WEEKLY AND MONTHLY SAVING CHALLENGE

The four groups of our daily, weekly and monthly saving challenge that readers have joined as part of our Saving Community SA drive. I will quickly go through each of the four groups for readers to choose the suitable account for their savings and investment needs.

weekly and monthly saving challenge

Group One: Paying up Debt
If you are in this group, please go check our previous posts on paying debt up.  Dealing with debt is nice and short whilst the more practical one with examples is at If I had debt. These posts will help you structure your own journey out of debt. They are worth your time, OK I'm blowing my own horn. Our next challenge will be on paying mortgage/ homeloan in 10 years or less. It is not that hard. I have done it and so have some of my friends.

Group Two: Building an Emergency Fund
A lot of people dislike the term Emergency Fund. Please call it whatever you fancy. Just build the fund. For the emergency fund accounts again please check out the recent post on choosing the emergency fund account. If not sure of the best option, please enquire with your bank. As stated previously, I use a 24 hour notice account for this purpose. There is always an account suitable for this. Just avoid saving in an account that earns no interest. I have shown the interest that I earn in that particular post. Please check it out. A number of people keep R10,000 in that particular account. Some people keep more and some keep less. I need at least this amount because of my various financial commitments.
Remember that you may start building on this whilst you are paying your debt up. You might need to take part of the amount you are committing to fast tracking your debt payment and save it as your emergency fund.

Group Three: Other Savings
A job is such an enabling tool. I am reminded by this post that, when I had a job, I had a "car savings" account. This is where I saved to buy my next car. I also used my homeloan access bond to save for various projects. I would typically save for a down payment/ deposit on a property, a new car, children's school fees, vacations, renovations, etc. Now that we are all getting debt-free, we need this category of savings for us to get in the habit of saving before we spend.

This is a more medium term type of savings. It makes sense to use a higher interest earning account compared to the emergency fund account. For this particular group, you might need to consider the longer term notice accounts like 32 days notice or the highest interest money market account that your bank offers. I use the 32 days notice account. I keep about twice (or more) the emergency fund amount in this account. I prefer to keep most of my savings in the homeloan access bonds. The reason for this is that, my homeloans typically have a higher interest than the interest I earn from the savings accounts. It helps reduce the interest that I pay on my mortgage, but is also accessible if I happen to need funds. It is also not an easy decision for me to withdraw from an access bond. I have touched on this a little in the post: Best Savings Accounts.
Please choose wisely and ask questions where you need assistance. Use Facebook or the contact us page.

Group Four: Stocks, Shares or Exchange Traded Funds
I get a whole lot of emails on Exchange Traded Funds (ETFs). I am very passionate which attracts your amazing questions. I have a post that can assist readers understand this better. Please check out this post: Exchange Traded Funds. Take my word for it, they are the best money growing tool for new investors. My teenage son uses them and so does my husband. You might never use any other tool to invest in stocks or shares. I will write a post on how you register and where you can register.

All the best with the challenge. Please do not give up. Start slow and keep moving. For motivation please like us on Facebook, Twitter and/ or Instagram.

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TRADING IN STOCKS

A lot of us want to start investing in the stock exchange like the Johannesburg Stock Exchange (JSE) but are held back by fear. The thought can be quite overwhelming. No surprise there though; a whole lot of things look scary from the outside. Let us try to unpack the basics of trading in stocks, equities, shares or whatever else you prefer to refer to it as.

Trading in Stocks

I know, I'm back with examples that most educated people find undermining or patronising. Reason being that I am explaining to the reader who is like me when I started out. I was really that bad, and worse. This is what stock trading does and does not look like:

1. You start a restaurant that specialises in chicken meals. You need capital, some skills, time and the practical know how. The returns on your investment will be referred to as profits. This is a real brick and mortar physical business and obviously not any form of trading in stocks. 
2. The alternative is to buy the shares of an existing popular chicken restaurant, which makes you an owner or shareholder of a piece of that restaurant. You may be owning a tiny fraction of the percentage but who cares. Your concern is whether your fraction is growing, stagnant or shrinking. You also have a responsibility of reading and following the progress of the restaurant. When it does really well, part of the profits are shared among the shareholders including yourself. This share of profits that you get is referred to as a dividend. Dividends can be an amazing way of diversifying one's income. The higher the number of your shares, the higher your dividends. Also important to state is that, in an event that the company goes bankrupt, your loses are only on what you have invested and never on the assets that you own outside of your stocks. And this is trading in stocks or equities.

Companies that are publicly listed in the stock exchange do so to raise funds that are used in growing and in the running of those companies. Whilst as a shareholder you become a part owner of a particular company, dividends and share growth are never guaranteed. There is an element of risk, especially in the short term of the share ownership. In the longer term the performance of one's shares are more likely to yield higher returns. Pointing you to the name of this blog; safe investing is never a rushed process. It requires a lot of patience.

If you have been with me for a while you may have stumbled on the post on balancing your portfolio. Trading in stocks can can be one of the building blocks of a balanced portfolio. The main advantage of trading in equities is in owning a number of businesses without owning any of them. English can be fascinating, don't you think? Whilst shareholders don't wake up to go to the business they have invested in daily, share trading is not passive in any way. A more passive kind of investing in shares could be an investment through the Exchange Traded Funds (ETFs). Even that cannot be classified as passive because an investor is expected to make some effort in getting a deeper understanding of what is happening in the market. With share trading one needs to follow the company news and the economic or finance news daily. Markets can go crazy in a matter of days or hours. Despair not though, you will love following news when you start trading.

