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This lesson introduces long-term strategies used to build wealth. It is designed to improve your understanding of investing. Setting yourself on the path to financial freedom involves more than owning a parcel of shares or buying an investment property. To ensure financial security, your investments should be part of a comprehensive approach. Remember, it is your money to grow or lose. In a fast-changing world, the stakes are high for investors. Retirement fund legislation has undergone significant changes with virtually all pension funds now operating on the defined contributions basis and the portfolios are market related.

This structure puts the responsibility of choosing the "right" portfolios on the shoulders of the individual, who has either a very limited knowledge of the share market or none at all. Secondly, terms such as wealth management and margin lending are increasingly becoming a part of everyday language. The Internet has also altered the way people think about, and act on, investment strategies.

Of course, some things do not change: spreading risk across various asset classes is still the golden rule. The fact that you are reading this lesson is a good sign. It means that you are serious about getting your finances in order, or topping up your investment pool.

Taking time to understand investing will dramatically increase your chances of success. Please understand that we are wealth educators — NOT financial advisers or planners. Therefore we cannot and do not provide you with specific financial advice about investments. We believe that you are the best person to understand and decide how to manage your own financial affairs.

We believe that proper research, personal understanding and financial education are the foundations for achieving financial freedom. We encourage you to use the information you read and hear, to research various possibilities to discover what investment vehicles and business opportunities are right for you at this and future points in your life. There is perhaps no more important decision than to take charge of your own financial future. We live in a world of opportunity, and yet most people are buried in credit card and other debt.

We are surrounded by people who are getting rich, but most of us are running on the spot. If you can read this, you are literate and have a computer; then you are part of the "wired generation". You can become as financially independent as you wish to be. Mastering these principles will get you on the path to financial freedom faster. To maximise your wealth creation success we strongly recommend that you start with the first principle and work your way through the principles. Here are the Top 10 principles to wealth creation:.

First, you must establish your goals in writing. In , Napoleon Hill published the results of his study in his best-selling book Think and Grow Rich of America 's most successful men to find a formula for creating wealth. Successful wealth creators did! Goal setting sounds so simple you will be tempted to skip past here. Do not! Being focused is thereby a powerful wealth creation force that few people harness reducing their financial security and freedom. You accelerate your success when you learn from successful people.

Very few wealthy people set out with a goal to simply become wealthy. Money for money 's sake was not what got them started and not what kept them going. Achieving their driving goals, proving their ability to themselves, the love of achieving and improving their personal best was what mattered most. That is why goal setting is so important. Yet, so few people set goals for themselves.

What motivates you? Mostly likely it will not be reaching a certain Rand sum, but rather being able to afford certain choices in life, for example: taking a year off and travelling around the world, affording to start your own business, educate your children, give your kids a head start in life, etc. Make your goals specific and measurable so you can see your success and focus on achieving it.

Specific and measurable goals are much easier to break down into smaller, achievable components so that you can monitor your success. Goals should be challenging, but not unbelievable, just out of reach but not out of sight. For example, if you are currently 40 years of age and you want to save R1-million by the time you reach age 65, you can work out exactly how much money you need to save each month in order to reach that goal on time. Decide to be financially successful. This is different than wishing, hoping, wanting or even desiring to be rich. Make a commitment that this is going to happen!

Financial freedom is not an accident or matter of luck, and it usually requires some inconvenience. Have you decided to achieve this goal? Make a plan to achieve your goals. Having a clear, written plan helps an investor stay focused and on course. Many people are afraid to have a plan because they are not sure what they really want or are afraid things will change.

You can always change your plan, but put those changes in writing. That will make you think about them carefully and help you avoid impulse changes. A budget and a plan do not guarantee you success at creating wealth; however, going forward without one is planning to fail. Before you set your goals find out where you are standing now. Each investor 's strategy will differ depending on their objectives and age. Breaking down large goals into smaller, achievable components is the easiest way to make sure you stay on track. The secret to financial success is to put something aside for saving and investing before you spend what is left.

If you operate in reverse and save what is left, you will never have anything left to save and invest! You are a fool if you pay everyone but yourself. The secret to wealth creation is "part of all you earn is yours to keep". The part of your earnings that you pay yourself is the foundation of your wealth. Wealth is like a huge tree — it grows from a tiny seed. It takes a long time to grow to a great height, but provided it is watered and fertilised regularly, it will slowly, but surely grow at a faster and faster rate.

Our money tree grows from our savings and is fertilised by compound interest plus added savings, which causes fast growth. When it comes to creating wealth it is not what you earn, it is what you keep! There are many high-income earners with large salaries and even larger lifestyles who are a long way from being financially free. So how much can you afford to save and invest and still pay your bills? Create a budget and list your expenses and income and calculate your surplus income available to invest.

