mone!F

• Are !o" reall! prepare$ to ma(e sacri&cesF

Ma(e a plan to achie)e !o"r goals* :a)ing a clear #ritten plan helps an

in)estor sta! foc"se$ an$ on co"rse* Man! people are afrai$ to ha)e aplan 'eca"se the! are not s"re #hat the! reall! #ant or are afrai$ things

#ill change* Yo" can al#a!s change !o"r plan '"t p"t those changes in

#riting* That #ill ma(e !o" thin( a'o"t them caref"ll! an$ help !o" a)oi$

imp"lse changes* A '"$get an$ a plan $o not g"arantee !o" s"ccess at

creating #ealth% ho#e)er going for#ar$ #itho"t one is planning to fail*

8efore !o" set !o"r goals &n$ o"t #here !o" are stan$ing no#* Each

in)estor 7s strateg! #ill $i0er $epen$ing on their o',ecti)es an$ age*

8rea(ing $o#n large goals into smaller achie)a'le components is the

easiest #a! to ma(e s"re !o" sta! on trac(*Principle #2: Pay yourself first.

The secret to &nancial s"ccess is to p"t something asi$e for sa)ing an$

in)esting 'efore !o" spen$ #hat is left* If !o" operate in re)erse an$

sa)e #hat is left !o" #ill ne)er ha)e an!thing left to sa)e an$ in)est

Yo" are a fool if !o" pa! e)er!one '"t !o"rself* The secret to #ealth

creation is /part of all !o" earn is !o"rs to (eep/* The part of !o"r

earnings that !o" pa! !o"rself is the fo"n$ation of !o"r #ealth* 6ealth is

li(e a h"ge tree ; it gro#s from a tin! see$* It ta(es a long time to gro#

to a great height '"t pro)i$e$ it is #atere$ an$ fertilise$ reg"larl! it #illslo#l! '"t s"rel! gro# at a faster an$ faster rate* O"r mone! tree gro#s

from o"r sa)ings an$ is fertilise$ '! compo"n$ interest pl"s a$$e$

sa)ings #hich ca"ses fast gro#th* 6hen it comes to creating #ealth it is

not #hat !o" earn it is #hat !o" (eep There are man! high1income

earners #ith large salaries an$ e)en larger lifest!les #ho are a long #a!

from 'eing &nanciall! free*

So ho# m"ch can !o" a0or$ to sa)e an$ in)est an$ still pa! !o"r 'illsF

Create a '"$get an$ list !o"r e+penses an$ income an$ calc"late !o"r



s"rpl"s income a)aila'le to in)est* A '"$get is a set of $reams an$

aspirations* It is ho# !o" reall! reall! #ant to "se mone! to 'ene&t !o"r

famil! an$ r"n !o"r life* 8"$get to '"! the things !o" reall! #ant an$ to

eliminate the /imp"lses/ the to!s that #aste too m"ch of o"r income* A

'"$get is a map to !o"r $estination* :a)e one an$ "se it Yo" can no#treat !o"r monthl! s"rpl"s as a &+e$ e+pense so !o" gi)e !o"r $reams

the priorit! the! $eser)e* 6hilst $oing !o"r '"$get ma! seem 'oring it

can 'e a )er! enlightening e+ercise* Once !o" ha)e $isco)ere$ #here

!o"r mone! act"all! goes !o" are in a position to conscio"sl! $eci$e

#here !o" 6ANT !o"r mone! to go*

Remember: Income less Spending = Savings

Consi$er $ela!ing some spen$ing as going #itho"t a fe# things no# #ill

mean !o" ha)e lots more to spen$ $o#n the trac( Yes this comes after

ma(ing a '"$get 'eca"se #hen !o" 'egin getting control of !o"r mone!

4rather than the other #a! aro"n$5 !o" ha)e po#erf"l ne# reasons to

re$"ce e+penses* Most self1ma$e millionaires li)e far 'elo# their means

Yo" sho"l$ too*

Thin( a'o"t the follo#ing< /=@ of e)er!thing that I earn is mine to

(eep*/ =@ gross earnings has al#a!s 'een regar$e$ as a reasona'le

&g"re '"t this m"st 'e tempere$ #ith $iscretion* 3ersons #ith largepensions an$ retirement ann"ities or ones #ho are re$"cing their home

loan 2"ic(l! ma! not nee$ to p"t m"ch more a#a! at all* The! are

alrea$! sa)ing plent! no#* A single person or a co"ple #ho 'oth #or(

an$ ha)e no intention of ha)ing chil$ren are not li(el! to ha)e the same

costs as people #ith large families*

Sa)ings gi)e !o" the po#er to m"ltipl! !o"r income* E)er! Ran$ that !o"

sa)e is a sla)e that can #or( for !o" an$ e)er! cent that it earns is

another sla)e that can #or( for !o" !o"r famil! an$ !o"r chil$ren 7schil$ren* One of the secrets of mone! is that if !o" sa)e =@ of !o"r

income in)est it #isel! an$ $o not 'orro# for $epreciating items !o"

can $o #hate)er !o" li(e #ith the remaining @* -inancial s"ccess is

still g"arantee$* Yo" can spen$ the other @ on clothes tra)el or

#hate)er !o" fanc! it $oes not matter* Most people ha)e the

e+pectation of #or(ing from the time the! are > !ears ol$ "ntil at least

!ears ol$* -or e+ample< ass"ming a goo$ e$"cation man! people

#o"l$ e+pect to ma(e an a)erage of RH@ @@@ per !ear o)er that #or(

life*



Total Years Worked< ?@

Average Earnings per Year< RH@ @@@

Total Money Earned< R= B@@ @@@

Most People will have saved< R?H @@@

Amount Spent< R= DH @@@

It is "nli(el! that an! of "s gi)en R= B@@ @@@ #o"l$ gi)e a#a! R= DH

@@@ an$ onl! (eep R?H @@@* AmaJingl! tho"gh #hen $one '! the pa!

che2"e that is e+actl! #hat happens* It is h"man nat"re to spen$ e)er!

scrap of o"r income !et if #e $o not ha)e it to spen$ #e $o not miss it*

The onl! #a! to sa)e is to ha)e the necessar! amo"nt ta(en o"t of !o"r

pa! '! a"tomatic $e$"ction* Yo" are more li(el! to 'e s"ccessf"l creating

#ealth #hen !o" a"tomate !o"r s"ccess "sing a 7s!stem 7 so !o" can

forget a'o"t !o"r in)esting an$ foc"s on #hat co"nts ; li)ingPrinciple #3: Start Early

The important thing is getting starte$ right no# 6hether !o" start o0

#ith R@ a month or R=@@ a month or R@@ per month for e)er! month

!o" $ela! !o" are losing tho"san$s of Ran$s* A little mone! in)este$

consistentl! o)er a long time ma(es a lot of mone!* 9et "s loo( at #hat

happens if !o" in)est R=@@ e)er! month for t#ent! !ears #ith a D

ret"rn* At the en$ of >@ !ears !o" #ill ha)e pai$ in R> @@@ '"t !o" #ill

ha)e R> @? in !o"r acco"nt* 6hat if instea$ !o" lea)e the mone!

"nto"che$ for thirt! !earsF Still in)esting R=@@ per month the

in)estment pool #ill ha)e gro#n to o)er R=>= D*=@* Not 'a$*

240 Months !0 Months 4"0 Months

R=@@ in)este$ R > @@@ R ?H @@@ R B @@@

In)estment pool R > @? R=>= D R>H> B=

.i0erence R >B @? R BH @@@ R>= @@@

9et "s see #e p"t asi$e R=@@ per month for ?H@ months #hich #o"l$ 'eR?H@@@* 8"t o"r R=@@ a month in)estments earne$ almost RBH @@@

more than $o"'le the amo"nt #e p"t in

:o# m"ch #o"l$ 'e there if the program r"ns for @ !earsF The

in)estment pool is no# "p to R>H> B=*?* 9et "s see #e p"t asi$e R=@@

per month for B@ months #hich #o"l$ 'e RB @@@* 8"t o"r R=@@ a

month in)estments earne$ almost R>= @@@ R>H> @@ in)este$ at D

#o"l$ gi)e an ann"al income of R=B ?D per !ear #itho"t to"ching the

in)estment pool*

If !o" start at >@ at H@ !o" can ha)e that income* Starting at ?@ #o"l$allo# #ith$ra#al at D@* @ #o"l$ 'e at B@ etc* It is eas! to see that the



earlier the program is starte$ the earlier !o" can #ith$ra#* 8"t a

program at @ #ill still get !o" there at B@ partic"larl! if !o" $o"'le the

mone! to R>@@* K"st R>@@ a month 'eginning at @ #ill gi)e !o" almost

R> @@@ at age B@ #hen !o" #o"l$ reall! nee$ it*

Most of "s (no# that schools teach "s nothing a'o"t mone!* If this onei$ea #o"l$ 'e repeate$ o)er an$ o)er again from primar! school thro"gh

to high school "ntil it 'ecame literall! part of the st"$ents 7 ps!ches #e

#ill $e&nitel! ha)e a m"ch 'etter econom! -or e+ample< a = !ear ol$

4In)estor A5 opens a sa)ings acco"nt #ith R> @@@ at an a)erage gro#th

rate of =@* After eight !ears this fello# ma(es no more contri'"tions*

A secon$ in)estor 4In)estor 85 #aits "ntil age >H 4eight !ears later5* :e

also ma(es R> @@@ contri'"tions '"t he contin"es to $o so faithf"ll! "ntil

age H an$ gets the same ret"rn* In)estor A en$s "p #ith more mone!

than In)estor 8 #ho contri'"te$ for the entire time* Remem'er In)estor

A onl! contri'"te$ R=H @@@ #hereas In)estor contri'"te$ RB@ @@@

almost &)e times more The compo"n$ing e0ect of the a$$itional B !ears

is phenomenal*

#nvestorA

$0%&rowth

#nvestor'

$0%&rowth

Year = 4=5 R>@@@ R > >@@

Year > 4>@5 R>@@@ R H>@

Year ? 4>=5 R>@@@ R D >B>

Year 4>>5 R>@@@ R=@ >=@

Year 4>?5 R>@@@ R=? ?=

Year H 4>5 R>@@@ R=H D

Year D 4>5 R>@@@ R>@ BD>

Year B 4>H5 R>@@@ R> = R>@@@ R > >@@

Year 4>D5 R>D HD R>@@@ R H>@

Year =@ 4>B5 R?@ ? R>@@@ R D >B>

Year == 4>5 R?? BD R>@@@ R=@ >=@

Year => 4?@5 R?H B?H R>@@@ R=? ?=

Year =? 4?=5 R@ = R>@@@ R=H D



Year = 4?>5 R D> R>@@@ R>@ BD>

Year = 4??5 R @>B R>@@@ R> =

Year =H 4?5 R? ?= R>@@@ R> BD

Year =D 4?5 R ?> R>@@@ R? @H>

Year =B 4?H5 RH >D R>@@@ R@ DH

Year = 4?D5 RD= DB> R>@@@ RD @

Year >@ 4?B5 RDB H= R>@@@ R? @

Year >= 4?5 RBH BD R>@@@ RH=

Year >> 4@5 R > R>@@@ RH B

Year >? 4=5 R=@ @D R>@@@ RD @B

Year > 4>5 R== H@H R>@@@ RB =B

Year > 4?5 R=>D =HD R>@@@ R=@@ ?=B

Year >H 45 R=? BB R>@@@ R==> @

Year >D 45 R=? BD> R>@@@ R=>H @@

Year >B 4H5 R=H > R>@@@ R=@ B@

Year > 4D5 R=BH =B R>@@@ R=D @BH

Year ?@ 4B5 R>@ B@ R>@@@ R=D

Year ?= 45 R>> >B R>@@@ R= H

Year ?> 4@5 R>D B=> R>@@@ R>=H ?H

Year ?? 4=5 R>D> R>@@@ R>@ >@@

Year ? 4>5 R> B? R>@@@ R>HH >@

Year ? 4?5 R?> B?B R>@@@ R> >H

Year ?H 45 R?H> B>> R>@@@ R?>H BB

Year ?D 45 R? =@ R>@@@ R?H= BBD



Year ?B 4H5 R? @= R>@@@ R@@ >DH

Year ? 4D5 RB> =H R>@@@ R> @?

Year @ 4B5 R?= >@B R>@@@ RBB ?

Year = 45 RB ?> R>@@@ R@ @

Year > 4H@5 RH> DH> R>@@@ RH >

Year ? 4H=5 RD@D @?B R>@@@ RHB @D

Year 4H>5 RDDD D> R>@@@ RD>H @BD

Year 4H?5 RB =H R>@@@ RB@@ BH

Year H 4H5 R= @HD R>@@@ RBB? =B

Year D 4H5 R= @? =D R>@@@ RD? D@

TotalContri'"tions

R=H @@@ RB@ @@@

It is ne)er too earl! to start* Goo$ in)estors (no# that the 2"ic(er !o"

start the more !o" en$ "p #ith* 6ealth creation is li(e clim'ing a

mo"ntain* It is m"ch easier to start earlier an$ ta(e a longer '"t Latter

path than to #ait till the last moment an$ tr! to sprint "p the cli0 face*Principle #4: Use the Magic of Compounding

Most people ha)e hear$ of compo"n$ing '"t $o not reall! "n$erstan$

the po#er of compo"n$ing an$ if the! $i$ the! #o"l$ ma(e entirel!

$i0erent &nancial $ecisions 6ith compo"n$ing mone! ma(es mone!

#hich in t"rn ma(es e)en more mone!* Instea$ of #ith$ra#ing $i)i$en$s

or interest ma$e '! !o"r in)estments !o" a$$ it 'ac( into !o"r

in)estment* Yo" start earning interest on !o"r interest* The goo$ ne#s is

that the longer !o" gi)e that process to #or( the faster it increases#hich is #h! time an$ compo"n$ing #or( together to increase !o"r

#ealth $ramaticall!*

-or e+ample< if !o" ha$ place$ R=@ @@@ into an acco"nt at a &+e$

interest rate of B per ann"m #ith the interest compo"n$ing e)er! !ear

it #o"l$ '"il$ "p to RH H=@ in >@ !ears* 9et "s imagine that !o" ha)e a

frien$ #ho also in)este$ R=@ @@@ on e+actl! the same terms '"t #ith an

interest rate of =H per ann"m*

It #o"l$ 'e logical to thin( that at the en$ of the time that !o"r frien$

#o"l$ ha)e t#ice #hat !o" ha)eF After all =H is $o"'le B* It might 'elogical '"t it #o"l$ 'e incorrect* Yo"r frien$ 7s R=@ @@@ #o"l$ ha)e

http://www.psg.co.za/wealth/investments






gro#n to R= H@D #hile !o"r in)estment #o"l$ ha)e onl! gro#n to RHH

@>* In this case increasing the rate '! t#o increase$ the ret"rn '! more

than fo"r times* Is that not amaJingF This (no#le$ge co"l$ 'e #orth a lot

of mone!*

Imagine that !o" an$ !o"r frien$ 'oth (ept !o"r mone! $eposite$ for af"rther &)e !ears 4so that the term 'ecame > !ears an$ not >@ !ears5*

Yo"r in)estment #o"l$ gro# to RHB B an$ !o"r frien$ 7s #o"l$ ha)e

gro#n to R@B D>* ."ring those e+tra &)e !ears the $"al e0ect of the

longer time an$ the higher rate #o"l$ ha)e ena'le$ !o"r frien$ to gro#

his mone! si+ times larger than !o"rs* The longer !o" sta! in)este$ the

more $ramatic gro#th !o" see as a res"lt of gi)ing !o"r in)estment an$

compo"n$ing time to gro#* As !o" can see compo"n$ing #or(s 'est the

more time !o" gi)e it* 8"il$ !o"r #ealth faster an$ start to$a!* Some

people ne)er get to hear a'o"t the importance of time an$ rate on their

in)estments* Yet this is the fo"n$ation of all #ealth creation*Principle #5: Understand how money works

Most people ha)e ne)er st"$ie$ &nance or in)esting in school* Most

people #ere ne)er e)en ta"ght to 'alance a che2"e 'oo( To master

an!thing !o" ha)e to "n$erstan$ it* Rea$* St"$! #hat s"ccessf"l people

$o* Ta(e classes or $o a co"rse* Master !o"r relationship #ith mone!*

Some of "s spen$ for e+citement to sho# o0 to pro)e #e can* Some of

"s are a$$icte$ to spen$ing an$ some of "s are ,"st careless a'o"t it*

6hate)er !o"r relationship #ith mone! "n$erstan$ it an$ $e)elop a

relationship of respect appreciation an$ gratit"$e* Use !o"r mone!

rather than allo#ing it to r"n !o"r life* Un$erstan$ an$ accept the c!cles

of mone!* The set'ac(s !o" ma! ha)e to$a! or ne+t !ear #ill not (eep

!o" from &nancial free$om* If !o" hol$ on to !o"r goals an$ $reams !o"

#ill get there*

Most people fail to realise that in life it is not ho# m"ch mone! !o"

ma(e '"t rather ho# m"ch mone! !o" (eep* 6e ha)e hear$ stories oflotter! #inners #ho are poor then s"$$enl! rich then poor again* The!