I would not see trading in stocks as a "get-rich-quick" scheme. It is possible to get lucky and make a lot of money or lose it in a short space of time. I so hope that your main goal is making some money constantly without a rush of a gambler. Like most investment vehicles, equities require some patience. One has to save and keep liquid money at hand to buy at the time they see as perfect. The timing is usually determined by the price changes. We buy at low rising prices and sell at high prices.

The trading happens at such a huge scale that it is easy to be ignorant to the fact that there is a willing buyer and willing seller setting the price on the market. The most popular form of trading is done electronically, of course. The stock price that one sees is the one determined primarily by the willingness of the millions of buyers and sellers to act, which is also referred to as demand and supply. A number of events in economies influence this demand and supply. As Economics101 states, high demand will lead to higher prices whilst the high supply reduces the stock prices. This is what is the basis for your trading decision making.

Before taking a decision to invest in a particular stock, you look into the ins and outs of that particular company. What the company does; how it operates; who runs the company; how profitable it is; how much it grew in the past; how is the competition; what is its strategy; etc. When a company gets some sort of negative reports like their product usage getting reduced because of competition, its demand will shrink and so will its share price. This is one of the reasons that the stock traders read and listen to business news. In reality they get paid for following business news. An investor cannot afford to be lazy to hunt for and consume information. And luckily for our generation, information is readily available in print, audio and on visual media. One does not even need to hire an expensive full-service brokerage to manage their trading activities. A lot of companies, including banks, offer cheaper DIY trading platforms.

The Bulls vs the Bears:

You have probably heard of the bull and the bear markets. A bear market is when a lot of the economic indicators are looking bad. This is like the recession market. During the bear market, one needs to time the buying and the selling to make some profits.
The bull market on the other hand is when the economy is looking good. It is an easier time for trading in stocks. An investor needs to have a strategy to deal with all kinds of markets. In the long run, markets have a way of evening the loses and gains out.

Research:

• Trading in stock involves brokerage fees which can be costly. Compare the costs and commissions of available trading platforms. I personally use one of the banks which I found not to have high costs.
• Nothing takes the place of thorough research and staying informed. Know your economy well enough to be able to pre-empt its changes. You have to know where you are going and how you plan to get there. You also need to look at the trends for a specific target sector and each target stock within the sector.
• If in doubt, start with the Exchange Traded Funds (ETFs) where a broker takes a whole lot of responsibility from you. You may take that time to learn the trading ropes from forums, books and some websites.
• Learn about the risks. And YES, it is possible to lose everything you have invested. It may not be likely if you are not trying hard to beat the market, but it is a possibility. Remember that this is not the gamble, its an investment. Starting with good quality growing companies could be a much better strategy. Whilst small caps can be lucrative, they carry a bit more risk.

Note:
I have been away for more than a month. After traveling for a few weeks I came back to my last renovation project. I was exhausted to the point that my doctor ordered me to get rest. As soon as my tenant got settled, I gave myself almost a full month rest from writing. I don't like that, but it was necessary.

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INVESTING IN SA SAVINGS BONDS

Yesterday we tried to explain what savings bonds are. With my imbalanced portfolio, I find investing in SA savings bonds quite appealing. And though I hate to admit it, I am fast approaching the "cautious investor" age group. Risk aversion will soon be the name of the game. We need to start shifting some funds to the bonds in a laddered investment fashion. Bond laddering is actually my next post, I have not forgotten. It could be the last post in this series, at least for now.

The one advantage of savings bonds is that of securing your capital. They provide a safer haven for investors who need to preserve their capital, as opposed to the risk they would be exposed to in the stock market. I also have to mention that exposure to risk is not always bad. Especially when you are young enough to recover funds lost in case of a mishap. You can do with a lot of stock trading in your 20s and 30s. As you go towards your 40s, a balanced portfolio starts becoming essential. You will always do well with stocks but of a lower percentage to the total portfolio as you grow older. Forget about how passionate you are about a certain form of investment and look at your portfolio from the outside. Thats rich coming from me, I know. (We are at the portfolio balancing stage people, please don't judge). No one type of investment is good enough to be a portfolio on its own.

I will eventually get to the how part of investing in SA savings bonds, I promise. Let me give a few facts and opinions on the subject first. Savings bonds are one of a few investment options that offer totally passive income. Even though they earn smaller returns than most investment vehicles, they are very unlikely to renege on their promise. If you collect your interest on a certain date, it is coming. Other forms of investment earnings are not as certain. Dividend declarations depend on the performance of a particular company and property rentals depend on the willingness of the tenants to pay. Savings bonds are also made attractive by the fact that they have no fees. Please refer to the previous post for basics on South African savings bonds.

Please keep in mind that we are only looking at SA government savings bonds and not covering the ones that are issued by corporates. 

Investing in SA Savings Bonds. How to:
All South African post offices have information and brochures about SA retail savings bonds. Grab a pamphlet with all necessary information and application forms from there. You may also visit their website at www.rsaretailbonds.gov.za or visit the National Treasury offices near you. You may also call them at 012 315 5888. I also read from their website that one can apply from any branch of Pick 'n Pay.

After applying for the bond and getting registered (issued with some investor number) you can also make the payment in the places mentioned above. Please remember to state your investor reference number correctly. It is too easy to make errors when filling forms and sometimes costly to rectify them. The minimum investment is currently at R1000 and the maximum at R5 Million.
   
Investing in SA Savings Bonds Indirectly
One can also invest in savings bonds exchange traded funds (ETFs). The bond ETFs invest in different government bonds on your behalf for a set period. I am not so keen on bond ETFs because I find the process of investing directly in the SA Retail Savings Bonds simple enough. If you are like me, you have probably invested in the ETFs in various sectors already. I also have a suspicion that an ETF will earn less than the direct bond investment, because of the middle man factor.