A budget is a set of dreams and aspirations. It is how you really, really want to use money to benefit your family and run your life. Budget to buy the things you really want, and to eliminate the "impulses", the toys that waste too much of our income. A budget is a map to your destination. Have one and use it! You can now treat your monthly surplus as a fixed expense so you give your dreams the priority they deserve.

Whilst doing your budget may seem boring it can be a very enlightening exercise. Once you have discovered where your money actually goes you are in a position to consciously decide where you WANT your money to go. Yes, this comes after making a budget, because when you begin getting control of your money rather than the other way around you have powerful new reasons to reduce expenses.

Most self-made millionaires live far below their means! You should too. Persons with large pensions and retirement annuities, or ones who are reducing their home loan quickly may not need to put much more away at all. They are already saving plenty now. A single person or a couple who both work and have no intention of having children are not likely to have the same costs as people with large families. Savings give you the power to multiply your income. Every Rand that you save is a slave that can work for you and every cent that it earns is another slave that can work for you, your family and your children 's children.

Financial success is still guaranteed. Most people have the expectation of working from the time they are 25 years old until at least 55 years old. For example: assuming a good education, many people would expect to make an average of R60 per year over that work life. Amazingly though, when done by the pay cheque, that is exactly what happens.

It is human nature to spend every scrap of our income, yet if we do not have it to spend we do not miss it. The only way to save is to have the necessary amount taken out of your pay by automatic deduction. You are more likely to be successful creating wealth when you automate your success using a 'system ' so you can forget about your investing and focus on what counts — living! The important thing is getting started right now! Whether you start off with R50 a month or R a month or R per month, for every month you delay, you are losing thousands of Rands.

A little money invested consistently over a long time makes a lot of money. At the end of 20 years, you will have paid in R24 , but you will have R52 in your account. What if instead you leave the money untouched for thirty years? Still investing R per month, the investment pool will have grown to over R Not bad. Let us see, we put aside R per month for months, which would be R But our R a month investments earned almost R86 , more than double the amount we put in! How much would be there if the program runs for 40 years? The investment pool is now up to R Let us see, we put aside R per month for months, which would be R48 But our R a month investments earned almost R !

If you start at 20, at 60 you can have that income. Starting at 30 would allow withdrawal at It is easy to see that the earlier the program is started, the earlier you can withdraw. But a program at 50 will still get you there at 80, particularly if you double the money to R Just R a month, beginning at 50, will give you almost R at age 80 when you would really need it.

Extreme Frugal Minimalists Plan to Retire by Age 35!

Most of us know that schools teach us nothing about money. If this one idea would be repeated over and over again from primary school through to high school until it became literally part of the students ' psyches, we will definitely have a much better economy! After eight years this fellow makes no more contributions. A second investor Investor B waits until age 26 eight years later. He also makes R2 contributions but he continues to do so faithfully until age 65 and gets the same return. Investor A ends up with more money than Investor B who contributed for the entire time.

Remember, Investor A only contributed R16 , whereas Investor contributed R80 , almost five times more!

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The compounding effect of the additional 8 years is phenomenal. It is never too early to start. Good investors know that the quicker you start the more you end up with. Wealth creation is like climbing a mountain. It is much easier to start earlier and take a longer but flatter path than to wait till the last moment and try to sprint up the cliff face. Most people have heard of compounding but do not really understand the power of compounding and if they did they would make entirely different financial decisions!

With compounding, money makes money, which in turn makes even more money. Instead of withdrawing dividends or interest made by your investments, you add it back into your investment. You start earning interest on your interest. The good news is that the longer you give that process to work, the faster it increases which is why time and compounding work together to increase your wealth dramatically.

It would be logical to think that at the end of the time that your friend would have twice what you have? It might be logical, but it would be incorrect. Your friend 's R10 would have grown to R , while your investment would have only grown to R66 In this case increasing the rate by two, increased the return by more than four times. Is that not amazing? This knowledge could be worth a lot of money. Imagine that you and your friend both kept your money deposited for a further five years so that the term became 25 years and not 20 years. Your investment would grow to R68 and your friend 's would have grown to R During those extra five years, the dual effect of the longer time and the higher rate would have enabled your friend to grow his money six times larger than yours.

The longer you stay invested the more dramatic growth you see as a result of giving your investment and compounding time to grow. As you can see compounding works best the more time you give it. Build your wealth faster and start today. Some people never get to hear about the importance of time and rate on their investments. Yet this is the foundation of all wealth creation. Most people have never studied finance or investing in school. Most people were never even taught to balance a cheque book! To master anything, you have to understand it. Study what successful people do.