#in millions an$ are soon 'ac( to #here the! starte$* If !o" #ant to

'ecome #ealth! !o" nee$ to 'ecome &nanciall! literate* If !o" are going

to '"il$ a ho"se the &rst thing !o" nee$ to $o is $ig $eep trenches an$

po"r a strong fo"n$ation*

8egin to learn more a'o"t s"ccessf"l in)esting* Most of "s spen$ or

spec"late* 8oth are roa$s to $isaster 9earn to in)est in things !o"

"n$erstan$* 9earn to in)est ca"tio"sl! #isel! an$ reg"larl!* The

o',ecti)e is not to /ma(e a (illing/ '"t to get rich o)er time* no# an$





o'e! the $istinction 'et#een gam'ling an$ p"tting !o"r mone! to #or(

for !o"* 9earn to recognise tr"e #ealth* Mone! itself #ill not ma(e !o"

&nanciall! free* That comes as a res"lt of onl! that po#erf"l state of

min$ #hich tells "s that #e are #orth far more than o"r mone!*

Principle #6: Understand risk & select appropriate investments

S"ccessf"l #ealth creators "n$erstan$ the nat"re of the in)estment

mar(ets an$ as a res"lt choose more appropriate an$ s"ccessf"l

strategies an$ in)estments* The most common in)estment strateg!

mista(es res"lt from in)estors not "n$erstan$ing ris( an$ selecting

strategies an$ in)estments that $o not match their ris( pro&le*

E)er! single in)estment $ecision !o" e)er ma(e in)ol)es a 'alancing act

'et#een the ret"rn !o" #ant an$ the ris( !o" are prepare$ to accept* 6e

all #ant the highest ret"rn for the lo#est ris(* If onl! life #or(e$ that

#a! 6ell it $oes 6hen !o" "n$erstan$ all the ris(s rather than foc"s

on ONE t!pe of ris( !o" are more li(el! to select appropriate

in)estments* 6hen in)esting there are $i0erent t!pes of ris(* The main

ris( #e #orr! a'o"t is that the )al"e of o"r in)estment #ill fall so lo# #e

#ill lose all o"r mone!* In foc"sing on that ONE ris( #e o)erloo( the ris(

that most people face< not sa)ing an$ in)esting s"cient mone! or

ha)ing an appropriate in)estment strateg! to ma+imise their #ealth*

Inaction an$ a poor in)estment strateg! is a high1ris( plan #hich #ill cost

!o" man! choices in life an$ greatl! increase the ris( that !o" #ill o"tli)e

!o"r mone!*

The ris( of all in)estments change o)er time* Yet most people foc"s on

the short1term ris( onl!* 9et "s loo( at this concept "sing cash an$ shares

#hich are at the t#o en$s of the ris( spectr"m*

Asset Short Term (ong)term

Cash 9o# Ris( :igh Ris(

Shares :igh Ris( 9o# Ris(

-or e+ample cash is lo# ris( in the short1term an$ high ris( in the long

r"n* Sa)ings acco"nts generate lo# interest are f"ll! ta+a'le an$ after

a$,"stments for inLation an$ fees #ill almost al#a!s g"arantee a small

to Jero 4e)en NEGATIVE5 real ret"rn* 6hich is #h! in)esting in cash is

consi$ere$ a high1ris( strateg! to f"n$ long1term goals*

Shares are high ris( in the short1term i*e* high pro'a'ilit! or chance that

the )al"e #ill 'e go $o#n in the short1term* Yet histor! sho#s shares are

lo# ris( in the long1term i*e* lo# pro'a'ilit! or chance that their )al"e

#ill go $o#n in the long1term*



• 8on$s 4Corporate Go)ernment5

• 3ropert! 4Resi$ential Commercial 4Retail5 an$ In$"strial5

• Shares 4So"th African 4KSE5 an$ International5

The 'est #a! to re$"ce the ris( that mar(et L"ct"ations can present is to

in)est in a n"m'er of $i0erent asset classes co"ntries an$ in$i)i$"al

sec"rities as possi'le accor$ing to !o"r ris( pro&le* The (e! to

s"ccessf"l in)esting is not follo#ing past ret"rns*

Yo" #ill 'e more s"ccessf"l if !o"<

• Select !o"r o#n ris( pro&le%

• Set an in)estment strateg!%

•

Select appropriate in)estments% an$

• Re)ie# !o"r strateg! ann"all! to ens"re !o" sta! on trac( thro"gh

changing en)ironments*Principle #8: The difference between assets and liabilities

In his 'est1selling 'oo( Rich Dad, Poor Dad Ro'ert i!osa(i sa!s that

/#hen it comes to &nancial literac! the &rst thing !o" nee$ to (no# is

the $i0erence 'et#een an asset an$ a lia'ilit!/* :e contin"es '! sa!ing

that /rich people '"! assets #hile the poor an$ mi$$le class people

ac2"ire lia'ilities '"t the! thin( the! are assets/*:e ac(no#le$ges that #hile most acco"ntants an$ &nancial professionals

#ill not agree #ith his $e&nitions /an asset is something that p"ts

mone! in !o"r poc(et #hile a lia'ilit! is something that ta(es mone! o"t

of !o"r poc(et/*

One of the main themes of i!osa(i 7s #riting is that most people ma(e

the mista(e of #or(ing har$er instea$ of #or(ing smarter* :is recipe for

greater #ealth ass"mes the ta+ regime of the Unite$ States #hich ta+es

income $eri)e$ from #or( at higher le)els than income $eri)e$ from

$i)i$en$s or propert! rentals* :o#e)er most 7$e)elope$ 7 co"ntriesfollo# this mo$el as go)ernments #ish to enco"rage in)estment in

propert! companies an$ interest 'earing sec"rities*

More #or( attracts higher income ta+ ta(es time an$ is har$ #or(

Alternati)el! the #ealth! get their #ealth to #or( for them* The! in)est

in assets s"ch as shares an$ propert! #hich #ill ma(e them rich 1 an$

that are har$ to spen$ on a #him

:ere is ho# to tell the $i0erence 'et#een an asset an$ a lia'ilit!* The

$iagrams 'elo# repro$"ce$ from Rich .a$ 3oor .a$ sho#s the cash

Lo# of an asset* The Income Statement meas"res income an$ e+penses



4or mone! mo)ing in an$ mone! mo)ing o"t5* The 8alance Sheet as the

#or$s impl! are s"ppose$ to 'alance assets against lia'ilities* To (eep it

simple these $iagrams ha)e 'een simpli&e$ as e)er!one still has li)ing

e+penses incl"$ing the nee$ for foo$ shelter an$ clothing*

The arro#s in the $iagrams represent the /cash Lo#*/ N"m'ers alone

reall! mean little ,"st as #or$s alone mean little* It is the stor! that

co"nts* In &nancial reporting rea$ing n"m'ers is loo(ing for the plot the

stor!* It is the cash Lo# that tells the stor!* It is the stor! of ho# a person

han$les their mone! an$ #hat the! $o after the! get the mone! in theirhan$s*

In most ho"sehol$s the &nancial stor! is a stor! of /#or( har$ an$ !o"

#ill get ahea$/* It is not 'eca"se the! $o not ma(e mone! '"t rather

'eca"se the! spen$ their li)es '"!ing lia'ilities instea$ of assets* There

is also a La# in the #a! man! people thin( a'o"t mone!* The! thin( that

mone! #ill sol)e all th

eir pro'lems or that ha)ing more mone! #ill sol)e all pro'lems* In fact

mone! ma! act"all! accelerate the pro'lem* Thin( a'o"t a person #ho

comes into a s"$$en #in$fall of cash s"ch as #inning the lotter!* Ver!



soon the sit"ation ret"rns to the same &nancial mess if not #orse than

the mess the! #ere in 'efore the! recei)e$ the mone!*

If !o"r ha'it is to spen$ e)er!thing !o" get it is most li(el! that an

increase in cash #ill ,"st res"lt in an increase in spen$ing* 6hat is

missing is not ho# to ma(e 4e+tra5 mone! '"t rather<

• :o# to spen$ mone!<

• 6hat to $o after !o" ma(e it

• :o# to (eep people from ta(ing it from !o"

• :o# long to (eep it an$

• :o# har$ that mone! sho"l$ #or( for !o"*

Most people cannot tell #h! the! str"ggle &nanciall! 'eca"se the! $o

not "n$erstan$ cash Lo#* The! often #or( har$er than the! nee$ to

'eca"se the! ha)e learne$ ho# to #or( har$ '"t $o not get ahea$* The!

$o not (no# ho# to ha)e their mone! #or( for them*

Source: Rich Dad, Poor Dad, by Robert T Kiyosaki, published by arner

!ooks, "ay #$$$ Principle #9: Accumulate wealth faster



Most people pa! more in ta+es than for foo$ clothing an$ shelter

com'ine$ It is !o"r largest e+pense The poor an$ mi$$le class $o not

realise ho# m"ch the! pa! 'eca"se it is $e$"cte$ from their pa! che2"e*

Ta+ is li(e gro#ing ol$ ; #e ha)e to accept it* 6e all nee$ to pa! o"r fair

share of ta+ '"t )ol"ntaril! o)er1pa!ing !o"r ta+ minimises !o"r #ealth*:o#e)er there is m"ch #e can $o to minimise its a$)erse e0ects on "s*

The #ealth! (no# there are legal an$ appropriate #a!s to shelter

income to in)est in sociall!1responsi'le #a!s an$ that the ta+ co$e

enco"rages this* 9earn the ta+ la#s an$ "se them for !o"r 'ene&t 4Yes

it is the most 'oring rea$ing !o" #ill e)er $o an$ #orth it5

It is important to "n$erstan$ the $i0erence 'et#een /ta+ a)oi$ance/ an$

/ta+ e)asion*/ Ta+ a)oi$ance is perfectl! legal an$ means arranging !o"r

a0airs in s"ch a #a! as to pa! as little ta+ as is legall! re2"ire$* It is not

too $ic"lt '"t it $oes ta(e some (no#le$ge the ai$ of a goo$

acco"ntant or &nancial a$)iser an$ the preparation of a goo$ plan*

On the other han$ ta+ e)asion means falsif!ing recor$s an$ "sing

arti&cial $e)ices to a)oi$ pa!ing !o"r legal share of ta+* This is fro#ne$

"pon '! all goo$ acco"ntants an$ &nancial a$)isers an$ the )er! hea)!

penalties that are no# impose$ ma(e cheating on !o"r ta+ a highl!

$angero"s pastime* no#le$ge of the #a! ta+ #or(s is )ital for goo$

mone! management*

There are fo"r steps to minimise !o"r ta+* Yo" nee$ to<=* .eci$e ho# !o" are going to str"ct"re !o"r in)estments to legall!re$"ce !o"r ta+ pa!a'le* Ta+ str"ct"ring $ecisions are ne)er ma$e #ithta+ p"rel! in min$* Other factors li(e<

o 8"siness o#ners protecting their assets from cre$itors in the

e)ent of "nforeseen 'an(r"ptc!%

o 3rotecting !o"r chil$ren 7s inheritance in the e)ent of a secon$

marriage%

o Transfer of #ealth to f"t"re generations%

o 3rotecting !o"r #ealth in the e)ent of a faile$ marriage*

Some of !o"r ta+ str"ct"re options incl"$e<

o Sole tra$er

o 3artnership

o Companies

o .iscretionar! tr"sts



o In)estment companies

>* Select ta+1e0ecti)e in)estment strategies<

a*3eace of Min$ #ealth 1 Ta+ str"ct"ring

o

Short1term planne$ e+penseso Emergenc! -"n$ 4H1months salar!5

'*9ifest!le #ealth 1 Ta+ str"ct"ring

o Sa)ings plan

o Reg"lar gearing plan

o Negati)e ne"tral an$ positi)el! geare$ propert! to '"!

another propert! or shares

o Margin len$ing 4'orro#ing against !o"r shares to '"! f"rther

in)estment5

c*Retirement #ealth 1 Ta+ str"ct"ring=* Select ta+ a$)antage$ in)estments that !o" hol$ #ithin those ta+

str"ct"res* 6arning< a)oi$ 7in)estments 7 that are onl! poorl! manage$high cost an$ mar(ete$ solel! on their /ta+ $e$"cti'ilit!/ 'eca"se of theirinappropriateness an$ high1ris( of loss of capital*

>* 8"! an$ hol$ goo$ 2"alit! assets so !o" $o not trigger capital gainsta+ 4CGT5* 6ith the contin"e$ gro#th in online share tra$ing man! people

tr! to TIME the mar(et* The! 'elie)e the! can ma+imise their #ealth '!'"!ing an$ selling long1term assets e*g* shares* Thin( long1term* Afters(imping on their sa)ings the thing that $efeats most people is theirina'ilit! to loo( at the long1term* Thin( a'o"t !o"r long1term goals an$the 'est #a!s to get there* 6hen a$)erse e)ents occ"r al#a!s foc"s onthe long1term impact* .o not let the short1term '"mps 'e an e+c"se torai$ !o"r in)estments*

The )al"e of each share an$ therefore the entire mar(et is ma$e '! the

'"!ing an$ selling $ecisions of the millions of So"th Africans an$

International in)estors* 6hen !o" g"ess the collecti)e en$ res"lt of the

min$s of all in)estors an$ ma(e short1term $ecisions #ith long1termassets that is 'eha)io"r a(in to gam'ling* The s"ccess of !o"r

in)estment portfolio #ill $epen$ on the length of time !o" spen$ in the

mar(et NOT on !o"r a'ilit! to '"! an$ sell 'ase$ on short1term mar(et

L"ct"ations*

E)er! time !o" '"! or sell in the share mar(et !o" inc"r tra$ing costs*

An$ #hen !o" sell an in)estment that has performe$ #ell !o" lose part

of !o"r mone! to the ta+man in the form of capital gains ta+ 4CGT5* This

means that e)er! time !o" sell an in)estment that has increase$ in )al"e

the ta+man ta(es part of !o"r mone! so !o" #ill ha)e 9ESS mone! to



in)est ne+t time* As ta+ is s"ch a complicate$ area #e recommen$ that

!o" see( professional ta+ a$)ice from an a$)isor* The! #ill recommen$

the appropriate ta+ str"ct"res s"ite$ to !o"r personal famil! an$

'"siness circ"mstances*

Principle #10: Stay on track

S"ccessf"l in)estors (no# that the onl! #a! to ens"re the! achie)e their

personal &nancial goals is to reg"larl! re)ie# an$ &ne1t"ne their

in)estments* Not ha)ing !o"r in)estments reg"larl! re)ie#e$ can cost

!o" tho"san$s of Ran$s in "nnecessar! ta+ation poor in)estment

performance an$ misse$ opport"nities* Yo" can rela+ (no#ing that !o"r

in)estments are #or(ing har$* Car o#ners (no# the safet! an$ enhance$

performance 'ene&ts of ha)ing their car ser)ice$ on a reg"lar 'asis* -e#

people spen$ that m"ch time or mone! &ne t"ning their in)estment

portfolio* If !o" $i$ !o" #o"l$ "n$o"'te$l! get 'etter performance an$ a

signi&cant increase in !o"r #ealth ens"ring !o" arri)e at the milestones

of !o"r planne$ &nancial life safel! an$ on time* S"ccessf"l in)estors

(no# that the onl! #a! to ens"re the! achie)e their personal &nancial

goals is to reg"larl! re)ie# an$ &ne t"ne their in)estments*

3reparing a &nancial plan setting in)estment goals an$ assessing ris(

can 'e complicate$ an$ it is an ongoing tas(* Set asi$e time to re)ie#

!o"r in)estment portfolio at least once e)er! si+ months* Yo"r

in)estment re)ie# #ill pro)i$e !o" #ith the po#er an$ Le+i'ilit! to ma(e

calc"lations an$ pro,ections on propose$ changes 'efore the! happen*

8efore !o" ma(e a $ecision to change !o"r in)estment portfolio !o" can

see for !o"rself ho# !o"r &nancial f"t"re might loo(*

There are three (e! areas #here change #ill a0ect the performance an$

s"ita'ilit! of !o"r c"rrent in)estment portfolio<

• 3ersonal changes 1 Ne# ,o' ne# ho"se marriage 'a'ies ne#

'"siness $i)orce acci$ents illness retirement ; there are man! factors

#hich $o $ramaticall! a0ect !o"r personal life*

• Economic changes 1 Changing &nancial con$itions in So"th Africa

an$ o)erseas can $rasticall! a0ect the performance of !o"r in)estment

portfolio ; "p or $o#n* Re)ie#ing !o"r in)estments can help to minimise

losses an$ ma+imise gains as the mar(ets rise an$ fall*

• Go)ernment r"les an$ reg"lation changes 1 R"les an$ reg"lations

go)erning ta+ation retirement f"n$s an$ in)estment pro$"cts are



constantl! changing* These changes can $rasticall! a0ect the t!pes of

in)estment strategies an$ pro$"cts s"ita'le for in)estors*

The follo#ing $iagram sho#s #hat happens #hen !o" '"! an$ sell*

8e patient* If !o" ha)e a long1term horiJon time is !o"r all!* So "se !o"r

time #isel!* .o not r"sh into in)estments !o" $o not "n$erstan$ o"t ofsome mar(et1generate$ sense of "rgenc!* The mar(et is not going to