Please give your views and experiences on governments savings bonds if you do have some. I love hearing from you. Next week is the long awaited bond laddering post. Have a lovely weekend.

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DIVIDEND INVESTING IN SOUTH AFRICA

Question on Dividend Investing in South Africa.
I will soon give an update on what is happening in my life after being a housewife slash full time everything else but office work. I will be answering all outstanding questions tomorrow. Hope that will be possible as I will not be working. I am nicely well adjusted now too and I feel tired of having a job again. I will try not to be scarce anymore.

Reader's mail:

I read your article on this dividend investing. I have been looking at this also for a long time, also as a passive income option, but have not started for the following reason.
To make this worth your while, you really have to buy a large amount of dividend shares. What does your investigations tell you?

 Thanks for your question F. Indeed, one needs tons of high dividend shares to make a sizeable dividend income in South Africa. We just don't have high enough dividends. But what makes the whole idea difficult to work is the fact that, most high dividend stocks/ shares are low growth. The most I have done on dividends is R15,000 per year. And that was when I kept the focus on it. But my shares were limited in general.

We also have high dividend exchange traded funds (SatrixDivi), which is out performed on growth by other ETF sectors like Satrix40 over a period of 5 years.

You may see how modest the growth of the dividend investment compared to the top 40 stocks in satrix in the graph below.

I will look into practical calculations of when Dividend Investing in South Africa is worth it. It will obviously depend on the amount of money that one has in stocks.

Thanks again for your visit. For any questions, feel free to click on the contact us or Ask Us button above.

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DIVIDEND INVESTING

I invested the whole of yesterday into learning about dividend investing and the terminology. By the end of the day I felt like I know what I'm doing. As a way of background to this post; remember my previous post on my car fund. Its happening this month. And like I mentioned in that particular post, I planned to take an index fund route (Satrix Divi). Then the Mr, who himself uses Satrix, discouraged me. He thinks I should rather continue picking stocks.

I decided to have a 12 hour strategic session with myself, getting valuable education from online sources. If you haven't already picked this up from my blog, I am a bit OCPD. Maybe too OCPD. OCPD is Obsessive-Compulsive Personality Disorder, a condition in which a person is preoccupied with rules, orderliness, and control. I get obsessed with understanding issues and tend to over research to a point of confusion. Being in the dark can easily qualify to being my worst fear. This is how I ended up with qualifications in real estate instead of going ahead and buying and renting homes to tenants like every other small investor does. I decided to go to school in order to do it the "right" way. Halfway through my masters, I realised, there is no "right" way. How disappointing. At the end, here I am continuing with exactly what I was doing.

The one time I hired a financial planner, I was so into financial planning. I would have gone to get some qualification in it, if I were not already stuck in the studies related to my job at the time. And the time I was pregnant, wishing my gynaecologist can just let me operate this kinda computer monitors that show the baby scans. He didn't even think about it obviously. The idea was so stuck in my head that I wished to go do medicine. Unfortunately or fortunately for me, I had a baby on the way and no energy to go study full time for close to a decade. That saved me.

My point is that, even if I were to get a broker, I would still have to understand every decision he takes. Its like a disease. I have friends who hire property managers and forget about their investments for years. Not me. I question every decision, analyse all my properties, follow the trends and the laws related to my investments. I cant help myself. I asked my property manager if he looked at the latest amendments in the Sectional Title Act, once, and... you guessed right, he was not even aware of it. And he is a full time property manager with the majority of her units being under various Home Owners Associations. I don't get that.

Anyway, for yesterday, I had my sleeves folded up, digging for what I initially didn't know until I had the initial terms out of the way:

P/E = price earnings ratio
EPS = earnings per share
Div PS = dividends per share
Dividend Payout Ratio
Dividend Yield

Like most personal finance bloggers, my overall goal is to grow my passive income for our long term goal of early retirement and short term being buying my next car. These two goals shape my whole strategy towards dividend investing. After getting the understanding of the basic terminology I went ahead:

1. I searched for the high dividend yield stocks in the JSE. And yes, I already knew how that is calculated, even though I didn't need the skill. 
2. I had about 40 -50 stocks initially in my spreadsheet. I started to trim them according to my sectors of interest. As a South African, I am very keen on Telecommunications and Financials. And because I love shopping, consumer services got in the basket and some energy won't hurt too.
3. When all was nicely trimmed, I then needed to know which stock to start with. Dividend Yield was definitely not enough to trim some more. I started adding the PE Ratio as a deciding factor.
4. I later looked at the Dividend Payout Ratio. I read time and time again that a high payout ratio is not that cool. But I kinda went with it as I'm looking at huge companies anyway. And by this time I had convinced myself that all the companies left in the spreadsheet are great. All I wanted was an informed decision on the first stock without ending on the Eeny-Meeny-Miny-Moe roller coaster.
5. What I forgot is that, I only have R5000 per month to invest for my car fund experiment, which kinda dampens my spirits. I approached the family to take some funds from the our Emergency Fund as my energy boost. And they said YES. Bless them.

This all means that, by the end of October, I will be starting on this very important dividend investing project with a manageable amount of money. I cant wait. Any one on a similar journey already?

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WEALTH CREATION GETS MUCH EASIER

It's tough starting on a journey to create and build wealth when you have debt and lots of financial commitments. Even I get that. But with time, wealth creation gets much easier. That's the reason the first million rands is the most difficult to save/ invest/ grow. I will try to simplify what have been the reasons in my own journey:

Compound Interest
You probably know about the power of compound interest but for the benefit of someone who doesn't, I will still explain it here.
If you save R1000 at 10% per annum interest rate, it earns between R8.20 and R8.40 on the first month, depending on the number of days for that month. That R8.40 is added to the R1000 and earns a few cents extra the following month. In month 12 you earn about R9.30 from the same R1000 and it will have turned to more than R1100. You have done nothing to your R1000 remember, yet it managed to get itself an earning of R104 in that year. The most important factor is that, your interest earns interest too. My example amount may be too low to create excitement, I know.