Take classes or do a course. Master your relationship with money. Some of us spend for excitement, to show off, to prove we can. Some of us are addicted to spending, and some of us are just careless about it. Whatever your relationship with money, understand it and develop a relationship of respect, appreciation and gratitude. Use your money, rather than allowing it to run your life.

Understand and accept the cycles of money. The setbacks you may have today or next year will not keep you from financial freedom. If you hold on to your goals and dreams, you will get there. Most people fail to realise that in life, it is not how much money you make but rather how much money you keep. We have heard stories of lottery winners who are poor, then suddenly rich, then poor again. They win millions and are soon back to where they started.

If you want to become wealthy, you need to become financially literate. If you are going to build a house, the first thing you need to do is dig deep trenches and pour a strong foundation. Begin to learn more about successful investing. Most of us spend or speculate. Both are roads to disaster! Learn to invest in things you understand. Learn to invest cautiously, wisely, and regularly. The objective is not to "make a killing", but to get rich over time. Know and obey the distinction between gambling, and putting your money to work for you. Learn to recognise true wealth. Money itself will not make you financially free.

That comes as a result of only that powerful state of mind, which tells us that we are worth far more than our money. Successful wealth creators understand the nature of the investment markets and as a result choose more appropriate and successful strategies and investments.

The most common investment strategy mistakes result from investors not understanding risk and selecting strategies and investments that do not match their risk profile. Every single investment decision you ever make involves a balancing act between the return you want and the risk you are prepared to accept. We all want the highest return for the lowest risk. If only life worked that way! Well it does! When you understand all the risks, rather than focus on ONE type of risk you are more likely to select appropriate investments. When investing there are different types of risk.

The main risk we worry about is that the value of our investment will fall so low we will lose all our money. In focusing on that ONE risk we overlook the risk that most people face: not saving and investing sufficient money or having an appropriate investment strategy to maximise their wealth. Inaction and a poor investment strategy is a high-risk plan which will cost you many choices in life and greatly increase the risk that you will outlive your money. The risk of all investments change over time. Yet most people focus on the short-term risk only.

Let us look at this concept using cash and shares which are at the two ends of the risk spectrum. For example, cash is low risk in the short-term and high risk in the long run. Savings accounts generate low interest, are fully taxable and after adjustments for inflation and fees, will almost always guarantee a small to zero even NEGATIVE real return.

Which is why investing in cash is considered a high-risk strategy to fund long-term goals. Shares are high risk in the short-term, i. Yet history shows shares are low risk in the long-term, i. To be a successful investor you need to understand the nature of investments and how risk changes over time so that you select appropriate investments. Yes, shares fall in value and that is why you do not invest in them if you need the money in the short term.

However, they are lower risk than investing in cash when funding longer-term goals. Not saving enough or having an inappropriate investment strategy is the greatest risk most people need to be concerned about. When you invest in a strategy, or anything else for that matter, make sure you understand what you are investing in.

For example, do not invest in a strategy just because of its historic returns. Choose a strategy only when you understand what the strategy is about, why it has done well in the past, and how it fits into your plan. If something interests you that you do not understand, educate yourself.

If you do not have the time or cannot figure it out, then find something you do understand. There are plenty of opportunities out there. Pick one you can explain to your spouse. The reason the saying "Do not put all your eggs in one basket! Yet one of the most common mistakes made by investors is to have too much wealth in one asset or one asset type. Investment markets generate different rates of return over different time frames. It may be that this year's best performing investment becomes next year's worst — so you should never rely on immediate past performance as a guide for immediate future performance.

The best way to reduce the risk that market fluctuations can present is to invest in a number of different asset classes, countries and individual securities as possible, according to your risk profile. The key to successful investing is not following past returns. In his best-selling book, Rich Dad, Poor Dad , Robert Kiyosaki says that, "when it comes to financial literacy, the first thing you need to know is the difference between an asset and a liability".

He continues by saying that, "rich people buy assets, while the poor and middle class people acquire liabilities, but they think they are assets". He acknowledges that while most accountants and financial professionals will not agree with his definitions, "an asset is something that puts money in your pocket, while a liability is something that takes money out of your pocket". One of the main themes of Kiyosaki 's writing is that most people make the mistake of working harder instead of working smarter.

His recipe for greater wealth assumes the tax regime of the United States, which taxes income derived from work at higher levels than income derived from dividends or property rentals. However most 'developed ' countries, follow this model as governments wish to encourage investment in property, companies and interest bearing securities. More work attracts higher income tax, takes time and is hard work! Alternatively, the wealthy get their wealth to work for them. They invest in assets such as shares and property which will make them rich - and that are hard to spend on a whim!