$isappear* Starting tomorro# or ne+t #ee( is &ne* Especiall! $o not start

in)esting 'efore !o" ha)e !o"r plan in place* If the mar(et goes $o#n

$o not #orr!* Remem'er that !o"r plan is for the long ha"l* 8esi$es !o"

are in)esting to impro)e !o"r f"t"re not to meet the 'asic necessities of

life*

-inall! "se !o"r #ealth #isel!* Someone once sai$ /The reason most of

"s are not rich is that #e #o"l$ spen$ it all on o"rsel)es*/ Gi)e* Share*

:elp others* Gi)e a portion of !o"r mone! to others* 8! releasing anan+io"s grasp on !o"r mone! !o" #ill open !o"rself to recei)e all that is

meant to 'e !o"rs* 6hen !o" "se mone! to ma(e a $i0erence to ha)e a

positi)e impact !o" get the chance to $o more* 8eing gree$! an$ sel&sh

#ill not $ra# mone! to !o"* In)esting in !o"r comm"nit! #ill

-INANCIA9 SUCCESS

-rom the cra$le to the gra)e #e are presente$ #ith man! a portrait of#hat &nancial s"ccess is* -rom the images of self1ma$e millionaires to

tele)ision commercials that sho# a retiree in his mi$1thirties thro#ing

$arts to $etermine #here he sho"l$ ta(e his ne+t holi$a! #e are

presente$ #ith ill"sion after ill"sion of &nancial in$epen$ence* :ere is a

simpler more $o#n to earth $e&nition of &nancial s"ccess<

/Yo" can sleep comforta'l! at night #itho"t #orr!ing ho# !o" are going

to pa! !o"r 'ills tomorro# 'eca"se !o" are a#are an$ in control of !o"

&nancial position*/

A fe# things !o" #ill notice a'o"t this $e&nition<



It $oes not represent an!thing a'o"t ho# m"ch mone! !o" might

ha)e*

It $oes not represent an!thing a'o"t ho# m"ch mone! !o" might

earn*

It $oes not represent an!thing a'o"t ho# man! possessions !o"

o#n or $esire*

6hat it $oes $o is state that &nancial s"ccess li(e an! other arena of

s"ccess is meas"re$ relati)e to an in$i)i$"al7s happiness* Yo" ma! ha)e

hear$ of man! people #ith all the apparent trappings a 'ea"tif"l ho"se

l"+"r! cars an$ all the e+pensi)e to!s #ho are not happ! an$ others

#ho li)e from month to month earning mo$est salaries !et feelingcon&$ent foc"se$ an$ in control*

6hen #as the last time !o" #ere a'le to ma(e a goo$ an$ 'alance$

$ecision #hen !o" #ere stresse$ o"tF Ta(e !o"r time* Reall! thin( a'o"t

it***

O(a! #e are g"essing that !o" arri)e$ at the same $estination as #e

$i$1 ne)er Stress lea$s to more stress o"r ps!chological e2"i)alent of

chasing o"r o#n tails* An$ a$$ing to the pro'lem more an$ more of "s

are ha)ing o"r tails chase$ '! the lan$lor$s cre$it car$ companies

'an(s an$ people #e o#e* 6e in)ite !o" to em'ar( on a ,o"rne! #ith "s

to '"il$ the tools to en$ this circle of stress an$ fr"stration an$ 'egin to

#al( a path 'ase$ on e$"cation &nancial goals an$ some #or( e0orts*

As schoolchil$ren #e learn the fact that t#o points $etermine a line an$

that the shortest path 'et#een t#o points is a straight line* 3lace t#o

$ots an!#here on a page la! a r"ler $o#n so !o" can see 'oth those

points an$ then $ra# !o"r line* To start on o"r ,o"rne! of &nancial

s"ccess #e are going to ass"me that #e ha)e the common theme to o"r

&nancial $reams as $e&ne$ a'o)e1 to 'e in control of o"r &nances not

o)ercome #ith $e't an$ can rest easil! at night #itho"t "n$"e #orr!*

O"r $ream represents a point o"t in the f"t"re at #hich #e $esire to

arri)e* If #e (no# #here #e #ant to go #e no# nee$ to (no# #here #e

are 'efore #e can get there 1 o"r starting point One amaJing 2"alit!

a'o"t these points on the path to o"r $reams is that as #e co"l$ not

$ra# a line #itho"t ha)ing the starting point as a reference neither

co"l$ #e reach o"r $reams if #e #ere not #here #e are to$a!*

Yo" #ill not reach the en$ point &nancial sec"rit! on the &rst step* Yo"r

,o' is to i$entif! the &rst attaina'le point 'et#een !o" an$ !o"r goal an$then ta(e that step* -rom this ne# point of accomplishment not onl! #ill



!o" 'e a'le to 'etter see !o"r goal '"t !o" can also percei)e ho# far

!o" ha)e come from !o"r starting point* 6e can loo( ahea$ an$ loo(

'ac( sim"ltaneo"sl! an$ (no# #here #e are* This is going to 'e an

e+ercise of self1 a#areness as #ell as the path to &nancial sec"rit!* Yo"

ha)e to 'e #illing to loo( at !o"r &nancial life o',ecti)el! an$ clearl! ; totell !o"rself the tr"th* It is al#a!s safer to (no#* 6e are reall! tal(ing

a'o"t !o"r life* This is !o"r life an$ !o" ha)e to ma(e !o"r life &t for !o"

#hether !o" are t#ent!1fo"r or se)ent! fo"r* Yo" ha)e to ma(e !o"r life

#or(*

AC:IEVING -INANCIA9 -REE.OM

6e are constantl! presente$ #ith images of s"ccess from the time #eare chil$ren* 6e are the P"eens an$ ings of the cons"mer econom!*

-rom 'eing ta"ght as chil$ren that if someone lo)es me the! #ill '"! me

a gift to the in"n$ation of a$)ertisements #e see on TV #e are traine$

that #e can '"! o"r #a! to happiness*

This process lea$s too man! of "s $o#n a roa$ of li)ing han$ to mo"th

or e)en #orse into a circle of $e't an$ "nen$ing stress* Yo" can al#a!s

&n$ something else to chase !o"r tail o)er Once !o" realise that !o" are

gi)ing a#a! tho"san$s of Ran$s in interest charges each !ear then

ma(e a $ecision that /eno"gh is eno"gh/* .eci$e to stop "sing !o"r

cre$it car$ an$ a)oi$ "nnecessar! cre$it p"rchases "ntil all !o"r $e'ts

4e+cl"$ing !o"r home loan5 ha)e 'een pai$ o0* :ere are fo"r simple

steps to achie)ing &nancial free$om*

9et "s get starte$

STE3 =< T:E .E8T TRA3

%Debt is a humiliation by day and a &orry by night'% ( The Koran 76ho #ants to 'e a MillionaireF 7 Almost e)er!one $reams of

acc"m"lating great #ealth or 'ecoming a millionaire* The! earn a

speci&c s"m of mone! in their lifetime an$ li(e most people the! recei)e

a salar! che2"e on a #ee(l! or monthl! 'asis* :o#e)er li(e most

people their lifetime earnings act"all! a$$ "p to three fo"r or &)e

million Ran$s After ta+es the! are free to choose #hat the! #ant to $o

#ith the mone!* 8! $reaming of great #ealth man! people 'elie)e that

it #ill empo#er them #ith complete free$om of choice* 6hat most

people fail to realise is that the choices the! are ma(ing right no# are



the (e!s to their empo#erment* E)er! month !o" $eci$e to increase or

lessen it*

There are t#o t!pes of &nancial $ecisions< those that #or( for !o" an$

those that #or( against !o"* One of the )er! &rst 2"estions !o" nee$ to

as( !o"rself is precisel! ho# m"ch $oes it cost !o" to 'orro# mone!F Yo" #ill earn a fort"ne in !o"r lifetime '"t if !o" manage !o"r personal

&nances li(e most people !o" #ill share their fate* There is no gre! area

in !o"r &nancial $ecisions< the! are either #or(ing for !o" or #or(ing

against !o"* Thro"gh lac( of (no#le$ge most people ma(e choices that

#or( against them* So"th Africans are piling "p cre$it car$ $e't at a

recor$ rate* Cre$it car$s can 'e a legitimate pa!ment s!stem for

responsi'le in)estors see(ing re#ar$s from lo!alt! schemes s"ch as

earning Vo!ager Miles* 8"t too man! people choose the #rong plastic*

Are !o" a $iscipline$ p"nct"al pa!er or one #ho relies on cre$it as a $e

facto loanF If !o" $o a lot of tra)elling choose a cre$it car$ #ith

attracti)e lo!alt! str"ct"res an$ fre2"ent L!er points* On the other han$

most $epartment store car$s ha)e )er! high interest rates* C"t them "p*

8efore em'ar(ing on an! in)estment strateg! clear the slate of $e't*

3a! o0 all !o"r high1interest $e'ts s"ch as cre$it car$s 'an( o)er$rafts

or e+pensi)e la!1'! items that are hanging o)er !o"r hea$ &rst* :ere are

some 2"ic( tips to c"t $e't< Spen$ less than !o" ma(e 4i*e* li)e #ithin

!o"r means5* The r"le of th"m' al#a!s is simple< If !o" cannot pa! for itto$a! then !o" cannot a0or$ it* .i0erentiate 'et#een 'a$ $e't an$

reasona'le $e't* The former inc"rs high interest rates 4s"ch as cre$it

car$s5 #hile the latter refers to mortgage interest rates* 8e sensi'le

#hile aggressi)el! pa!ing o0 'a$ $e't an$ $o not ris( missing minim"m

pa!ments on items s"ch as !o"r home loan mortgage* :opef"ll! #e

ha)e con)ince$ !o" that $e't is !o"r enem!* O"r ne+t step is to start the

process of eliminating $e't* :ere is a step1'!1step g"i$e to a ne# f"t"re

#ith far fe#er pro'lems*

Make a list of all your debtRecor$ e)er! e+pense !o" ma(e $i)i$e !o"r spen$ing into categories

an$ recor$ these #ee(l! or monthl!* 8egin to i$entif! #here economies

can 'e ma$e an$ &nall! recognise that the process of ma(ing economies

#ill 'e 'ene&cial to !o"r #ealth an$ self1image*

3"tting together a spen$ing plan an$ a lean ecient '"$get is going to

get !o" no#here if !o" are not committe$ to changing the 'eha)io"r

that has got !o" into tro"'le in the &rst place* As( !o"rself #h! !o" nee$

that R@@ @@@ car no# the ne# pool the o)erseas trip e)er! !ear* Is it

to ma(e !o" happ! or to (eep "p the appearance of a percei)e$



aQ"enceF Man! people get st"c( in the $e't trap 'eca"se the! insist on

li)ing a life the! 'elie)e the! $eser)e* It $oes not #or( that #a!* Yo" lea$

the life !o" can a0or$ or !o" #ill en$ "p poorer not richer in the long

r"n an$ all those people !o" #ere (eeping "p #ith #ill $isappear o)er

the horiJon*Stress relating to $e't often stems from ha)ing onl! a )ag"e i$ea of

#hat !o" o#e* 6hen it is all #ritten $o#n on paper in front of !o" it is

o"t in the open an$ !o" can start to $eal #ith it* I$entif!ing the e+act

siJe of !o"r $e't #ill p"t !o" in the strongest possi'le position to start

$ealing #ith it* -rom this !o" #ill 'egin to sa)e a fort"ne in lost

opport"nities* Yo" ha)e to face "p to !o"r $e't* 6e (no#* This ma! not

appear to 'e )er! pleasant an$ that is #h! the ma,orit! of people $o

not* The! ,"st (eep their hea$s $o#n an$ p"sh for#ar$ in the hope of

some$a! getting o"t of tro"'le* The tr"th is that this is a form of $enial

#here a lot of the $eep1seate$ /pain/ is generate$* The onl! #a! to stop

the /pain/ is to stop #orr!ing a'o"t the s!mptoms an$ start $ealing #ith

the ca"se*

9isting !o"r $e't is )er! therape"tic as !o" ma! realise for the &rst time

in man! !ears that !o" are starting to regain control* There are se)eral

steps necessar! to eliminating $e't* Ma(ing a list of !o"r $e't position is

one of !o"r &rst steps to#ar$s achie)ing &nancial free$om* Ma(e a

commitment to get o"t of $e't an$ get the pro'lem o"t in the open sothat !o" can gain some perspecti)e of the reasons #h! !o" are in $e't*

Enlist the s"pport of !o"r famil! or )er! close frien$s an$ en,o! the here

an$ no# !o" are not star)ing or sleeping on the street !et* .e)elop a

positi)e mental attit"$e '! telling !o"rself morning an$ e)ening that

!o" ha)e !o"r $esire$ personal characteristics an$ that !o" #ill achie)e

!o"r goals* Once !o" ha)e 'eg"n to )is"alise a 'etter life an$ to set

speci&c goals !o" m"st persist "ntil !o" 'egin to see the res"lts*Understand the true cost of debt

6hen times are goo$ an$ mone! is cheap instit"tions fall o)erthemsel)es to o0er !o" cre$it* 8"t 'e#are that $e't trap* Ta(e for

e+ample Mr Koe 8loggs #ho tho"ght he #as li)ing the goo$ life #ith

an a'o)e a)erage ,o' an$ e+cellent e$"cation* :e ha$ a n"m'er of

sensi'le in)estments an$ $ro)e a ne# 8M6 car* Yet for all his e$"cation

he ha$ ne)er learnt to manage his &nances so #hen the one pillar of his

ho"se teetere$ his #orl$ starte$ collapsing* The pillar #as his ,o'* 6hen

the information technolog! 4IT5 '"''le '"rst he #as ma$e re$"n$ant

an$ s"$$enl! he fo"n$ himself "na'le to ser)ice his acc"m"late$ $e't

#hich incl"$e$ the car the ho"se the s(i1'oat the o)er$raft the cre$it



car$s an$ m"ch of the f"rnishings in the ho"se* 6ee(s t"rne$ into

months #itho"t a ,o' an$ soon e)en his practice of 'orro#ing from 3eter

to pa! 3a"l 4re)ol)ing cre$itF5 co"l$ not 'e s"staine$* :e simple stoppe$

pa!ing his 'ills*

6hat happene$ ne+t happene$ 2"ic(l!* A $efa"lt #as recor$e$ on hiscre$it recor$ a pa!ment pro&le that pre)ente$ him from 2"alif!ing for

an! normal 'ri$ging &nance* C"t o0 from an! form of cre$it at all his

f"n$s $rie$ "p completel!* A s"mmons #as iss"e$ an$ $eli)ere$ to him

$eman$ing that he pa! 'ac( his $e'ts :e co"l$ not* A ,"$ge then iss"e$

a co"rt or$er an$ his cre$itors han$e$ the case o)er to a collection

agenc! that calle$ once again to $eman$ pa!ment* 8! no# Mr 8loggs

#as frantic* :e set "p a meeting #ith his 'an( '"t to his s"rprise the!

#ere not intereste$ in helping him $espite a goo$ >@1!ear relationship*

The! informe$ him that 'eca"se a ,"$gement ha$ 'een o'taine$ against

him the! co"l$ not help him* 6hat the! $i$ not tell him #as that the

,"$gement entitle$ the 'an( to imme$iatel! a$$ =* onto his $e't*

The follo#ing #ee( the local sheri0 arri)e$ #ith a collection notice an$

attache$ goo$s in Mr 8logg 7s ho"se* :e notice$ that that the! attaching

far more than the amo"nt he o#ne$* The! informe$ him that this #as

'eca"se his former possessions #ere all $estine$ for an a"ction #here

the! #o"l$ 'e sol$ for ne+t to nothing an$ so the )ol"me ha$ to 'e the

'!#or$* The )al"e of Koe 8loggs $e't e0ecti)el! 'ecame =@1times itsoriginal amo"nt* 8"t his #oes #ere not o)er* The notice in his han$

informe$ him that the collection agenc! ha$ the right to a$$ a fee% a

$e)astating ?@ on top of his alrea$! inLate$ $e't* Unfort"natel! Koe

8loggs is not alone*

Accor$ing to Statistics 4Stats5 So"th Africa there are<

H@ @@@ people in a$ministration in the co"ntr! that is "n$er

protection from their cre$itors%

H1million people #ho are tho"ght to 'e in a crisis 'ro"ght a'o"t '!