Lets assume you save R1000 per month to make this more interesting. Off course your first month will earn the R8.20 in interest. Your 12th month will earn R106. See where I’m going with this right? And your invested R1000*12 (or R12000) ends up being R12,668. Earning itself R668 in 12 months.

Even more interesting would be if you had that R12000 upfront, the power of compound interest would work even harder in growing your money. You start off with R101 interest for the first month and end with R111. Not to mention that at the end your R12000 becomes R13254 over 12 months, earning you a whooping R1254. Everyone should be saving something. Why most people don't, beats me.

Now think about a scenario where our R12000 had an extra zero (R120 000), we would be talking an extra R12 548 in interest for the year. If it was more than a million rands, like R1 200 000, we are talking R125 475 in interest before tax for the year. More than R10,000 per month at 10%. Even if you can only spare R200 per month, it grows and faster with time.

Money Working for You
When you start investing your money, you work hard at saving every cent you can save. It's a struggle that needs tons of will power, personal finance self help material and great company. You even work hard at convincing your family to be supportive and more frugal. Over time, your money starts working harder than you do. See the examples above. You may end up retiring earlier, if you so wish and living on interest and dividends that your money is earning for you. Isn’t that what life is all about. A choice to do what you love doing. And working being for the love of working and not for money.

Money Growing Faster is Motivating

My Emergency Fund is with Nedbank Just Invest account. It earns some 4.65% interest per annum, thanks to low interest rates. Anyway, I grow my Emergency Fund with R5000 per month. It earns about R1200+ per month and I top that up with about R3800 to make it a round R5000 figure. I love working with multiples of five.
Anyway, the amount of money I add to top my EF up is getting smaller over time. That's because my interest itself is growing. That is a huge motivation. I look forward to topping it up, which makes it fun rather than a sacrifice.

Another example would be my mortgage. Initially, my interest was almost as high as my installment. An installment was like a drop in an ocean. When I started paying more and more to my home loan, the debt was going down faster, the interest was getting lower and the adrenaline drive was keeping me on track. I update my own spreadsheet every time I transfer extra into the bond. My spreadsheet looks better every month. Its motivating.

Experience
When I started my wealth building journey, I really didn't have a plan. I knew that I wanted to have money, and no debt. I had no idea how to do this right. There were no personal finance blogs for me to stalk. I made tons of mistakes. With my experience, I now take better decisions; I set goals; I keep track of all I own. I am more matured and wise when it comes to financial planning. I fully agree with this post's title: wealth creation gets much easier over time. Keep moving.

Remember to email me if you want to talk to me.

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A Car is Not an Investment

A Car is Not an Investment

We all know that a car is NOT an investment right! But why do we continue to treat it like one? I am learning to unlearn all I learnt about car ownership in the past. We were a one car family for a very long time. And most of my friends were bugging me about not owning my own wheels. Being in South Africa where everyone owns or at least wishes to own a car, and all. I wonder why friends never ask if I'm investing for retirement for a change. That would be a better concern.

Oh well, I managed to buy myself a car 5 years ago. I did so much research. I knew that I don't want a new car, I don't want a car that has covered a lot of mileage, I don't want a very old car. Most importantly, I didn't want a car INSTALLMENT. And all my wishes came true. There I was at the dealership of choice, picking and choosing. I ended up with a 1.8 litre car, 5000km mileage, same year model, and parted with R170,000. And I negotiated it down from R175,000. It gives me goosebumps just thinking about it. I was very proud of myself. Sacrifice does pay off.

Lets look at the figures. Based on the high interest rates at the time I would have paid just below R5000 per month over 5 years and just above R255,000 total payment over 5 years. Typing it alone sends chills down my spine. And indeed after 5 years I had an itch to buy another car. There's a whisper in my ear that says, "your car will start giving you problems". There was that whisper until I read an article about the guy who drove his car for 16 years. His car was bought used. I brushed the edge to splash on another car immediately. I guess I can keep pushing for another 5 years. This guy understood that a car is NOT an investment and focused on things that matter. In year 13, his car started giving problems. He fixed it for R7000 or so and continues with the ride. I know you think its too much, but he rightly justifies the cost by his lack of an installment. He just put aside R7000 per year for similar repairs going forward, saving the equivalent of the installment for another car. The most that he paid in repairs in the last 3 years of his car's life was R2800 per year. By the year 16 he bought himself another car, CASH, using the car fund that he opened for such.

Now back to me. This is my 5 years of driving my car, and my first year doing so without the warranty. That used to scare me. What is stopping me from starting a car fund, saving the R5000 - R7000 that I would pay for a car installment in that fund. I refuse to spend more than that on a car installment by the way. I can even invest that car fund whilst learning online investing. And since its a longer term project, I would reinvest all my dividends and do what is termed drip investing. It would be interesting to watch the money piling. YES, I am that positive. And I suspect that with a mileage of just above 100000km, I will have a great 5 years and another 100000km. Paying for service will be a pain, but a better pain compared to a car installment. I think.

How do you finance your cars? Do you save for a high deposit to reduce the monthly installment? Do you buy an older car for cash? Do you just do without a car, PERIOD?

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Beginners Guide To Investing

Now for an opinion only beginners guide to investing for inspiration:
I happened to bump into one of the big four banks’ pages on Facebook. They challenged their followers to inspire others on turning budgeting into a habit. Those who have succeeded in making bugeting a habit started sharing their tips. A young person started:

I don't have a car and haven't started paying for my new home loan. In preparation for these financial commitments I save 30% of my income equating to two monthly homeloan installments, I save another 30% which equals to a car installment, I invest 10% and live on the remaining 30% which covers my current living expenses.

Its public knowledge by now that I try to live below my means but this young man/ woman is a hero. I have never lived on 30% of my income. The best that I achieve is living on 45% in one given month every once in a while. A friend of mine told me that she lived on 25% of her income a few years back. I must say I was more than impressed. Like me, my friend loves money market investing and rental property.

What better way to test if you are ready for home ownership than saving an equivalence of the bond’s monthly installment. Even better, save two monthly installment per month like the guy in the forum does. This doesn’t require any training, just an old fashioned discipline. For a young person, I would have expected some stocks in the mix. Standard Bank used to offer some beginner stock market investing courses. That may help.

However, low risk-low return products usually offer safer investing opportunities that we are mostly comfortable with. In that case saving in money market accounts, investing in index funds, etc. are the way to go. Pay up your debts, cut back on your living expenses and start saving towards your goal. Your goal could be investing for retirement, buying a home, a vacation or children education. The only way is living below your means.

Our Beginners Guide To Investing Goes:

1. Monitor and reduce your monthly bills by monitoring your usage of electricity and water consumption
2. Draw your own personal finance plan. Start at your goal eg. Increasing passive income, buying a house, paying up your home...
3. Budget and stick to it. You may work on living on 50% of your income. Its quite possible if you are committed enough. If not, 80% can be low enough to give you a saving space. 
4. The 20% or 50% that you don’t use should be saved and invested in income earning products. This could be shares for dividends, banks' interest bearing accounts and unit trusts for interest, property for rental income, etc. Draw a plan on that too and make sure its diversified. 
5. Avoid excessive shopping and impulsive buying. Differentiate between needs and wants. Some things are just not necessary. Rephrased, MOST things we spend on are not necessary at all.

Its feels great not doing as the Joneses do. Its my life, not a contest. Financial freedom is worth depriving myself now so that I do as I please in future.

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Nedbank: the Best Bank in South Africa

Is Nedbank: the Best Bank in South Africa? Apparently YES, that according to the global banking publication, Euromoney International Finance Magazine. And they scooped an award at the 2012 Euromoney Awards for Excellence Dinner in London. The stamp on their victory for being named the South African Bank of the Year for the year 2011 by the Banker Magazine and Sustainable Bank of the Year for Middle East and Africa for 2012 by the Financial Times and International Finance Corporation. Well Done to them.

Praising South African banks' profits wears me down. It reminds me of the crazy bank charges and numerous penalties and high interest rates on debt, etc. But what can we do, the bank has done well regardless of how I feel. We can only make sure we get a piece of those profits through the JSE or investments and savings. The figures confirm that Nedbank did extremely well regardless of the global crisis.

“It was a good year for South Africa’s banks. Bad debts were largely already cleared; percentage profit growth at the big four banks was in the twenties.” said Clive Horwood, editor of Euromoney. We are off course not surprised. Nedbank reported a 26% growth and a 15.3% return on equity in 2011. Nedbank is further praised for investing in its staff. Thats great, I think.

The chief executive, Mike Brown must have been over the moon when he said, "We pride ourselves on being a world-class financial institution and are deeply honoured by this award... We continue on our journey to become a great place to work, a great place to bank and a great place to invest.” *touching*.

I guess you and me don’t care about Nedbank being named the Best Bank in South Africa or their profits, losses and amazing profits. What we want to know is what this means to us.
What we should be doing is investing in the banks to get back our charges and some more. Crying about it will never help. Like I always mention, my Nedbank Just Invest gives me great interest. My small Nedbank shares give me great dividends. You should be investing where your money is taken too.

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Wealth is about DISCIPLINE

My monthly personal budget and spending report

I cannot emphasize the title of this post more. Building WEALTH is about DISCIPLINE and lots of research. You will need 80% of discipline and 20% of income, knowledge and everything else to grow your wealth.

I like interacting with friends and family members struggling with paying up their debts or starting up just after university. You may never find a secret to making it in financial independence in a beginner's investing manual or book or course. It’s the old fashion willpower and discipline. Should you decide to pay yourself first, stick to it whole heartedly. Do it even when it hurts with your eye only on the goal. Pay up that debt and do so quickly. Its never easy to part with money, paying for what you don’t own or appreciate anymore. But its the only way.

It takes me a few months to get a routine in investing or savings going. The excel files that I draw help a lot. I look at various scenarios. Interest rates, amount to invest, monthly transfers to the account, etc. I do projected interest gains for a number of years, imagine that growth and compare with a few saving tools that I consider to be the best safe investing options. I keep my excel files and keep looking how far I am to my goal. My goal is usually getting monthly interest of a certain amount. I am currently using my Nedbank JustInvest 5.15% interest investment account with a goal of getting R1900 in interest. This is because, in the 2012/2013 budget speech, National Treasury increased the annual exemption on interest earned for individuals younger than 65 years from R22 300 to R22 800. This is exactly R1900 per month. In my Nedbank JustInvest case, I will need about R430 000 at 5.15% to get approximately R1900. That’s a lot of money to be left in the money market, I guess.

This discipline applies in growing dividends too. My main goal is to raise my monthly income through dividends, interest and rental properties. My stocks are about dividend income whilst my husband is investing in index funds and never takes his dividends. I buy stocks once in a while. I need to establish a good routine on that too. I must say though, stocks intimidate me. I always invest what I can risk losing in the JSE. I will write about my own version of “basics of stock market investing” later. I am no expert but what I do is working for me. Just do your own research and adjustments. I can’t offer perfect stock investing advice, but what I have done and how I think it met my safe investment needs.