$e't*

These &g"res are staggering '"t not s"rprising in a co"ntr! #here H

of o"r $isposa'le income is spent ser)icing $e't* So"th Africans it

seems lo)e to li)e rich e)en if the! are not* 49i)ing the champagne

lifest!le on a 'eer incomeF5* 6e are an instant grati&cation nation* This

is one of the reasons so man! So"th Africans e+perience $ic"lt! #ith

$e't* 6e $o not recognise $e't as $e't '"t often mista(e it for

necessit! e)en as an e)er!$a! e+pense* One pr"$ent 'it of a$)ice#o"l$ 'e to see the 'igger pict"re of !o"r life an$ lifest!le* The &rst



mo)e in 'rea(ing o"t of the $e't trap is ta(e a step 'ac( an$ loo( at

!o"r life* This is often the most important part of getting o"t of $e't*

Then 'r"tall! an$ e0ecti)el! assess !o"r nee$s e+penses an$ income

an$ then come "p #ith a s"staina'le &nancial strateg! for the real #orl$*

Yo"r real #orl$ So !o" sho"l$ 'e pa!ing o0 A99 of !o"r $e'ts as fast aspossi'le 6e a$)ocate pa!ing o0 cre$it car$s #hich sho"l$ rather 'e

calle$ 7.e't Car$s7 'efore !o" start sa)ing an$ in)esting on the share

mar(et* -"rthermore e)er!one sho"l$ 'e aggressi)el! pa!ing o0 their

home loan as fast as possi'le* Of co"rse this statement #o"l$ step on a

toe or t#o*** Getting $e't1free loo(s li(e a smart thing to $o no# that

pensions ha)e shri)elle$ an$ ,o's are starting to $isappear*** 8etter to

o#n e)er!thing an$ then in)est*** than to o#n nothing an$ #orthless

in)estments too* O"r o',ecti)e here is to ma(e !o" a#are of the roa$

most tra)elle$ '! self1ma$e millionaires an$ help !o" change an$

impro)e !o"r &nancial sit"ation '! "n$erstan$ing some of the 7secrets of

the #ealth! 7*Secret #1: Interest charges cost you more than you think!

6hen !o" p"rchase a tele)ision set or f"rnit"re item an$ &nance it )ia

!o"r cre$it car$ or raise a 'on$ to p"rchase a home the interest rate

2"ote$ on !o"r contract is (no#n as the Ann"al 3ercentage Rate 4A3R5 or

/-lat/ interest rate* This ma! 'e sho#n as =D = > or higher* -lat

interest rates are #hat it #o"l$ cost !o" to 'orro# the mone! for one

!ear* -or e+ample if !o" 'orro#e$ R=@ @@@ at = an$ pai$ it 'ac( in

one !ear or less it #ill cost !o" R= @@ in interest costs*

R=@ @@@ principal

R= @@ = interest

R== @@ Total

In practice most people #ill pa! o0 loans o)er t#o three &)e or ten

!ears an$ this ca"ses !o"r interest to compo"n$* -or e+ample if !o"

str"ct"re a R=@ @@@ loan at = interest o)er three !ears !o" #ill pa! a

total of R=? =?* So in e0ect !o" ha)e pai$ an interest rate of ?=*#hich is the compo"n$e$ cost of 'orro#ing mone! for perio$s of more

than one !ear* 9et "s see #hat #e #o"l$ 'e pa!ing e0ecti)el! on interest

rates o)er longer time perio$s*

Term Year $ Year Year * Year $0 Year 20

-lat Interest Rate = = = = =

3rincipal Amo"nt R=@ @@@ R=@ @@@ R=@ @@@ R=@ @@@ R=@ @@@

Interest 3ai$ R=@@ R? =? R =H R > R>= >

http://www.psgonline.co.za/invest/buy-shares.php






Total Amo"nt R== @@ R=? =? R= =H R= > R?= >

Tr"e Interest = ?=* *> *? >=*

Term< The length of time of the contract

-lat Interest< Cost of 'orro#ing mone! for one !ear3rincipal Amo"nt< The amo"nt 'orro#e$*

Interest 3ai$< Total amo"nt of interest charges

Amo"nt 3ai$< The total of principal pl"s interest

Tr"e Interest< Tr"e percentage cost of 'orro#ing for more than one !ear*

:o# $oes this a0ect !o"F Yo" #ill earn a &nite amo"nt of mone! $"ring

!o"r lifetime an$ the more !o" agree to gi)e a#a! the less !o" ha)e for

the gro#th of !o"r nest egg*Secret #2: You cannot afford credit card balances

Cre$it car$s can 'e )er! "sef"l if !o" pa! o0 the f"ll 'alance each

month* :o#e)er )er! fe# people $o ,"st that* If !o" "se cre$it car$s

an$ $o not pa! o0 the f"ll 'alance each month !o" #ill 'e costing

!o"rself a fort"ne in interest charges* The smaller !o"r monthl!

pa!ments the more $e't !o" roll for#ar$ an$ the compo"n$ing e0ect

on this increases !o"r losses* 3a!ing interest o)er length! perio$s has

the e0ect of compo"n$ing !o"r losses* 8! reg"larl! pa!ing interest

charges on !o"r ma,or 4or not so ma,or5 p"rchases is li(e letting the 'an(

"se !o"r mone! to achie)e their &nancial goals lea)ing !o" &nanciall!

$epen$ent for life* -"rthermore ha'it"al 'orro#ing e)en in relati)el!

small amo"nts o)er a long perio$ #ill ta(e a#a! e)er! spare Ran$ !o"

earn* :a)e !o" e)er #on$ere$ #h! !o"r cre$it car$ compan! is #illing to

accept s"ch lo# monthl! pa!mentsF Most people pa! their monthl! 'ills

so if !o" fall into the minim"m pa!ment trap !o" #ill pa! 'ac( a lot more

than !o" 'orro#e$ Remem'er !o" #ill ma(e a &nite amo"nt of mone!

in !o"r lifetime so !o" cannot a0or$ to thro# it a#a! on interest

chargesSecret #3: If you cannot pay cash, you cannot afford it!

3eople #ho ha)e achie)e$ s"'stantial #ealth thro"gh their o#n e0orts

ha)e largel! a)oi$e$ the high cost of 'orro#ing '! pa!ing cash for the

)ast ma,orit! of their p"rchases an$ sa)ing mone! that #o"l$ other#ise

ha)e 'een pai$ in &nance charges* 9oo(e$ at another #a! the cost of

'orro#ing mone! is not ,"st the /e0ecti)e/ lost Ran$s !o" are pa!ing it

is also the lost income !o" #ill ne)er recei)e from those Ran$s* 6hat for

most people appears to 'e the small cost of 'orro#ing is in fact an

enormo"s lost opport"nit!* 8! lost opport"nit! #e mean<

Choosing to pa! interest charges an$



Not choosing to sa)e*

3"t another #a! a lost opport"nit! is the possi'le 'ene&t lost '! ta(ing

a partic"lar action* Ma(e s"re to as( the len$er #hat the ann"al

percentage rate of the loan is ho# m"ch it #ill cost in total an$ #hether

it has to 'e sec"re$ on !o"r home or other assetsF Another 2"estion !o"

sho"l$ as( is #hat proce$"re #ill 'e follo#e$ if !o" are "na'le to meet

the repa!ments* Comm"nicate #ith !o"r cre$itors an$ $eal #ith sec"re$

$e't &rst then #ith "nsec"re$ arrears* .eal #ith ocials '! name an$

'e honest a'o"t !o"r circ"mstances* Cre$itors $o not li(e to spen$ time

an$ mone! ta(ing $e'tors to co"rt if it can 'e a)oi$e$* Un$erstan$ the

conse2"ences of ignoring co"rt or$ers against !o"*Sell surplus assets and increase your income

This is a 2"ic( #a! to cancel "n#ante$ $e'ts '"t ta(e the time to learnho# to sell* Sell onl! #hat !o" $o not #ant or nee$* Secon$l! i$entif!

!o"r main strengths an$ #ea(nesses an$ tr! to &n$ #or( #hich #ill 'est

"se !o"r a'ilities an$ e+perience* Yo" m"st ma(e stren"o"s e0orts to get

e+tra income an$ part1time #or( is the &rst thing to loo( for* If possi'le

get some training in a &el$ that #ill enhance !o"r mar(et )al"e s"ch as

comp"ting or 'oo((eeping*Debt elimination

9et "s sa! that '! #atching !o"r spen$ing ha'its !o" are a'le to sa)e

R@@ per month* 6e s"ggest that !o" &rst $i)ert this mone! temporar!to#ar$s $e't elimination* Start '! pa!ing o0 the acco"nt #ith the least

n"m'er of instalments o"tstan$ing*

:ere is #hat #e s"ggest !o" $o<

.e)ote the R@@ per month sa)ings pl"s all c"rrent monthl!

pa!ments to $e't elimination*

-irst pic( the acco"nt #ith the lo#est n"m'er of pa!ments

o"tstan$ing a$$ the sa)ings amo"nt an$ pa! it o0 in the shortestpossi'le time*

Then #ith the mone! !o" are no longer sen$ing to the &rst acco"nt

an$ !o"r /sa)ings/ Ran$s foc"s on the ne+t acco"nt an$ settle that as

soon as possi'le*

Repeat step ? "ntil all !o"r acco"nts 4e+cept !o" home loan5 is pai$

in f"ll*



In a )er! short time !o" #ill ha)e $one #hat most people thin( is almost

impossi'le ; apart from !o" 'on$ !o" #ill 'e $e't1free :o#e)er to sta!

that #a! !o" #ill nee$ to form the ha'it of pa!ing cash for !o"r

cons"mer p"rchases* Yo" #ill lo)e the free$om of not ha)ing all those

monthl! 'ills to pa! an$ #ill 'e sa)ing tho"san$s of Ran$s in interestcharges* The en$ of !o"r $e't is in sight an$ the 'est is !et to come*

9earn ho# to sa)e an$ in)est

Once !o" ha)e eliminate$ !o"r $e't get into the sa)ings ha'it '!

p"tting a#a! part of !o"r income each month* Tr! to get into the ha'it of

sa)ing something from e)er!thing !o" earn* Sa)ing an$ in)esting mone!

is li(e training for the Comra$es Marathon* Yo" cannot start training for

the race a co"ple of #ee(s 'efore the e)ent* It ta(es months if not

!ears to get a h"n$re$ percent &t for the race* The same goes for !o"r

mone!* The most s"ccessf"l sa)ers are those people #ho ha)e ma$e

sa)ing a part of their life% it 'ecomes part of their min$1set*

8! getting into the ha'it of sa)ing something from e)er!thing !o" earn

!o" are starting to "se the po#er of compo"n$ interest also (no#n as

interest on interest* This is the secret of a s"ccessf"l sa)ings plan* At

heart #e are all i$ealists an$ start sa)ing '"t someho# #e fall into the

trap of stopping to sa)e* -irst #e s(ip a month then the secon$ month

an$ so on "ntil e)ent"all! #e &n$ #e ha)e stoppe$ sa)ing altogether* At

the same time o"r spen$ing pattern has change$ an$ #e spen$ all themone! #e earn sometimes e)en more* This is commonl! (no#n as one

of 3ar(inson 7s 9a#s< E+pen$it"re rises to meet income*

It is sa$ '"t tr"e that most people $o not ha)e the self1$iscipline to stic(

to their in)estment plan* There #ill al#a!s 'e a reason #h! #e #ill start

/ne+t1#ee(/ or /ne+t month/ #ith a sa)ings plan* An$ prett! soon !o"r

sa)ings plan #ill all 'e forgotten* Each !ear #e $ela! starting a sa)ings

plan #e lose o"t on a great $eal of mone!* It is not the interest on !o"r

mone! in !ear one of !o"r sa)ings plan that !o" lose% it is the c"m"lati)e

e0ect of compo"n$ interest o)er man! !ears that !o" lose* -or instance<ta(e someone at the age of >@ #ho in)ests R=@ @@@ at a compo"n$ rate

of interest of >@ o)er a perio$ of !ears* At age H it #o"l$ ha)e

gro#n to no less that R?H million 6hat #o"l$ ha)e happene$ ha$ the

same person #aite$ "ntil ?@ to ma(e the same in)estmentF The mone!

#o"l$ ha)e gro#n to onl! R million* This is a $i0erence of nearl! R?@

million* It s"re #as an e+pensi)e $ela!*

So #hat then is the sol"tionF Ma(e !o"r sa)ings plan as eas! an$ as

con)enient as possi'le* :a)e the mone! $e$"cte$ "p1front from !o"r

salar! so !o" $o not e)er ha)e the cash in !o"r han$* 8eca"se then !o"



might 'e tempte$ to spen$ it* Sign a $e'it or$er if !o" ha)e a 'an(

acco"nt* That #a! it 'ecomes a #a! of life* An$ )er! soon !o" #ill forget

that the mone! is 'eing $e$"cte$ from !o"r salar!* It is the ha'it of

sa)ing together #ith the gro#th on !o"r mone! that '"il$s #ealth o)er

time*

STE3 >< SAVE YOURSE9-

6e $e&ne$ &nancial s"ccess as the a'ilit! to /sleep comforta'l! at night

#itho"t #orr!ing ho# !o" are going to pa! !o"r 'ills tomorro# 'eca"se

!o" are a#are an$ in control of !o" &nancial position*/ One of the gifts of

'eing h"man is that #e are all a'le to constr"ct a )ision to $ream of

ho# #e #o"l$ li(e o"r li)es to 'e* To 2"ote from the 'oo( Ill"sions< TheA$)ent"res of a Rel"ctant Messiah '! Richar$ 8ach< /Yo" are ne)er gi)en

a #ish #itho"t also 'eing gi)en the po#er to ma(e it tr"e* Yo" ma! ha)e

to #or( for it ho#e)er*/ O"r o',ecti)e here is to help people to $e&ne

their &nancial goals an$ then i$entif! an$ appl! the e0orts it #ill ta(e to

ma(e those $reams a realit!* 9et "s no# em'ar( on '"il$ing an$ "tilising

some simple tools that #ill help !o" progress to#ar$s &nancial s"ccess

an$ sec"rit!*Personal statement of Assets and Liabilities

To man! people acco"nting is a something of a #ea(ness that the! ma!#ant to strengthen* 9i(e man! of "s pla!ing #ith n"m'ers is not reall!