Now that I have changed my mind and am paying off my homeloan, I am applying a lot of discipline to that too. I set a target for myself and I will make it. I divide my leftover money in my account to accelerate my homeloan payment and a little is for my Emergency fund. I feel great when I put money towards my investments and homeloan before I go get yet another watch, bag or shoe. And yes, I still like shopping. I control it and I do it very last. Winning this game of wealth is about discipline. Keep at it with all you have!

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Pay yourself First

Pay yourself First

Yes, we've heard the phrase over and over again, "pay yourself first". I have lived by this phrase, then I detoured from it and got back to it several times. For me at least, this is the only way. To make me feel better about "sacrificing" that first sum of my cash, I try to get the relatively safe investing tools like my Nedbank JustInvest account. In my previous post I compared this account with the Money Market accounts in South Africa, if you are interested. This serves as my emergency fund (EF). When you are a small property investor like me, you need an emergency fund account. Actually, when you are a home owner, you need that more than you probably think.

In the past, when I was new in the job market and even newer in property investing, buying every book I can get my hands on with some kind of education in real estate investing, my saving strategy was very simple. All I wanted was to pay off my apartment. I sacrificed more than half of my salary for that and it helped. The way I did this was to get my salary, transfer part of the salary that I wanted to save into my home loan account on the very payday. Off course it has to be on the same day because the interest is charged daily. I just had to save that R50. And then I waited a few days and called my my bank to get a statement because I couldn't link this home loan account to my internet banking. I was almost obsessed with the statement and it helped. I saw how quick the debt was dying and that gave me some sort of adrenaline drive. Even though I've always loved a nice pair of shoes and a handbag, they just had to be on sale to deserve my money. I would see that R500 reducing my debt further. I paid myself first and then whatever that was left, paid me some more. Unfortunately, there was rarely cash left.

Fast forward, I paid up my flat in just less than 4 years. Yipeeeee!!! I remember the last few months seeing a balance below R20,000 and being overjoyed. The feeling of victory that I am soon an owner of a paid up property kept me wanting to pay more and more. Fast forwarding to a few years ago, a few properties paid up, more shoes, more bags, a better car, a bigger house, a family, woolies food, health shops, spa treatments, need I say more. Living a little is an understatement. I lived a lot. I stopped living by the very principle that took me where I was....pay yourself first. I paid me last or almost never. What helped was that I always had multiple homeloan accounts to pay, which served as my  only way of paying myself. I even think thats the reason I always had a homeloan that I resisted to pay up. This is until the hubby convinced me to pay up our second homeloan last year. What a sigh of relief I had after that. I then went back to my old ways of staying with my debt until last month. I decided to pay off my only homeloan, which will take some doing. Its a sizeable amount and needs hard work in the savings front.I feel I am back in the adrenaline drive days and its exciting.

I am now back to paying myself first through my EF and paying off my homeloan. I consider paying off my homeloan some sort of a safe investing tool. I know it is not fool proof but it could be safer than investing in index funds and even safer than buying individual shares. Don't get me wrong, I buy shares knowing that its a higher risk form of investment, I try to read and listen to any sound stock investing advice. But I am a typical beginner, still harnessing books, blogs and online resources on basics of stock market investing. I have a feeling that I'm done with property investing though. I am looking at investing in REITs (Real Estate Investment Trust) and retail bonds. All I can  say is, don't take my word for it. I may be buying a townhouse soon. I am so unreliable.

Off course, if you have debt, paying it will be a form of you paying yourself first. Keep at it and celebrate with every R1000 that goes down. Its very rewarding being debt free.

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Monthly Spending and Budget Report-May 2012

My very first monthly spending and budget report for 2012. Its so embarrassing that I never reported on this for four months. The result of that was me losing my focus and off course I'm back to my straight and narrow. In the news this past three months, we made an offer on an amazing commercial property and the deal fell apart. Then we decided to upgrade on our home, and changed our minds. Here we are now, happy with our smaller, cheaper to maintain home. Our son wanted a swimming pool badly but he'll live.

My May 2012 monthly spending and budget report:

INCOME	% OF TOTAL	NOTES
Real Estate	59%	I am hoping to reduce this by increasing other streams of income.
Hubby Allowance	31%	He is so cute.
Once off	9%	Money my sister used for her emergency.
Online	0%	I keep a hold on my online income until its reasonable. In June I am getting the online income for a few months. I will only record then.
Dividends	0%	2012 will be spent growing this and other interest.

My online income is growing at a healthy rate. I'm also pleased that when my sister had an emergency, I was able to be a lender of an interest free loan. She gave it back in a month. Its great having a family. You get these interest free loans. She was very grateful, making this loan so very worthwhile.

ITEM	%OF INCOME	NOTES
Real Estate	18.9%	1 mortgage & taxes/rates.
RA & Unit Trusts	6.6%	Fixed
Loan to Business	0%
Internet/ Phones	1.5%	I manage to keep this very low.
Consumer	9.9%	Groceries, personal care and all that jazz.
Withdrawals&Fees	0.4%	This was a cash month. I withdrew cash twice.
Giving	12.4%	Back down.
To Invest	50.4%	So proud of me! And indeed I started my emergency fund which will soon be spilling over to my CD which we are laddering. From the unfortunate deal that didn't work well.

I worked on an exciting plan of laddering a CD portfolio. I had some money which would be part of the down payment to the commercial property. I changed my mind on laddering this and dividing it into five pieces. My thinking is having it in my special savings account which will also serve as our emergency fund.  I got a great 5.15% interest. However, if this goes to retail bonds, I can get up to 9% for a 5 year investment. I am just growing this  amount so I can take anything between R100,000 and R200,000 by the end 2013 to retail bonds for 5 years, then another one in 2013, and another in 2014. This will leave me with 5 pieces for a period of 5 years each. The question is, will I be able to save that much in a year, going forward. I just have to commit to it.

I had a vacant property for 2 months. This the first for me in 10 years. Its a very horrible experience. However, I hated the problems with the previous tenant even more. We signed an agreement for her to pay me what she owes in affordable payments over 6 months. I'm not holding my breath to receive all of it but I'm very glad the whole tenant-landlord relationship is over. I gave that unit to a real estate managing company. I've had enough with it. Its time I realize I am a real estate investor and not a property manager.

Keep cool those in warm countries and warm to those in cold countries. I will try the weekly blogging thingy. I wish myself luck with that.

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Rental Income vs Capital Growth

Apartment Rental Income vs Capital Growth

Its Christmas almost yet I am here thinking of whether I should choose a higher rental income vs capital growth as a strategy for 2012. When you are in business, there is just no holiday season in your diary.

My strategy was to buy apartments in the apartment blocks where I own individual units. That way I can someday own the whole block of apartments. Sounds like a long shot, doesn't it? Anything is possible.

The apartments are close to the city center. The capital growth is not great but the return on investment is amazing when you rent the places out. The demand is great. I haven't had a vacancy since 2002 in one small apartment. All in all its a "buy-to-let" dream location. I own 3 apartments in the area to show for my confidence. Well, after a long inner planning session, I decided to go buy a few units in the suburbs to balance my real estate portfolio. In the suburbs the returns are lower but capital growth is great. I do have a feeling that I will want to sell some of my properties in a few years.

The Decision on Rental Income vs Capital Growth
My decision should be based on what I will do with the property. If I buy for speculation reasons, which happens to be a possibility, i would rather buy in the suburbs. If I buy for long term rental, I should go to the city. The problem is that I don't have an idea what I will do with the properties I want to buy in a few years time.

Whilst in the dilemma, a nice lady who lives in her apartment close to one of my apartments send me an email.
"Hi REG

I have decided to sell my apartment at a  20% discount. The agent fees will be extra if sold by an estate agent. I am putting my apartment on the market the first week of January.

Happy Xmas"

I was interested in buying this apartment even when it was 100% cost. At 80%, I am super interested but I havent decided whether I want a rental income boost or a quicker net worth growth in a few years. The properties closer to the city are relatively old and not so safe. The demand for rental units is high, but who knows what may happen in a few years. Suburbs offer stability and peace. All owners are usually investors who take great care of their investments. Which is which?

Lord please help me take a decision.

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Buying Shares in an Unlisted Company

I have just started drawing my "well thought" strategy on buying stocks and bonds. All I have been doing was what I really cant explain. I do have some stocks, which earn me a few dollars in dividends. With the end of the month fast approaching and me being so nervous about implementing my strategy. Then boom! someone I respect so much sends me an email, presenting an opportunity for me to buy shares from her unlisted company. 

I was excited but that seemed like I am back to where I was before drawing my strategy. More research, more strategies, etc. Her company is also in real estate. I believe in her business concept, I like her model but I needed to do a lot of thinking and hubby chat. This is about $60,000 of my family savings we are talking about. Let me summarize her initial email.

"I was asked today by *company A* if I would consider selling shares in my company. My first instinct was YES, but immediately thought…. With WHOM? Please let me know if you are ever interested to take up shares in my company..." 

 I was so humbled that this experienced business person thought of me when approached by someone I imagined to be a bigger business person than myself. I then thought too fast, like I always do when overly excited. I called the hubby---- its great being married, it kind of cools you down a bit and gives the well needed time lag. And the fact that my hubby is not as impulsive and more on the averse side of risk helps. This time he too was excited. More excited for me to get some recognition and first option to buy. 

A few emails to and fro later, I got some details on what the business is doing. This was still exciting but the costs were changing per email. I think its just inaccuracies with calculating. I do trust this possible business partner, but I think I need to think some more. I told the possible partner that I am definitely interested. I later tried to calm myself so I can think netter. All the risks involved in a transaction of this nature came tumbling down. All I could think of was:

• Its still bad economic times, how well can this company be doing? Aren't they trying to just raise cash because the company is in a tight financial corner?;
• Are the shares really worth what is asked from me? Would I be able to get the same dollar's worth or more, should I want to sell?;
• These shares are definitely illiquid. When I decided to get more stocks, I wanted more liquid assets and a more diversified portfolio. Am I not going backwards by tying my money on a business that I hope will do well, without an easy way out?;
• How much power/ influence will these shares give to me? I would love to be more hands on and involved in the decision making. The possible partner loves my ideas in general, but that doesn't mean that I will automatically have a huge say in what goes. My shares are a tiny percentage.;
• Is the information on performance of the company that I will get not biased?;
• Am I not moving backwards and dumping my beautiful plan of acquiring listed shares in and outside the country?

Why is it so difficult to take a decision. The thought of investing in the company is exciting and the risk so overwhelming. Its only two days before the implementation of my new "before this incidence" strategy and I think I should continue with it. I should probably take some time to think about this.

Would you consider buying shares in an unlisted company?

 

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Rocky Start at Stocks, Bonds and Funds

I am trying to get my claws deep in the alternative forms of investment. I know I actually waste a lot of time on the education part of everything, but it always pays off.  I think. For a long time, the words shares, stocks, funds, etc, scared me. That's the main reason I started to even consider them as an investment alternative, late in my life.