o"r game an$ #e spen$ most of o"r li)es tr!ing to a)oi$ them* :o#e)er

in '"siness as in the rest of life e)er!one can $o a ,o'* Yet those people

#ho "n$erstan$ the n"m'ers that s"pport the '"siness seem to 'e the

most s"ccessf"l* 6e are going to "se a )er! simple acco"nting tric( to

$isco)er a 'it a'o"t #ho an$ #here #e are no#* -or o"r p"rposes here

this ser)es as a goo$ mo$el for managing !o"r o#n &nancial empire* 6e

#ill help !o" clean "p !o"r &nancial act so that !o" can pass an! a"$it

that comes !o"r #a!* 9et "s start #ith !o"r personal 'alance sheet a

snapshot of #hat !o" o#n an$ #hat !o" o#e*

It #ill ta(e ,"st =1>@ min"tes to perform this self1a"$it* Use !o"r

comp"ter che2"e 'oo( an$ all those "n$er1"se$ &ngers an$ toes to a$$

"p !o"r ma,or assets an$ lia'ilities* Simpl! #rite $o#n the 'alances of

the follo#ing items<

Che2"e acco"nts

Sa)ings acco"nts incl"$ing mone! mar(et acco"nts

8ro(erage acco"nts



Retirement acco"nts incl"$ing Retirement Ann"ities an$ that secret

o0shore stash

:ome e2"it! if !o" o#n a home

Short1term $e't incl"$ing cre$it car$s st"$ent loans an$ motor car

leases

9ong1term $e't 1 e*g* :ome mortgage

No# see if !o" can ans#er these 2"estions<

Is !o"r net #orth increasingF

Is !o"r $e't gro#ing or shrin(ingF

Are !o" shoc(e$ '! #hat !o" seeF Appalle$F Elate$FIf !o" cannot $etermine #hat $irection !o"r mone! is going 4"p $o#n or

ha!#ire5 "se !o"r simple mone! r"n$o#n as a starting point for !o"r

personal a"$it an$ repeat ne+t month #hen !o" ha)e a 'aseline for

comparison*

G"ess #hatF No# !o" ha)e a snapshot of !o"r personal statement of

Assets an$ 9ia'ilities This single piece of information p"ts !o" ahea$ of

the ma,orit! of peoplePersonal statement of Income and Expenditure

Once !o" ha)e come to terms #ith !o"r &nancial realit! p"t it together

in a '"$get* Most people $o not reall! (no# ho# m"ch mone! the! are

spen$ing each month* Man! in)estors forget a simple tr"th in that 'efore

!o" can spen$ mone! !o" m"st sa)e* An$ 'efore !o" can sa)e !o"

nee$ a comprehensi)e '"$get* Therefore #e nee$ to ha)e !o" ta(e a

closer loo( at !o"r monthl! spen$ing ha'its* 6e s"ggest that !o" '"! a

small note'oo( that is small eno"gh to carr! #ith !o" !et st"r$! eno"gh

to 'e !o"r constant companion for ,"st one month* ."ring that month

!o"r tas( is to trac( e)er! Ran$ that !o" spen$* So"n$s simple an$ it

reall! is*

To $o this !o" nee$ to acco"nt for all !o"r income an$ e+penses* Re)ie#

!o"r 'an( an$ cre$it car$ statements che2"e co"nterfoils receipts an$

ta+ ret"rn for the pre)io"s => months* Salar! #ages #ill for most

people 'e the main item in the income col"mn* There ma! also 'e

interest from 'an( acco"nts or in)estments $i)i$en$s from shares

rental income propert! an$ so forth*

On the e+penses si$e pencil in ma,or items s"ch as<



8on$ repa!ments or rent

3ersonal an$ car loans

Cre$it car$s

Ta+es

.a!1to1$a! items s"ch as groceries petrol

Me$ical Costs

Ins"rance 3a!ments

School or T"ition fees

Utilities s"ch as electricit! an$ #ater

Telephone

Clothing

Entertainment

Recreation incl"$ing g!m mem'ership

The secret here is to incl"$e a'sol"tel! e)er!thing in !o"r e+penses

col"mn* .o not preten$ !o" forgot the cell phone 'ill smaller cre$itors

an$ "ne+pecte$ 'ills* Yo"r list ma! also incl"$e things s"ch as car

repairs (itchen appliances so"n$ s!stems gate motors s#imming poolp"mps school fees ins"rance premi"ms an$ ta+ 'ills gifts an$

cele'rations 'irth$a!s #e$$ings f"nerals engagements gra$"ations

an$ Christmas e+penses*

In a$$ition to #hat !o" recor$ as !o"r 'asic monthl! e+penses trac(

EVERY a$$itional cent !o" spen$* To ma(e this e+ercise most en,o!a'le

an$ "sef"l (eep !o"r note'oo( #ith !o"r #allet an$ an!time !o" open

!o"r #allet or e)en ta(e a Ran$ o"t of !o"r poc(et to '"! some

chocolate or a ne#spaper recor$ that e+pense in !o"r ,o"rnal*

It is a $a"nting tas( '"t !o" nee$ $o it onl! once a !ear* The most

important part of this e+ercise is not to ,"$ge !o"rself at an! point for

an!thing !o" spen$ mone! on* .o not change an! of !o"r ha'its merel!

o'ser)e an$ recor$ #hat !o" spen$ as tho"gh !o" #ere o'ser)ing

someone else* K"st 'e gentle an$ honest #ith !o"rself for '"il$ing the

clearest pict"re possi'le of !o"r starting point #ill ser)e to help !o"

reach !o"r $ream sooner than !o" might imagine* :a)e f"n* 8e a

consistent an$ o',ecti)e o'ser)er*

Ta(e a loo( at !o"r mone! Lo#6e ha)e $e&ne$ &nancial s"ccess as the a'ilit! to /***sleep comforta'l!



at night #itho"t #orr!ing ho# !o" are going to pa! !o"r 'ills tomorro#

'eca"se !o" are a#are an$ in control of !o" &nancial position*/ 6e then

intro$"ce$ the fact that in or$er for !o" to achie)e a goal !o" nee$ an

acc"rate an$ "n'iase$ pict"re of #here !o" are no#* In or$er to gain

that )ie# #e recommen$e$ that !o" trac( all !o"r e+pen$it"res e)er!Ran$ o)er the co"rse of a month* The o',ecti)e is to help !o" f"ll!

"n$erstan$ #here !o"r mone! is going each month* No matter ho#

man! times people are coache$ thro"gh this e+ercise the res"lts are

al#a!s amaJing 8ecoming a#are of e+actl! ho# !o" ha)e spent !o"r

mone! o)er the co"rse of a set perio$ of time is al#a!s a s"rprise*

6hether !o" fo"n$ that !o" spent R?@@*@@ on cigarettes an$ R@*@@ to

co)er "p the smell or realise$ that '"!ing that small 'ag of crisps #ith

l"nch e)er!$a! cost !o" R@*@@ per month the o"tcome is the same*

:o# man! times ha)e !o" hear$ someone 4incl"$ing !o"rself5 sa! /I

$on7t (no# #here the mone! goes/ -ollo#ing this e+ercise !o" no#

(no# The real (e! is #hat !o" $o #ith this information no# that !o"

ha)e it* This empo#ers !o" to ma(e $ecisions a'o"t ho# !o" #ant to

spen$ it in the f"t"re*

Categorise !o"r e+penses

The ne+t step in this e+ercise is to separate the e+penses !o" recor$e$

into t#o separate categories*

The &rst is Necessities #hich are e+pen$it"res that are a m"st for !o"r$ail! e+istence<

Groceries

8on$ Repa!ment or Rent

6ater

Electricit!

8asic Clothing

8asic 3hone

The secon$ categor! of e+pen$it"res is .iscretionar! Spen$ing #hich is

an! e+pense for something other than a Necessit!<

Resta"rants

Entertainment 1 C.7s .V. or Vi$eo rentals M1Net or .STV

s"'scription*

E2"ipment 1 Ra$ios .V. Soft#are games etc*

S"'scriptions 1 MagaJines Ne#spapers



.r! Cleaning Ser)ice

:ealth Cl"' pa!ments etc* etc* etc*

No# that !o" ha)e segregate$ !o"r e+penses let "s ta(e a loo( some

essential &nancial concepts that #ill '"il$ o"r "n$erstan$ing an$ prepare!o" for the ne+t step on the path*

9i2"i$ assets an$ cash Lo#

Yo" ha)e pro'a'l! hear$ the terms /9i2"i$ Assets/ an$ /Cash -lo#*/ 9et

"s ta(e a moment an$ loo( at #hat these terms mean* A li2"i$ asset is

$e&ne$ as a form of propert! that is easil! an$ cheapl! t"rne$ into cash*

Mar(eta'le sec"rities s"ch as shares are consi$ere$ li2"i$ assets* 8"t

it is eas! to see from this $e&nition that cash itself is the most li2"i$ of

assets* A simple $e&nition of Cash -lo# is the mo)ement of mone! s"ch

as in an$ o"t of a 'an( acco"nt or in)estment portfolio* 9i(e the e'' an$

Lo# of the ti$es the mone! comes in the mone! goes o"t again*

Tr! this< Reach into a 'o#l of #ater an$ tr! to pic( some "p* E)en if !o"

are cle)er an$ c"p some into the palm of !o"r han$ it 2"ic(l! r"ns

thro"gh !o"r &ngers an$ o"t of !o"r grasp* This is one of the properties

of a li2"i$* Is this not the relationship #e often ha)e #ith mone! as #ellF

6e recei)e o"r pa! che2"e or 'ring in mone! thro"gh a '"siness then

pa! the rent '"! foo$ go to the cinema an$ #on$er #here o"r mone!

goes* The tric( is to control the Lo# an$ one of the #a!s #e $o this is to

create a container for o"r li2"i$ assets so that #e can collect an$

conser)e #hat Lo#s o"r #a! This is a necessar! aspect of goo$ mone!

management that is practise$ '! 'oth in$i)i$"als an$ companies 'oth

large an$ small* 8efore #e create o"r &nancial container #e ha)e one

more e+ercise to s"ggest* This '"il$s on the res"lts of trac(ing !o"r

e+pen$it"res o)er the past month*

As !o" trac( !o"r e+pen$it"res again for the c"rrent month o'ser)ing

each an$ e)er! Ran$ that !o" spen$ start to access the )al"e of each of

these items in !o"r life* This part of the e+ercise #ill pertain to 'oth the.iscretionar! E+pen$it"res an$ #hat !o" $e&ne$ as Necessities o)er this

last month*

As( !o"rself these 2"estions<

:o# m"ch $oes m! $#elling or the car I $ri)e reall! mean to meF

.oes o#ning that ne# porta'le stereo or #earing that ne# s"it help

me achie)e m! life aimsF

.o I $eri)e a sense of satisfaction from m! thingsF



.o the! len$ 'alance an$ s"pport to m! goals in some pro$"cti)e

#a!F

:o# $o m! things a0ect m! $e't le)elF

6hat are the lea(s in m! li2"i$ cash s!stemF

6here is mone! Lo#ing o"t of m! life to#ar$s something that $oes

not f"rther m! aims of &nancial s"ccessF

Each time !o" spen$ some mone! gentl! o'ser)e an$ e+plore !o"r

)al"ation for #hat !o" recei)e in ret"rn* Notice !o"r emotions at the

time of !o"r p"rchase as #ell as #hen !o" "tilise the partic"lar item or

e+perience an$ recor$ !o"r tho"ghts in !o"r note'oo(* Yo" can organise

!o"r tho"ghts relati)e to Necessities an$ .iscretionar! E+pen$it"resma(ing them easier to rea$ an$ re)ie#*

Create a simple spen$ing plan

If !o" follo#e$ the instr"ctions th"s far !o" ha)e $i)i$e$ !o"r e+penses

into Necessities an$ .iscretionar! E+penses* Yo" ha)e also e+plore$ ho#

!o" )al"e each of these* No# #e #ill ta(e all this information an$ create

a )ehicle that !o" can "se to change !o"r f"t"re A spen$ing plan ser)es

as o"r 'oat a sec"re )essel $esigne$ to pre)ent lea(s an$ (eep "s aLoat

economicall! emotionall! an$ ps!chologicall!* Yo"r spen$ing plan is

simpl! a $oc"ment that lists !o"r pro,ecte$ income an$ e+penses o)er a

perio$ of time* That is it There is nothing )er! m!sterio"s or

complicate$ at all* As a 'asic format for !o"r spen$ing plan #rite in 'ol$

letters the #or$ INCOME at the top of the page*

8elo# that list all of !o"r so"rces of income an$ the speci&c monthl!

amo"nts* -or e+ample<

Salar!

Commission

Tips

G"arantee$ 'on"ses

Alimon!

An! other monies that come to !o" on a pre$icta'le 'asis #ith respect to

'oth time an$ amo"nt* 9ist the amo"nts on 'oth a monthl! an$ ann"al

'asis* 8elo# the so"rces of income p"t another 'ol$ hea$ing la'elle$

EX3ENSES* Un$er this hea$ing #e are going to p"t t#o s"'hea$ings* The

&rst s"'hea$ing sho"l$ 'e Necessities* These are e+pen$it"res that are am"st for !o"r $ail! e+istence*



Yo"r list of monthl! e+penses 4i*e* Necessities5 ma! incl"$e<

RentMortgage 3a!ment

Groceries

6ater 9ights

8asic 3hone

3rescri'e$ me$ications

:ealth Ins"rance for !o" an$ famil!

The secon$ s"'hea$ing #ill 'e .iscretionar! Spen$ing #hich is an!

e+pen$it"re for something that is not a Necessit!* O"r e+perience #o"l$

lea$ "s to 'elie)e that #hen !o" recor$e$ !o"r e+penses o)er the past

t#o months !o" #ere )er! s"rprise$ '! ho# m"ch of !o"r mone! #asspent on $iscretionar! items* This list ma! incl"$e items s"ch as<

.ining o"t

Mo)ies.V. or Vi$eo rentals

M1net or .STV

Cigarettes

Soft#are Games

S"'scriptions 4i*e* MagaJines Ne#spapers5

.r! Cleaning Ser)ice

:ealth Cl"' s"'scriptions

6hen esta'lishing !o"r spen$ing plan for these .iscretionar!

e+pen$it"res (eep in min$ !o"r larger aims* :onestl! as( !o"rself<

Am I happ! #ith m! c"rrent &nancial sit"ationF

.o I #a(e "p an$ #orr! a'o"t ho# I am going to pa! m! 'illsF

I #o"l$ lo)e to go 'ac( to m! st"$ies '"t ho# can I pa! for itF

:o# can I pa! o0 m! cre$it car$s more rapi$l! an$ a)oi$ large

interest chargesF

Is this the neigh'o"rhoo$ I #ant m! chil$ren to gro# "p inF

I #o"l$ lo)e to get a ne# car '"t ho# I can a0or$ itF

These are (e! 2"estions to as( !o"rself #hen setting the amo"nts for

!o"r .iscretionar! Spen$ing* It is the spen$ing on these non1necessitiesthat can 'e change$ most easil! there'! freeing "p mone! to appl! to



c"rrent nee$s an$ longer1term aims* This is #here o"r e+ercise in

)al"ation comes into pla!* Is #atching M1Net or .STV more important to

me than f"rthering m! e$"cation so I can 2"alif! for a higher pa!ing ,o'F

.oes spen$ing a certain amo"nt a month on cigarettes ma(e me feel

'etter than if I applie$ that mone! to re$"cing m! cre$it car$ 'alanceFIf !o"r goal is to pa! o0 cre$it car$ $e't or other loans an$ get o"t from

"n$er the stress that these create in !o"r life incl"$e these in !o"r list of

Necessities* 3lan for it an$ pa! it o0* If !o"r e+penses are larger than

!o"r income this is a critical sit"ation an$ #e "rge !o" to serio"sl!

reign in !o"r e+pen$it"res an$ a)oi$ going f"rther into $e't* If this is an

ongoing pro'lem !o" ma! #ish to see( a $e't co"ncillor* Re$"cing

spen$ing is the (e! to re$"cing $e't* It ena'les !o" to 'etter ser)ice

e+isting $e't an$ at the same time trains !o" to learn ca"tio"s spen$ing

ha'its* :ere are f"rther tips on re$"cing spen$ing an$ $e't<

Short)term insuran+e poli+ies ta(e "p a consi$era'le ch"n( of o"r

incomes* 9oo( at #a!s that !o" can re$"ce that '"r$en* Ma(e s"re that

!o" constantl! reassess !o"r polices an$ change companies if !o" can

get a 'etter $eal else#here* Remem'er small high1)al"e items s"ch as

#atches an$ cell phones p"sh "p premi"ms consi$era'l!* Yo" can sa)e in

the region of R=@ a month or R=B@@ ann"all! if !o" lea)e them o0 !o"r

list an$ choose instea$ to 'e caref"l* If !o" pa! a larger e+cess fee !o"

can get s"'stantial re$"ctions on !o"r ins"rance premi"ms* Al#a!s as(!o"r ins"rance compan! for #a!s to re$"ce !o"r premi"ms e*g* '!

installing an immo'iliser on !o"r car !o" ma! 'e a'le to sa)e a goo$

$eal of mone!*

It is a #ell1(no#n that So"th African ,ank +harges are some of the

highest in the #orl$* It is less #ell (no#n that !o"r charges are not cast

in stone an$ can 'e negotiate$* .eman$ lo#er rates* Get a $e'it car$

an$ "se it for as man! p"rchases as !o" can* The! are far cheaper than

cre$it car$s che2"es or $ra#ing mone! from an ATM an$ pa!ing cash in1

store* If !o" m"st $ra# cash $o not go into the 'an( '"t rather #ith$ra#from the ATM '"t ma(e s"re that it is !o"r o#n 'an( 7s ATM as the costs

of "sing another 'an( 7s ATM are e+tortionate* 8etter still pa! #ith a

car$ an$ #ith$ra# cash in store #here a)aila'le li(e 3ic( n 7 3a! #here

the charges are e)en less than at !o"r o#n ATM* Yo" can easil! sa)e R=>

@@@ ann"all! '! planning !o"r monthl! cash #ith$ra#als*Savings and Investments

One last s"ggestion for !o"r spen$ing plan< If there is mone! left o)er it

is time to start sa)ing an$ in)esting* A$$ a line to !o"r list of Necessities

an$ call it Sa)ings an$ In)estments* The sa)ings !o" #ill e+perience



after settling all !o" loan acco"nts #ill pale in comparison #ith the

sa)ings !o" are a'o"t to achie)e on !o"r home loan* The monthl! cash

!o" #ill no# ha)e a)aila'le #ill greatl! shorten !o"r home loan '! man!

!ears an$ sa)e !o" tens of tho"san$s an$ possi'l! h"n$re$s of

tho"san$s in interest charges* Man! &nancial instit"tions no# ha)e'"$get calc"lators a)aila'le on their #e'sites that can $o the s"ms for

!o" '"t remem'er that the res"lts are onl! as goo$ as the $ata that !o"

inp"t*

:ere are a fe# of the 'ene&ts !o" #ill en,o! from aggressi)e mortgage

'on$ elimination<

3eace of Min$*

O#ning !o"r o#n home 'on$1free*

Man! e+tra Ran$s to sa)e each month*

Earl! retirement #hile maintaining !o"r $esire$ lifest!le*

The holi$a!s of !o"r $reams*

Sho#ing !o"r famil! ho# to li)e a &nanciall! in$epen$ent life*

:elping !o"r frien$s realise that it is possi'le to 'ecome $e't free

on a &+e$ income*

Aim at pa!ing !o"rself 'efore an! other 'ills an$ consi$er this mone! nolonger a)aila'le to !o"* This is the #a! to start that nest egg to &nance

!o"r long1term goals* It can also 'e a reser)e for a tr"e emergenc!

4me$ical for instance5 that might occ"r* 6o"l$ it not 'e cool if !o" co"l$

tell someone e+actl! #hen !o" #o"l$ 'e a'le to pa! them 'ac( or on

#hat $ate !o" #ill ma(e that in)estment or p"rchase that is part of !o"r

goalF Yo"r spen$ing plan p"ts that po#er to plan in !o"r han$s* No# #ith

a spen$ing plan in han$ an$ hopef"ll! p"tting !o"r o#n sa)ings &rst

!o" can plan for #hat !o" nee$ an$ sa)e for #hat !o" #ant things s"ch

as ne# clothes a ne# car a ne# D>cm TV a ne# ho"se etc* 8"t

remem'er this (e!< Yo" earn &rst an$ then '"! #ith cash* 8"! #hat !o"

can a0or$ stic( to !o"r spen$ing plan an$ li)e #ithin !o"r means

STE3 ?< SET INVESTMENT O8KECTIVES

The form"lation of in)estment o',ecti)es is a statement of prospects for

!o"r &nancial f"t"re* 3lanning therefore centres on o',ecti)es an$ ho# to

achie)e them an$ sho"l$ 'e lin(e$ to speci&c time horiJons*



Emergen+y -unds ) 3ro)i$ing for the so1calle$ /rain! $a!/ is

pro'a'l! as important as ta(ing o"t short1term ins"rance on a ho"se or

)ehicle* Yo"r &rst short1term o',ecti)e sho"l$ 'e to set "p an emergenc!

f"n$* A$e2"ate pro)ision sho"l$ 'e ma$e for an! "nforeseen

circ"mstances s"ch as in the case of retrenchment or a prolonge$ illness*

A comforta'le goal sho"l$ 'e in the region of three to fo"r months 7

earnings* This sho"l$ 'e easil! accessi'le 4e*g* the Access1t!pe of

mortgage 'on$ of !o"r home loan acco"nt or alternati)el! a mone!

mar(et acco"nt5 an$ reassesse$ on a contin"o"s 'asis*

Short)term .,/e+tives ) All f"n$s in a call or sa)ings acco"nt

sho"l$ not 'e loo(e$ "pon as emergenc! f"n$s* A pre$etermine$ portion

of mone! from the net income sho"l$ 'e set asi$e for an! e+pen$it"re

foreseen in the ne+t fe# months or sa! => months s"ch as a car ser)ice

or a ne# #ashing machine* These ma! 'e important an$ "na)oi$a'le

e+pen$it"re items an$ f"n$s set asi$e sho"l$ not 'e s"',ecte$ to a high1

ris( in)estment* 3otential in)estment instr"ments are therefore fairl!

restricte$*

Medium)term .,/e+tives 1 A me$i"m term o',ecti)e can 'e set

for an! perio$ ranging from t#o to &)e !ears* -"n$s for a me$i"m term

o',ecti)e ma! 'e acc"m"late$ for a $eposit on a ho"se or '"!ing a

'"siness* These f"n$s nee$ not 'e accessi'le imme$iatel!* -or a me$i"m

term o',ecti)e f"n$s ma! 'e $irecte$ to#ar$s &+e$ interest1'earing

sec"rities* These in)estments ma! 'e s"',ect to capital L"ct"ation #hich

is regar$e$ as $angero"s for a short1term o',ecti)e*

(ong)term .,/e+tives ) These ma! 'e for an! perio$ from &)e

!ears to an in$e&nite perio$* The more "s"al o',ecti)es ma! 'e the

pro)ision for retirement an$ the tertiar! e$"cation of chil$ren* As the time

span of long1term o',ecti)es is not (no#n in all cases 4for e+amplepro)ision for $eath5 it is not al#a!s eas! to choose an appropriate



in)estment instr"ment* 3ossi'le in)estments to consi$er ma! 'e

en$o#ment policies retirement ann"ities "nit tr"sts or e)en shares*Your current situation compared with your objectives

Yo" no# nee$ to prioritise each &nancial o',ecti)e #ithin each timehoriJon* A priorit! list ma! gi)e an in$ication of nee$s #ith a high priorit!

that has not 'een met an$ #hich #o"l$ re2"ire more f"n$s than nee$s

#ith a lo#er priorit!* Consi$eration sho"l$ 'e gi)en in re1prioritising the

nee$s* This #o"l$ mean more f"n$s #o"l$ 'e a)aila'le for nee$s #ith a

high priorit! since those #ith a lo#er priorit! #o"l$ ha)e 'een set asi$e*

The (no#le$ge of !o"r c"rrent &nancial position an$ the &nancial ris(s

face$ 'efore consi$ering an! in)estment cannot 'e o)er1emphasise$*

/no#le$ge is po#er/ is no less tr"e than #hen it comes to in)estment

$ecisions* No person can 'e e+pecte$ to ma(e a so"n$ $ecision in a &el$in #hich the! ha)e no e$"cation* The o',ecti)e of this training program

is to p"t this /(no#le$ge/ into /action/ an$ to intro$"ce !o" to some

'asic share mar(et concepts* The i$ea here is to /orientate/ !o" into the

share mar(et an$ to gi)e !o" an o)er)ie# of the share selection process*

There is no magical form"la to share selection* Yo"r initial selection of

shares is pro'a'l! going to 'e a'o"t @ g"ess#or( an$ =@

"n$erstan$ing '"t as !o"r (no#le$ge progresses !o" #ill $e)elop the

"n$erstan$ing e+perience an$ con&$ence to ta(e responsi'ilit! for !o"r

o#n mone! to select shares an$ time !o"r transactions for the 'est

pro&t*

6hate)er !o"r 'ac(gro"n$ an$ e+perience most people ha)e ne)er

entertaine$ the possi'ilit! that an or$inar! person li(e themsel)es co"l$

e)er reach a state of &nancial free$om* In this co"ntr! the a)erage

person nee$s onl! t#o things to 'ecome #ealth!<=* The (no#le$ge of #hat to $o% an$>* The $iscipline to practice the things to 'e $one*

Unfort"natel! for those #ho are tr!ing to &n$ o"t #hat to $o the tas(

can 'e )er! $ic"lt* There are h"n$re$s of 'oo(s a)aila'le a'o"t

ma(ing an$ han$ling mone! '"t )er! fe# start from the 'asics an$ e)en

less sho# practical #a!s that #or(* This lesson is a $o#n1to1earth g"i$e

for all* The aim here is to intro$"ce !o" to the #orl$ of prosperit! an$

!o" sho"l$ "se #hat is in here as an intro$"ction to learn as m"ch a'o"t

the #hole s"',ect of s"ccessf"l share mar(et in)estment* So get rea$!

for !o"r &rst fe# steps along the roa$ to &nancial free$om* All the

metho$s can #or( for !o" if !o" #ill #or( on ac2"iring the $iscipline*

Remem'er it all starts #ith !o" an$ !o"r in)estment o',ecti)es*



STE3 < GETTING T:E 8EST RETURNS

Sta!ing o"t of $e't an$ 'eginning to sa)e #e hope ma(es perfect sense

to !o" '! no# an$ hope that !o" realise #ill also ma(e an e+tremel!

positi)e impact on !o"r lifest!le* One of !o"r ne+t ma,or &nancial goalssho"l$ 'e to achie)e &nancial free$om* The e+pression /&nancial

free$om/ #o"l$ s"m "p most people7s monetar! aspirations '"t it is

important to 2"antif! this i$ea clearl! so that it can 'ecome a concrete

plan achie)a'le #ithin a $e&ne$ time frame* -inancial free$om implies

free$om from &nancial #orries an$ more speci&call! free$om from the

nee$ to #or(* This can onl! 'e achie)e$ #hen the income that !o"

recei)e from !o"r in)estments e+cee$s the income that !o" recei)e from

!o"r #or( 4i*e* !o"r salar!5* 3"t another #a! &nancial free$om is the

point #here !o" are earning eno"gh from !o"r in)estments so that !o"can li)e o0 them an$ no longer nee$ to #or(* This is a "sef"l $e&nition

that s"its all people irrespecti)e of their sit"ation or salar! le)el*

To achie)e &nancial free$om !o" nee$ to $o t#o things<=* Sa)e a'o"t =@ of !o"r gross monthl! income*>* Ma(e !o"r sa)ings #or( for !o" as har$ as the! can*

8"il$ing an income1generating capital 'ase

Yo"r &rst o',ecti)e is to '"il$ an income1generating capital 'ase* Until

!o" ha)e this there is no hope of achie)ing &nancial free$om* It is

important to remem'er that if !o"r sa)ings are not getting a ret"rn of atleast the inLation rate then in inLation1a$,"ste$ terms !o"r capital is

act"all! shrin(ing* If !o" cannot 'eat the inLation rate then !o" cannot

a0or$ to stop #or(ing ; 'eca"se the moment !o" $o the )al"e of !o"r

capital #ill 'egin to $ecline*

Yo"r secon$ o',ecti)e is to ma(e !o"r mone! #or( for !o" so that it

'eats inLation '! a health! margin* If !o" 'elie)e in the ol$ a$age /Ma(e

!o"r mone! #or( for !o"/ !o" ma! 'e intereste$ in &n$ing o"t #here it

#ill /#or( the har$est/* The simple act of sa)ing mone! each month is a

'ig step in the right $irection '"t the long1term ret"rns 'et#een one

in)estment choice or another can literall! mean a small fort"ne to !o"*

The ne+t is to $eci$e #ho is going to in)est !o"r mone!* E+perience$

in)estors #ith s"'stantial cash reser)es ma! #ant to in)est $irectl!

#hile less e+perience$ in)estors ma! see( the ai$ of professional

&nancial a$)isers* O"r philosoph! is that no one cares more a'o"t !o"r

mone! than !o" $o an$ therefore !o" nee$ to gain more (no#le$gea'o"t s"ccessf"l in)estment an$ ta(e control of !o"r o#n &nancial



f"t"re* Regar$less ac2"iring as m"ch information as possi'le is

essential* So o"r last o',ecti)e is to sho# !o" #here to in)est for the

'est ret"rns*Traditional Investments

.etermining a s"ita'le mi+ of in)estments is one of the most criticalin)estment $ecisions !o" #ill ma(e* The choice is fairl! #i$e ranging

from a secon$ propert! to propert! s!n$icates "nit tr"sts share mar(et

in)estments &+e$ in)estments en$o#ment policies an$ retirement

ann"ities* 9et "s 'rieL! consi$er the income an$ capital ret"rn prospects

of these commonl! hel$ tra$itional in)estments*

Savings in a 'ank allo#s !o" to earn interest on !o"r mone! an$

pro)i$e peace of min$* Sa)ings o0er !o" a reasona'le income !iel$

"s"all! a fe# percentage points 'elo# the prime interest rate* Interest is

fairl! ass"re$ if one is in)este$ in a ma,or 'an(* :o#e)er after ta+ the

!iel$ #ill not 'e m"ch a'o)e the inLation rate* Unli(e shares or propert!

there is no ris( that !o"r capital #ill 'e ero$e$ '! negati)e ret"rns*

#nsuran+e Produ+ts 1 In life it is sai$ that !o" ha)e t#o ma,or ris(s<

!o" can either $ie too soon or li)e too long* -or the &rst !o" ta(e o"t life

ass"rance #hile !o" p"t mone! a#a! for !o"r ol$ age for the secon$

ris(* This is calle$ retirement planning*

Term Assuran+e is a #a! of getting the 'iggest co)er for the least

o"tla!* Yo" #ill not get an! mone! if !o" s"r)i)e the term* Term ass"rance

is ta(en o"t '! pa!ing a &+e$ premi"m for a certain perio$ of time #hich

pro)i$es !o" #ith a certain life co)er* 8on$ ass"rance for instance is a

form of term ass"rance #hich is #i$el! "se$*

Endowment Poli+ies gi)e !o" the 'est of 'oth #orl$s* Yo" pa!

premi"ms for a certain n"m'er of !ears an$ if !o" li)e "ntil the en$ of the

perio$ !o" then recei)e the s"m ass"re$* If !o" $ie #hile !o" are still

ma(ing contri'"tions the mone! #ill go to !o"r heirs* En$o#ment policies

are )er! pop"lar in So"th Africa '"t the historical ret"rns on these

in)estment pro$"cts ha)e 'een )er! $ismal especiall! after ta(ing all the

costs into consi$eration* En$o#ment policies come in all sorts of forms

an$ for all sorts of p"rposes* E$"cation policies are an e+ample mainl!

$"e to the escalating cost of e$"cation*

http://www.psgonline.co.za/invest/endowment-policy.php






Pension and Provident unds are largel! the same thing as 'oth

e+ist to pro)i$e an income for people #hen the! 'ecome too ol$ to #or(*

S"ch a retirement income is acc"m"late$ #hile the person is still #or(ing*

E)er! month an amo"nt is pai$ into the f"n$ 4"s"all! a percentage of the

emplo!ee 7s salar!5 along #ith a similar amo"nt contri'"te$ '! the

emplo!er* Virt"all! all pension f"n$s are operate$ on a .e&ne$

Contri'"tions 'asis an$ the portfolios are mar(et relate$* The increasing

a)erage age of So"th Africa 7s pop"lation means that the on"s #ill

increasingl! fall on in$i)i$"als to f"n$ their retirement* The responsi'ilit!

has shifte$ to the in$i)i$"al 7s sho"l$ers #ho in most cases has )er!

limite$ (no#le$ge a'o"t the share mar(et an$ their a'ilit! to han$le their

&nances at an age #hen the! #ill 'e at their most )"lnera'le*

1etirement Annuities 1A 3s as the name implies is an

in)estment pro$"ct geare$ to#ar$s retirement an$ is a potential lifeline

for later life* It #as originall! intro$"ce$ in =H@ to enco"rage self1

emplo!e$ people to ma(e pro)ision for their ol$ age* The philosoph! #as

that '! pro)i$ing a ta+ incenti)e people #o"l$ p"t mone! a#a! there'!

relie)ing the go)ernment of possi'le lia'ilit! in the f"t"re* 6hile RA 7s are

i$eall! s"ite$ for self1emplo!e$ an$ professional people it is also "se$ '!

salarie$ people to s"pplement other retirement pro)isions that the! are

ma(ing* Retirement Ann"ities ha)e 'ecome pop"lar #ith man! people

#ho #ant to o'tain ta+ relief on their contri'"tions '"t forget that the

primar! p"rpose of the retirement ann"it! is to pro)i$e a retirement

income* Once a person realises that the pension or pro)i$ent f"n$ from

their emplo!er is not going to 'e eno"gh for their retirement the! ma!