My very first glimpse at the stocks was when  was 28 or 29, just married and living in a 2 bedroom apartment with my new hubby. I remember how excited he was to start trading in the stock exchange when a guy who called and came for a visit to explain this to us. The guy was actually selling a software which made it "too easy" to be rich. The software does everything and actually indicates the perfect time for you to buy or sell shares. It was just a "miracle". Being gullible and naive, I never stopped and wondered why the guy is in my apartment in the early hours of the evening, teaching us how some software works, instead of using it in the comfort of his mansion, making money.

Hubby was sold and fascinated by this. I was too, but I was not about to play the "scary game", not unless I get some training. I know, I am stiff like that. I had my first apartment making me a comfortable rent check every month and a job that was taking me nowhere slowly financially. In all, this was a perfect solution for our young family to start on a journey to wealth. The software was not cheap, but it was worth it....so we thought at the time.

The Rocky Start
None of us understood the stocks well enough to actually be confident enough to let money go. We actually didnt have enough of money to be investing. I was pregnant and all I was thinking of, was having a house with the garden in the suburbs to be able to raise my child. And yes, it felt wrong to raise a child in that apartment, without a garden for my son to play. I look back and shake my head. We did buy the house with a huge garden, which was a pain to maintain. *side-note* But at the end we got good profits from the sale of the house when we moved to the smaller home.

The project failed but we still had to pay the software guys for 3 years, monthly. Can you imagine the pain. But we did learn a lesson. So bad learning from your mistake. By this time I knew that I have to give the playing in the stock exchange to experts.

My Tiny Stocks Portfolio
I then started buying into funds in 2005. Off course I wanted nothing to do with the day-to-day business of buying and selling shares. Actually it was so bad that, I have various accounts handled by various groups of financial gurus, but I never even bothered to check how the individual shares performed. I was not interested and it was not necessary because I was paying people to do it...so ignorant.

This blog is my personal finance conscience in black and white. The moment I started it, I woke up to my over-spending and relaxed investing attitude. I spent the whole decade focusing on my real estate investments. I am thrilled that it pays my bills, but I think I am ready for more.

My new "Stocks, Bonds and Funds"  Plan goes:
The plan for the emergency fund goes out the window... sort of. I reckon I have access to enough "cheap cash", which can serve as an emergency fund. I love liquidity but not that much. My access bond is great for that. **Access bond is a type of mortgage that permits borrowers to take out loans against extra capital paid into the account, home-loan interest rates being lower than interest rates on other forms of credit.** SO we have overpaid on our one mortgage so that we save on the interest, whilst the extra money is also available should we need it. That's perfect as a cushion for the property emergency fund. That's a lot more than I'll ever need at one time. So emergency fund, sorted.

The $300+ that I was planning to use to build the emergency fund will then be redirected to the stocks, bonds, funds, and whatever clever people call them. Watch me fly now and growing that net worth from October 1. No regrets for taking this long.

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Things to Consider When Buying a Rental Property

I keep a list of things to consider when buying a rental property in my head, before my emotions take over. I have been doing this (though on a small scale) for 10 years but I still get entangled in emotions about what property I buy. You would think I will personally live in the property. In the midst of all those emotions, I tend to forget that a prospective tenant has a mind of his/her own. They may love walls whilst I love to have open spaces. Here is a list that can also help you before you invest:

You are in this for money.  That's the reason you are referred to as an investor. Look at the numbers carefully. How much rental do you want to get? That should be the starting point for any real estate investor. Make some assumptions to get to what you are prepared to invest to get the returns you want. You will need to do some research on where you can invest to improve your chances of getting the rental amount you want.

 Location. Like the agents state, good location will most probably get you the returns you want. Not only that, your location has to be attractive to your target tenant. I always target the young professionals (graduates), or young moms with school age kids. I will invest in a property close to schools, shopping and close to the city. I am not interested to deal with students even though I have friends who are very successful in that market. My take is - a single mom will want to create more stability for her child and not move places as often as a single girl. Being close to schools makes it even tougher for a parent to change locations. I also try to be centrally located, close to shopping places and other community areas like churches. Great location sells the property.

Building Age. If you have a good handyman/ constructor, you may buy an older property. It comes with a baggage of maintenance. The pipes may be tired, structure needing some anti-ageing or face lifts, etc. The are investors who can work with an oldie and give it a curb appeal like it was a new house. If you are not a typical DIYer, or know none, you may have to consider a newer building. Tenants love what is modern and classy. It is relatively easy to get the rental you want with a modern building.

Size.
Remember that you already have a target tenant. Young graduates will most likely be looking for a studio apartment, a mom looking for a second bedroom, a married couple may be looking at a home office, etc. The size of your property also determines how much rent you can charge. I have tried getting bigger properties for rental, which backfired badly. My target market and location is really not for mansions. The bigger houses have not been a success in my case. I stick to 2 to 3 bedrooms.

 Cost of Being a Landlord.  
Yes, it comes with costs. Financially, its never too early too investigate the expenses in the area of choice. Take a good look at the expected annual property taxes, insurance, property maintenance and unexpected repairs. I wrote about my emergency fund, or lack thereof here. A good landlord (not me) has one for some of those irritating things that break unexpectedly. I bought a new water heater, dealt with plumbing that was out of hand and a broken window. It never ends, I know. 
There are homeowner association and property management fees too (if you appoint one). These do add up. The other costs are actually difficult to manage - stress. Dealing with tenants is very stressful. The risk of them not paying on time, or just not paying period, damaging your property, etc can take its toll on your emotional health. Be firm but fair and empathetic. 

That's my list of things to consider when buying a rental property. There are a lot more things to consider, like the risk of owning a property. I assume you have gone past that already and are now shopping around. For me, this is what I love. I am happy that it has returns.

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