$eci$e to s"pplement their f"t"re income #ith retirement ann"ities* The

a$)antages of retirement ann"ities are<=* Contri'"tions to RA 7s are normall! a $iscipline$ #a! of sa)ing*

6hile contri'"tions can 'e stoppe$ at an! time the mone! sta!s loc(e$"ntil age at the earliest*



>* RA contri'"tions are ta+1$e$"cti'le from income "p to acertain limit* The higher the marginal ta+ rate the greater the a$)antage*In a$$ition the pa! o"t on RA 7s is also ta+1ecient at retirement*

?* An important 'ene&t that is often o)erloo(e$ is that RA f"n$sare f"ll! protecte$ against cre$itors e)en in the case of insol)enc!*

:o#e)er in contrast to other t!pes of in)estments li(e en$o#mentpolicies an$ "nit tr"sts one cannot 'orro# mone! against RA 7s or "se the'"ilt1"p capital as collateral*

6itho"t almost an! e+ception retirement ann"ities are /sol$/ thro"gh

Ass"rance Ser)ice 3ro)i$ers* There are enormo"s "pfront costs on these

tra$itional plans #ith )irt"all! no transparenc!* The historical

performances of the f"n$s ha)e also pro'a'l! the #orst recor$ in the

in)estment mar(et* 3ension -"n$s an$ Retirement Ann"ities 4RA 7s5 can

'e channelle$ thro"gh "nit tr"sts an$ achie)e far greater ret"rns on

contri'"tions pai$ '! ta(ing a$)antage of the L"ct"ations in the sharemar(et*

Property assets incl"$e all t!pes of real estate s"ch as resi$ential

commercial an$ in$"strial* -or man! people a home is their 'iggest

in)estment* A $i)ersi&e$ in)estment portfolio sho"l$ incl"$e e+pos"re to

propert!* 3ropert! in)estments can 'e ma$e $irectl! thro"gh s!n$icates

or thro"gh propert! "nit tr"sts 43UTS5* Volatile share mar(ets an$ lo#

interest rates ha)e le$ to a s"rge in resi$ential in)estment properties in

So"th Africa* An in)estment propert! can generate income in the form of

rental income in the short1term 4'"t li(e interest is ta+a'le5 #ith capital

gro#th o)er time* 8"!ing a secon$ propert! as a so"rce of income

especiall! $"ring the earl! !ears of !o"r retirement #hen !o" are still

health! an$ strong is a goo$ i$ea* 8e a#are that real estate inc"rs large

"p1front costs s"ch as stamp $"t! ins"rance an$ legal fees* Also

remem'er that "nli(e shares !o" cannot li2"i$ate a portion of !o"r

propert! if !o" nee$ access to f"n$s*

-or commercial propert! 4e*g* shops or oces5 the income !iel$ per

ann"m is 'et#een B 1 = $epen$ing on location an$ 2"alit!* Capital

appreciation )aries '"t this has 'een of the or$er of 1 ==* Th"s the

total ret"rn has 'een aro"n$ =B 1> per ann"m for goo$ properties*

Income is fairl! sec"re if one has goo$ tenants '"t there is the ris( of no

income if a '"il$ing stan$s empt!* The a'o)e &g"res are historical as a

lo#er inLation rate #ill res"lt in lo#er ret"rns* -"rthermore it implies a

#ell1$i)ersi&e$ propert! portfolio*

3ropert! generall! o"tperforms sa)ings o)er the me$i"m to long1term%

ho#e)er it also e+poses in)estors to higher ris(* There is the possi'ilit!

of rising interest rates* If !o" $eci$e to '"! choose !o"r locationcaref"ll!* The a$age a'o"t location location location hol$s tr"e* 6ell1



locate$ propert! in pop"lar areas s"ch as the inner cit! in Cape To#n or

'each $estinations #ill contin"e to 'e an e+cellent long1term

in)estment* Chec( that the area is #ell ser)ice$ '! schools transport

an$ shops* An$ remem'er that ne#er homes or apartments are cheaper

to maintain* If !o" are in)esting in a "nit 'o$! corporate fees can )ar!$ramaticall! from propert! to propert!* S#imming pools an$ lifts a$$

signi&cantl! to management costs* 8"!ing o01plan properties that

re2"ire $eposits #ell in a$)ance of constr"ction increases the ris(*

5nit Trusts pro)i$e an economical me$i"m for the a)erage in)estor

#ith relati)el! small amo"nts of mone! to in)est an$ #ho $oes not ha)e

the time an$ e+pertise to /pla!/ the share mar(et to ha)e access to

professional a$)ice an$ $i)ersi&cation of in)estments* Unit tr"sts are

$esigne$ to permit an "nlimite$ n"m'er of in)estors to pool their

reso"rces as "nit hol$ers in a f"n$ that in t"rn in)est in a n"m'er of

in)estment instr"ments 4e*g* mone! an$ capital mar(ets5 "n$er the

s"per)ision of a professional portfolio manager* 8! means of either a

single l"mp s"m in)estment or a reg"lar monthl! in)estment it is

possi'le to participate in the inLation1'eating ret"rns that ha)e 'een

o0ere$ '! most "nit tr"sts o)er the last > !ears* Each "nit tr"st f"n$

has its o#n speci&c in)estment o',ecti)es #hich are $escri'e$ in the

f"n$ 7s tr"st $ee$* These o',ecti)es are t!picall! $escri'e$ in terms of

one or more main o',ecti)es<&eneral unit trusts ; in)est in shares o)er a #i$e spectr"m of

sectors of the Kohannes'"rg Stoc( E+change* This ens"res $i)ersi&cation*

Sta'le me$i"m an$ long1term gro#th is o'taine$*

Spe+ialised unit trusts ; in)est in speci&c sectors s"ch as gol$ or

in$"strial shares 'eca"se of their faith in a sector or sectors 4e*g*

information technolog! or &nancial ser)ices5* The ris( an$ ret"rn of these

sectors co"l$ 'e higher than for general "nit tr"sts*

#n+ome unit trusts ; in)est onl! in &+e$ interest1'earing

instr"ments s"ch as gilts 4'on$s5 or semi1gilts an$ $e'ent"res* The safet!

of the in)estment amo"nt pl"s interest is ens"re$* In$i)i$"al in)estors

#ho in)est in these "nit tr"sts are "s"all! those #ith an o',ecti)e of high

income 4as oppose$ to capital gro#th5* These t!pes of "nit tr"sts co"l$ 'e



more s"ita'le for retire$ people as #ell as for people #ho ha)e a short1

term in)estment o',ecti)e*

Some of the other a$)antages of "nit tr"sts are that the! can 'e lin(e$

to an en$o#ment polic! mortgage 'on$ or retirement ann"it!* Secon$l!the! are a )er! li2"i$ in)estment as !o" can get !o" mone! 'ac( #ithin

$a!s* Thir$l! the! are a )er! )isi'le in)estment as !o" can trac( the

performance of !o"r in)estment on a $ail! 'asis* The $isa$)antages of

in)esting in "nit tr"sts are that man! in)estors are tempte$ to ta(e

pro&ts e)er! time the share mar(et 'ooms* This can "n$ermine the long1

term in)estment o',ecti)es* Secon$l! the costs are higher than a $irect

in)estment in the share mar(et* Thir$l! the "nit tr"st in$"str! is

go)erne$ '! reg"lations that can inhi'it the long1term gro#th an$ lastl!

the in)estment ret"rns on "nit tr"sts are not g"arantee$*

6erivative #nstruments co)er #arrants Contracts for .i0erence 4C-.

7s5 Single Stoc( -"t"res 4SS- 7s5 an$ f"t"res an$ options on )ario"s

&nancial instr"ments an$ assets s"ch as the "n$erl!ing shares share

in$ices an$ 'on$s are tra$e$* Using $eri)ati)e instr"ments portfolio

managers as #ell as in$i)i$"als an$ other intereste$ parties ma! he$ge

against share price )olatilit! interest rate ris( an$ foreign e+change or

c"rrenc! ris(* .eri)ati)e mar(ets #ere initiall! create$ to allo# in)estors

to /he$ge/ or protect the )al"e of their in)estments from f"t"re price

L"ct"ations* .eri)ati)es allo# in)estors to protect themsel)es from the

ris( that mar(et prices #ill fall* .eri)ati)es can also 'e "se$ as an

aggressi)e in)estment strateg!* The spec"lati)e "se of $eri)ati)es o0ers

m"ch higher ret"rns '"t #ith higher ret"rns comes higher ris(s* The

higher ris( in)estors are enco"rage$ in this in or$er to contri'"te

li2"i$it! an$ $epth to the mar(ets* In)estors can lose more mone! more

2"ic(l! if the mar(et mo)es against them* .eri)ati)es can 'ecome a

complicate$ an$ sophisticate$ in)estment strateg! an$ therefore 'est

left for the more e+perience$ an$ sophisticate$ in)estor*6ire+t share market investment has al#a!s 'een )er! goo$ to

in)estors an$ is a pro)en #a! to '"il$ing #ealth* Shares are relati)el!

high1ris( in)estment o)er the short1term '"t o)er the long1term term

shares ha)e generall! pro)i$e$ a ta+1e0ecti)e an$ gro#ing income

stream that has performe$ a'o)e the rate of inLation historicall!* Share

prices can L"ct"ate for reasons ranging from compan! $e)elopments

4s"ch as pro&t reports5 economic changes 4s"ch as interest rate

increases5 an$ international conLict 4s"ch as #ars an$ $isasters5*

Income is in the form of $i)i$en$s* The !iel$ is aro"n$ ? per ann"m

an$ it is not al#a!s ass"re$* It is li(el! to 'e recei)e$ onl! if the

http://www.psgonline.co.za/invest/unit-trusts.php

http://www.psgonline.co.za/invest/unit-trusts.php



compan! has earne$ pro&ts* The prospect for capital gro#th is high ; in

the or$er of = 1 > per ann"m o)er the last =@1!ears or so 1 2"ite a

'it higher than compare$ to cash propert! an$ 'on$s* .i)i$en$s are not

ta+e$ an$ onl! capital gains o)er the &rst R=@ @@@ are ta+e$ if !o" are

not $eeme$ a /tra$er/ '! the Re)en"e Ser)ices 4SARS5* The in$i)i$"alin)estor sho"l$ $eci$e #ithin the conte+t of his o#n &nancial sit"ation

the (in$ of in)estment he #ants to ma(e 'ase$ on his o#n &nancial

o',ecti)es* Once a potential in)estor has e)al"ate$ his c"rrent &nancial

sit"ation his ris( tolerance an$ personal o',ecti)es he can procee$ #ith

his chosen in)estment 'ase$ on this e)al"ation*

The rapi$l! changing in)estment en)ironment has necessitate$ a more

$!namic an$ proacti)e approach to the share mar(et in or$er to

enhance capital gro#th at an accepta'le le)el of ris(* The f"rther !o" are

from retirement the more !o" sho"l$ 'e in)esting in the share mar(et*

Yo" #ill not nee$ that mone! for a long time% so !o" can 'ene&t from

the s"perior long1term performance of the share mar(et #hile not ha)ing

to #orr! a'o"t the e0ect of mar(et c!cles* Yo" ma! recognise that the

long1term o$$s are o)er#helmingl! in !o"r fa)o"r* 6e (no# the mar(et

shifts e)er! $a! sometimes sharpl! $o#n#ar$* That can 'e a'sol"tel!

g"t #renching #hen it occ"rs '"t histor! sho#s "s that the ine+ora'le

press"re on the share mar(et is "p#ar$* The 'iggest 'ang for !o"r '"c(

#ill 'e fo"n$ in shares* So opt for shares a'o)e all else as !o"r )ehicle of choice for gro#th o)er the long1term*

A :A33Y RETIREMENT

O')io"sl! if !o" ha)e achie)e$ &nancial free$om an$ '"ilt "p eno"gh

capital !o" #ill most pro'a'l! ha)e achie)e$ a happ! retirement* 8"t

#hat $oes the #or$ /retirement/ mean to !o"F .o images of carefree

$a!s $oing #hat !o" 7)e al#a!s #ante$ to $o come to min$F Tra)elling

to e+otic places perhaps or pla!ing golf or $oing some #oo$#or(

farming or #hate)erF Sa$l! tho"gh retirement for most people $oes not

t"rn o"t to 'e a )er! ,o!f"l perio$* Onl! a small percentage of people are

&nanciall! prepare$ for retirement* -or them it is a time to /pl"c( #hat

has 'een plante$*/ -or the rest it is a race against inLation an$ $eath* All

of "s "nless #e $ie premat"rel! #ill ha)e to retire one $a! regar$less

of ho# ol$ #e are no# or #hat position #e hol$* Accor$ing to c"rrent life

e+pectanc! statistics a man #ho retires at age H@ to$a! can e+pect to

li)e on a)erage for = more !ears #hile a #oman is li(el! to li)e foranother = !ears*



."e to impro)e$ health care life e+pectanc! is stea$il! rising* A !o"ng

person starting #or( to$a! #ill &n$ that '! the time he or she retires @1

o$$ !ears in the f"t"re people #ill 'e li)ing for m"ch longer* This ma(es

retirement planning at an earl! stage e)en more )ital It is a trage$! that

s"ch a large percentage of the pop"lation $oes not '"il$ "p s"cientf"n$s for retirement or pa! attention to the other aspects of retirement

planning* The follo#ing information from a s"r)e! $one '! a large

ins"rance compan! highlights the sit"ation* The s"r)e! fo"n$ that o"t of

=@@ people no# age$ > in @1!ear7s time from no# at retirement age

of H<

? people #ill alrea$! ha)e $ie$ thro"gh ol$ age an$ car acci$ents

etc*%

A'o"t =@ people #ill 'e on state pension%

>@ people #ill still 'e #or(ing%

?@ people #ill 'e &nanciall! $epen$ent on their families%

Onl! H people #ill 'e &nanciall! in$epen$ent*

In #hich categor! #o"l$ !o" li(e to fall into one $a!F

The categor! into #hich !o" #ill fall #hen !o" retire #ill $epen$ on !o"r

planning 1 or lac( of it 1 $"ring !o"r pro$"cti)e !ears* 3lanning for

retirement is important not onl! for those #ho are on the )erge of

retirement or #ho ha)e alrea$! retire$* That #o"l$ 'e too late* In$ee$

the earlier !o" start planning for retirement the easier it #ill 'e an$ the

'etter the res"lts an$ !o"r chance of retiring in &nancial comfort*

Imagine retirement planning is the same as planting a tree* The sooner

!o" plant the tree an$ the more #ater an$ fertiliser !o" fee$ the tree

the 'igger it #ill gro#* Yo" cannot plant a see$ t#o !ears 'efore !o"

retire an$ e+pect to ha)e a large an$ Lo"rishing tree '! the time !o"

retire* If !o" inten$ to sit in the sha$e of a strong oa( tree #ith $eep

roots one1$a! !o" ha)e to plant the see$ earl! in !o"r life* The longer

!o" #ait the smaller !o"r tree is li(el! to 'e*

-inancial planning means $eci$ing in a$)ance #hat goals !o" #ant to

achie)e an$ #hat steps !o" sho"l$ ta(e to reach these goals* 3"t

another #a!< $eci$e #here !o" #ant to 'e an$ ho# !o" #ant to get

there* Thin( of life as a ,o"rne! in a foreign co"ntr!* 6itho"t a roa$ map

an$ a &nal $estination !o" are li(el! to en$ "p in the #il$erness* This is

#here most people en$ "p as far as retirement is concerne$* A happ!

an$ carefree retirement sho"l$ 'e !o"r $estination in life* Thin( no#a'o"t !o"r retirement* 6hen #ill it occ"r 1 >@ !ears from no# &)e !ears



tomorro#F If !o" are close to it or are alrea$! retire$ ho# long m"st the

mone! lastF No# thin( a'o"t !o"r retirement in)estments* Is the '"l( of

!o"r mone! positione$ for long1term gro#th 4i*e* shares5 or short1term

sta'ilit! an$ income 4i*e* 'on$s5F The mi+ !o" ha)e in these instr"ments

is something !o" m"st $eci$e for !o"rself* After all !o"7re the one thathas to sleep at night* Recognise tho"gh that in)esting for retirement is

a long1term goal* :ence !o" tr"l! #ant to shoot for the 'est gro#th in

!o"r in)estments that !o" can get* That #on7t 'e fo"n$ in 'on$s o)er

the long ha"l* If !o" elect to (eep most of !o"r mone! there almost

ass"re$l! in retirement !o" #ill 'e eating fran(s an$ 'eans for $inner

'eca"se !o" ha)e to not 'eca"se !o" #ant to*

Recognise too that !o" pro'a'l! still ha)e man! !ears of pro$"cti)e life

ahea$ of !o" after !o" &nall! $o retire* 6hile 'on$s ma! appear

appealing for the income an$ safet! the! pro)i$e half or more of !o"r

portfolio m"st still 'e in)este$ for gro#th to ens"re !o" can maintain

p"rchasing po#er* A)erage inLation for the past =@1!ear perio$ has 'een

a'o"t => per !ear* At that rate the cost of all #e '"! $o"'les e)er! H

!ears* To a retiree li)ing on a &+e$ income that can 'e nothing short of

$e)astating* :ence the nee$ for gro#th in a retiree7s portfolio*

The lesson of this step then is to a)oi$ o)erl! conser)ati)e in)esting

'oth no# an$ after !o" retire* Too m"ch safet! can 'e costl! to !o"r

&nancial health in retirement* If !o" are a "nit tr"st in)estor 4an$ mostpension an$ pro)i$ent plan participants are5 foc"s !o"r attention on

general e2"it! f"n$s* Compare their recor$s o)er time to that of the KSE

All Share in$e+ an$ each other* -or 1an$ =@1!ear perio$s most f"n$s7

performance #ill 'e 'elo# the mar(et* In a compan! plan tho"gh !o"

#o"l$ not ha)e m"ch choice* Use the f"n$ that performs closest to the

KSE All Share in$e+ a)erage*

In the 3SG Online Tra$ing Co"rse #e $isc"ss the 'est #a!s the share

mar(et #ill help !o" achie)e the income le)els re2"ire$ to meet !o"r

retirement nee$s* 8efore !o" start planning !o" m"st 'e s"re of !o"rgoals* Goals can 'e esta'lishe$ '! ans#ering the 2"estions /6hatF/

/:o# m"chF/ an$ /6henF/

To s"mmarise #hat !o" m"st $o to en,o! a happ! an$ carefree

retirement<

Start '"il$ing "p a$e2"ate alternati)e so"rces of income so that

!o" #ill 'e a'le to maintain !o"r stan$ar$ of li)ing after retirement*



E)al"ate )ario"s lifest!le alternati)es an$ ma(e pro)isions so that

!o" #ill ha)e a comforta'le $#elling an$ maintain a comforta'le lifest!le

$"ring retirement*

.eci$e #ell in a$)ance ho# !o" are going to (eep occ"pie$ an$ ho#

!o" #ill han$le the s"$$en increase in free time*

9i)e in a health! #a! so that !o" can en,o! goo$ health as long as

possi'le*

No# that !o" (no# #hat !o" m"st plan for !o" sho"l$ form"late !o"r

o#n goals* It is a goo$ i$ea to #rite them $o#n as s!stematicall! as

possi'le for the follo#ing reasons<

It #ill help !o" foc"s on them%

It #ill help !o" set a time1frame in #hich to achie)e them%

It #ill moti)ate !o" to plan the necessar! steps to reach them% an$

It #ill help !o" to meas"re !o"r progress in reaching them*

Yo" #ill nee$ mone! to achie)e some of these goals* It is therefore

important to calc"late in goo$ time ho# m"ch it #ill cost !o" to achie)e

them* This #ill ena'le !o" to start p"tting a#a! the correct percentage

of !o"r monthl! income to '"il$ the necessar! f"n$s* 8"t ho# m"ch is

eno"gh capital for a happ! retirementF 3"n$its sa! !o" #ill nee$ H@ to

B of !o"r gross ho"sehol$ income to$a! to s"stain the same lifest!le

after !o" retire* In theor! the higher !o"r income to$a! the closer !o"

are to the lo#er en$ of that scale* -air eno"gh '"t let "s loo( at this

iss"e in a slightl! $i0erent fashion*

S"re #e co"l$ sit $o#n to a long $ra#n1o"t process in #hich #e loo( at

o"r e+penses an$ tr! to anticipate #hat the! #o"l$ 'e in retirement* 8"t

#h! 'otherF After all retirement is a long #a! o0 an$ #e ha)e no real

i$ea of #hat those e+penses #ill 'e then* Yo" $o tho"gh (no# that !o"

li)e comforta'l! to$a! 4#e hope5 an$ that it is "nli(el! !o" #ill 'e sa)ing

mone! or pa!ing ta+es 4"nless !o" choose to #or(5 after !o" retire*

Therefore e+cl"$ing those items from !o"r gross income !o" can come

"p #ith a n"m'er that7s fairl! close to #hat it #o"l$ ta(e to s"stain !o"r

c"rrent lifest!le* Simpl! p"t< In)estors #ant a retirement income that

e2"als their gross income to$a! less all sa)ings an$ all ta+es*

8"t !o" still ha)e to $eci$e #hat income !o" #ill nee$ in retirement to

li)e the #a! !o" #ant* Some people can get '! on m"ch less than the!"se no# #hile others ma! $eci$e the! #ant more* It7s a personal choice



for all of "s* So pic( a n"m'er* No# let "s tal( a'o"t inLation* :o#

m"ch #ill o"r retirement sa)ings ha)e to 'e in the !ear #e retire after it

has 'een a$,"ste$ for inLation o)er the !ears 'et#een no# an$ thenF

6hat sho"l$ that inLation rate 'e an!#a!F -or ho# man! !ears #ill #e

$ra# that incomeF Sho"l$ it (eep pace #ith inLation thro"gho"t those!earsF 6ill #e $ra# $o#n o"r starting retirement portfolio to s"pport o"r

income nee$s or ,"st li)e o0 the earnings #hile ne)er to"ching the

principalF If #e can ans#er those 2"estions then #e can $etermine the

starting portfolio #e nee$ at retirement to s"pport "s for the rest of o"r

li)es* To $o things right #e m"st ta(e a col$ har$ o',ecti)e loo( at o"r

$esire$ income s"',ect it to a rational choice of ass"mptions an$ ma(e

some $etaile$ calc"lations*

An American $iplomat once sai$< /8ehol$ the t"rtle* :e ma(es progress

onl! #hen he stic(s his nec( o"t/* :e (ne# that crac(s along the

si$e#al( #o"l$ trip "p the t"rtle from time to time* 8"t the one #ho &n$s

a comforta'le pace an$ (eeps his e!e on the horiJon #ill go places* In

o"r in)esting analog! those crac(s represent mar(et ris(* An$ in o"r

retirement planning #e recognise that #e7re going to ha)e to cross them

to get an!#here*

Mar(et ris( 4the chance !o" #ill lose mone!5 an$ re#ar$ 4the chance that

!o"r in)estments #ill hea$ s(!#ar$5 tra)el han$1in1han$ in the $ail!

mar(etplace* The greater the ris( the greater #ill 'e the potential ret"rnfor ta(ing that ris(* E2"all! tr"e is the potential for loss #hich 2"ite

han$il! e+plains #h! ta(ing that ris( sho"l$ pa! a greater re#ar$* 8! an$

large ho#e)er ris( is prett! m"ch a short1term phenomenon* That7s

partic"larl! tr"e in the share mar(et #hich man! regar$ as a 2"ite ris(!

in)estment*

6EA9T: :EA9T: AN. :A33INESS

Most of the 'ene&ts of s"ccessf"l in)esting are o')io"s< #hile !o"7re still

!o"ng eno"gh sports cars an$ fanc! holi$a!s% later on great healthcare

opport"nities* 8"t #hat a'o"t li)ing longerF There $oes seem to 'e a

positi)e correlation 'et#een 'eing a great in)estor an$ li)ing a long life*

#rving 7ahn 4'orn .ecem'er = =@5 is a )al"e in)estor #ith o)er DD

!ears in the '"siness* As chairman of ahn 8rothers Gro"p the &rm he

fo"n$e$ #ith his sons in =DB he still performs an acti)e role at the age

of =@*



Phil -isher 4Septem'er B =@D1 March == >@@5 $ie$ at the age of H*

8est (no#n as the a"thor of Common Stoc(s an$ Uncommon 3ro&t

-isher #as a pioneer of gro#th in)esting*

Sir 8ohn Templeton 4No)em'er > ==>1K"l! B >@@B5 the great

philanthropist $ie$ at * 8ritish1 'orn Templeton pioneere$ m"t"alf"n$s in the US*

Walter 8 S+hloss 4'orn ==H5 is ?* Initiall! hire$ as a r"nner on 6all

Street in =? he too( in)estment classes #ith 8en,amin Graham 'efore

going to #or( for the Graham1Ne#man 3artnership* In = he starte$

his o#n &rm #here he 'eat the S3 '! a !ear for almost &)e

$eca$es* Schloss stoppe$ acti)el! managing mone! in >@@?*

9harlie Munger at BH 4'orn =>5 is pro'a'l! 'est (no#n as Warren

'u:ett 3s si$e(ic(* M"nger still co1chairs 8er(shire :atha#a! 7s

meetings #ith 8"0ett #ho is himself D*

'en/amin &raham 4Ma! B =B1Septem'er >= =DH5 the father of

)al"e in)esting $ie$ at the age of B@* Kim Slater age$ B@ pro'a'l! 'est

(no#n for the "l" 3rinciple has ma$e se)eral fort"nes*

&eorge Soros 4age$ DB5 initiall! a nearl! penniless philosopher starte$

r"nning he$ge f"n$s in the late =H@s* To$a! his ==1'illion fort"ne

ma(es him the #orl$ 7s >th1richest man*

8"t is there an!thing to s"ggest that 'eing a s"ccessf"l in)estor 'rings

#ith it the a$$e$ 'ene&t of li)ing longerF There ma! 'e*-irstl! people #ho are happier an$ #hat co"l$ 'e more f"n than

s"ccee$ing in something !o" lo)e $oing ha)e 'een sho#n to li)e

healthier longer li)es* Secon$l! there 7s the mental stim"lation* 8! all

acco"nts 'rain training e+ercises slo# the $egeneration of the 'rain* An$

#hat co"l$ 'e more testing than tr!ing the impossi'le 1 consistentl!

'eating the mar(etsF Thir$l! there 7s e"stress* The Lipsi$e of $istress

e"stress is a form of positi)e stress often associate$ #ith achie)ing life

goals* -inall! lifelong e+pos"re to the stoc( mar(et roller coaster might

pro)i$e a form of resilience 1 'oth ph!sical an$ mental* There are other possi'le e+planations of co"rse* S"ccess in in)esting

co"l$ 'e a conse2"ence of a health! 'o$! an$ min$ rather than a

ca"se* S"ccessf"l in)estors can 'etter a0or$ to loo( after themsel)es*

Ol$ rich in)estors co"l$ 'e a re$ herring* Or it co"l$ simpl! 'e that it

ta(es a )er! long time to s"ccee$ in the mar(ets*

39AN O- ACTION



3lans are ,"st that 1 plans* As s"ch o"tsi$e inL"ences o)er #hich #e

ha)e a'sol"tel! no control can ca"se them to go astra!* 6hen that

happens #e m"st go 'ac( to the $ra#ing 'oar$ an$ repeat the steps to

get "s 'ac( on trac( #ith o"r &nancial o',ecti)es*

Yo"r plan might not fail* In fact it ma! #or( glorio"sl!* Are !o" thenhome freeF The s"rprising ans#er is no* All the information #e ha)e $ealt

#ith here is primaril! #ith mone! iss"es* The! reall! fail to a$$ress those

facets of retire$ life that ha)e little to $o #ith &nances* Therefore it is

important to reLect on the personal iss"es of retirement* Thin( a'o"t it*

Yo" (no# #hat the personal iss"es are* 6hen !o" no longer #or( !o"

ha)e loa$s of time to &ll* 6hen the golf game or &shing gets 'oring

#hat ta(es its placeF 6e ha)e man! social contacts $"ring o"r #or(ing

li)es #ith o"r co1#or(ers* 6ho ta(es their place to &ll o"r 'asic h"man

nee$s for companionship an$ social interactionF One thing7s certain< a

co"ple no matter ho# $e)ote$ to each other cannot spen$ > ho"rs per

$a! $a! in an$ $a! o"t in the e+cl"si)e compan! of one another* 8oth

nee$ o"tsi$e interests an$ companions*

There are other 2"alit!1of1life iss"es s"ch as<

:o"sing an$ its location%

3h!sical health maintenance%

A)aila'ilit! of comm"nit! ser)ices%

6or( 4)ol"nteer as #ell as compensate$5%

E$"cational interests an$

9eis"re p"rs"its*

These iss"es #ill $e&ne o"r life an$ o"r happiness in retirement* Mone!

is the tool that (eeps "s comforta'le '"t these are the factors that ma(e

"s #ho #e are* The! $etermine ho# #e li)e an$ react $"ring o"r

e+istence* One1thir$ or more of o"r li)es #ill 'e spent in retirement*

Therefore to en,o! those !ears #e m"st gi)e these /emotional/ largel!

non1&nancial factors more than passing consi$eration*

Retirement< it is that time of life at #hich #e ha)e gaine$ s"cient

e+perience to lose o"r ,o's* Or p"t another #a! #e #ant to amass

eno"gh reso"rces so that in retirement #e ma! sa! /I #a(e in the

morning #ith nothing to $o an$ '! 'e$time I onl! ha)e it half $one*/ 6e

prefer this $e&nition< /Retirement is 'eing in the &nancial position #here

!o" can comforta'l! li)e o0 !o"r in)estments an$ ha)e the free$om of

time to $o #hat !o" #ant to $o #ith #hoe)er !o" #ant to $o it #ith an$#hene)er !o" #ant to $o it/*



-INANCIA9 9ITERACY

)ou are best *uali+ed to look ater your o&n money-

Man! people &n$ in)esting in "nit tr"sts )er! attracti)e in that the!

re2"ire no tho"ght* Once !o"r stop1or$er is set "p !o" can more or lessforget a'o"t the #hole pro'lem* In America this t!pe of ser)ice is calle$

a /no1'rainer/* The philosoph! is similar to that s"ggeste$ '! the

enforce$ sa)ing of en$o#ment policies* Yo" are pa!ing someone else to

thin( for !o"* 3erhaps it is time to i$entif! a r"le of life one that !o"

act"all! (no# '"t perhaps ha)e ne)er p"t into #or$s< /Yo" can onl!

ma(e mone! from things that !o" "n$erstan$ #ell an$ #here !o" are

acti)el! in)ol)e$/* Consi$er !o"r profession* Yo" ma(e mone! there

'eca"se !o" reall! "n$erstan$ the #or( an$ !o" are acti)el! in)ol)e$ in

it e)er! $a!* In the same #a! !o" #ill ma(e mone! from the sharemar(et once !o" "n$erstan$ it an$ #hen !o" 'ecome in)ol)e$ 1 not

'efore* Co"l$ !o" achie)e s"ccess in !o"r career '! appointing someone

else to $o !o"r #or( #hile !o" !o"rself remaine$ "nin)ol)e$ an$

ignorantF There is no /free l"nch/ in this life* Yo" cannot e+pect to ma(e

mone! from something #hen !o" are 'oth passi)e an$ ignorant of it*

Invest +rst in your education, then in the share market'

Un$erstan$a'l! man! in)estors #ant to 'e in)ol)e$ in the process of

in)esting $irectl! in shares an$ learning more a'o"t the share mar(et*

8"t it $oes ta(e time an$ man! ho"rs of st"$! 'efore !o" #ill 'e a'le to

manage !o"r o#n portfolio* The simple message from this lesson is that

!o" cannot e+pect to ma(e mone! from !o"r in)estments "nless !o" are

prepare$ to ta(e personal responsi'ilit! for !o"r o#n &nancial a0airs*

This implies that<

Yo" nee$ to e$"cate !o"rself in the art of in)estment* Get as goo$

an e$"cation in in)estment as possi'le '! st"$!ing in)estment principles

s"ch as f"n$amental an$ technical anal!sis as #ell as portfolio ris(

management an$ rea$ing as m"ch &nancial articles as possi'le* Apart

from one 7s health the 'est in)estment an!one can ma(e is an

in)estment in oneself* In)esting on one share mar(et is )er! m"ch the

same as in)esting in an! other share mar(et in the #orl$ as the same

in)estment principles appl!* In)estment e$"cation is an in)estment that is

totall! transporta'le an$ can ne)er 'e ta(en a#a!*



It implies that one o'tains access to the information necessar! to

follo# #hat is happening on a $a!1to1$a! 'asis* :o#e)er the

$e)elopments in soft#are programming as #ell as the increase$ a'ilit! to

comm"nicate #ith the share mar(et ha)e ma$e this m"ch easier for the

pri)ate in)estor*

It f"rther implies that !o" nee$ to "n$erstan$ the f"n$amental

principles of &nancial statements an$ to ma(e those &nancial &g"res

meaningf"l to !o"rself* 9iterac! is the a'ilit! to rea$ an$ "n$erstan$

#or$s* 8"t #hat is meant '! &nancial literac!F It is the a'ilit! to rea$ the

&nancial reports of a '"siness an$ (no# #ith con&$ence #hat the

n"m'ers are telling !o" #here the! come from an$ #hat the! might hi$e*

It is also a'o"t (no#ing ho# n"m'ers ma! 'e manip"late$ to tell a stor!

that $i0ers from the &nancial realit! of the '"siness*

CONC9USION/W17W

CONC9USION

Mone! is 'o"n$ to pla! an important role in most people7s li)es #hether

the! li(e it or not* Retirement planning starts #ith the )er! &rst salar!

che2"e* 6hoe)er thin(s of retirement #hen their life is stretching o"t

ahea$ of themF 8"t the sooner one starts thin(ing a'o"t it the less

tra"matic the retirement e+perience #ill 'e in the long r"n* Yo"ng people

nee$ to 'e ta"ght ho# to get into the sa)ings ha'it as earl! as possi'le*Gone are the $a!s #hen one can form"late a &nancial strateg! an$

forget a'o"t it as mar(ets change almost $ail!* S"ccessf"l mone!

management nee$s contin"es "p$ating* -inancial planning is going to

re2"ire an almost fanatical o'session #ith &nancial economic an$

political ne#s* It might 'e simple '"t it is not going to 'e eas!*

9earn to ta(e calc"late$ ris(s* The !o"nger one is #hen a ris( 'ac(&res

the easier it #ill 'e to 'o"nce 'ac(* The ol$er one gets the har$er an$

less a$)isa'le it 'ecomes* Yo"ng people often ten$ to 'e i$ealistic a'o"t

mone!* 6hile there is nothing #rong #ith that a careless attit"$eto#ar$s mone! can ca"se a great $eal of har$ship later in life 2"ite

http://www.psgonline.co.za/plan/financial-planning.php






nee$lessl!* Accept that !o" are li)ing in a materialistic #orl$ '"t learn to

"se mone! to !o"r a$)antage* Applie$ correctl! it can enhance one7s

life* 8"t $o not let it $ominate !o"r life to the e+cl"sion of all other

en,o!ment* Control mone!% $o not let it control !o"* No# that is smart

mone! management

smart money management

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