Here is how to tell the difference between an asset and a liability. The diagrams below, reproduced from Rich Dad Poor Dad, shows the cash flow of an asset. The Income Statement measures income and expenses or money moving in and money moving out. The Balance Sheet, as the words imply are supposed to balance assets against liabilities. To keep it simple, these diagrams have been simplified as everyone still has living expenses, including the need for food, shelter and clothing.

The arrows in the diagrams represent the "cash flow. It is the story that counts. In financial reporting, reading numbers is looking for the plot, the story. It is the cash flow that tells the story. It is the story of how a person handles their money and what they do after they get the money in their hands. In most households, the financial story is a story of "work hard and you will get ahead". It is not because they do not make money but rather because they spend their lives buying liabilities instead of assets. There is also a flaw in the way many people think about money. They think that money will solve all th.

In fact, money may actually accelerate the problem. Think about a person who comes into a sudden windfall of cash such as winning the lottery.

Why Should You Plan for Your Retirement?

Very soon the situation returns to the same financial mess, if not worse than the mess they were in before they received the money. If your habit is to spend everything you get, it is most likely that an increase in cash will just result in an increase in spending. What is missing is not how to make extra money, but rather:. Most people cannot tell why they struggle financially because they do not understand cash flow.

They often work harder than they need to because they have learned how to work hard, but do not get ahead. They do not know how to have their money work for them. Most people pay more in taxes than for food, clothing and shelter combined! It is your largest expense! The poor and middle class do not realise how much they pay because it is deducted from their pay cheque. Tax is like growing old — we have to accept it. We all need to pay our fair share of tax, but voluntarily over-paying your tax minimises your wealth. However, there is much we can do to minimise its adverse effects on us.

The wealthy know there are legal and appropriate ways to shelter income, to invest in socially-responsible ways, and that the tax code encourages this. Learn the tax laws and use them for your benefit! Yes, it is the most boring reading you will ever do, and worth it! It is important to understand the difference between "tax avoidance" and "tax evasion. It is not too difficult, but it does take some knowledge, the aid of a good accountant or financial adviser, and the preparation of a good plan. On the other hand, tax evasion means falsifying records and using artificial devices to avoid paying your legal share of tax.

This is frowned upon by all good accountants and financial advisers and the very heavy penalties that are now imposed make cheating on your tax a highly dangerous pastime. Knowledge of the way tax works is vital for good money management. The value of each share and therefore the entire market is made by the buying and selling decisions of the millions of South Africans and International investors. When you guess the collective end result of the minds of all investors and make short-term decisions with long-term assets, that is behaviour akin to gambling.

The success of your investment portfolio will depend on the length of time you spend in the market, NOT on your ability to buy and sell based on short-term market fluctuations. Every time you buy or sell in the share market, you incur trading costs. And when you sell an investment that has performed well you lose part of your money to the taxman in the form of capital gains tax CGT. This means that every time you sell an investment that has increased in value the taxman takes part of your money, so you will have LESS money to invest next time. As tax is such a complicated area we recommend that you seek professional tax advice from an adviser.

They will recommend the appropriate tax structures suited to your personal, family and business circumstances. Successful investors know that the only way to ensure they achieve their personal financial goals is to regularly review and fine-tune their investments. Not having your investments regularly reviewed can cost you thousands of Rands in unnecessary taxation, poor investment performance and missed opportunities.

You can relax knowing that your investments are working hard. Car owners know the safety and enhanced performance benefits of having their car serviced on a regular basis. Few people spend that much time or money fine tuning their investment portfolio. If you did you would undoubtedly get better performance and a significant increase in your wealth, ensuring you arrive at the milestones of your planned financial life, safely and on time. Successful investors know that the only way to ensure they achieve their personal financial goals is to regularly review and fine tune their investments.

Preparing a financial plan, setting investment goals and assessing risk can be complicated, and it is an ongoing task. Set aside time to review your investment portfolio at least once every six months. Your investment review will provide you with the power and flexibility to make calculations and projections on proposed changes before they happen. Before you make a decision to change your investment portfolio you can see for yourself how your financial future might look.

I’m looking for myself.

There are three key areas where change will affect the performance and suitability of your current investment portfolio:. Be patient. If you have a long-term horizon, time is your ally. So use your time wisely. Do not rush into investments you do not understand out of some market-generated sense of urgency. The market is not going to disappear. Starting tomorrow or next week is fine. Especially, do not start investing before you have your plan in place.

If the market goes down, do not worry. Remember that your plan is for the long haul. Besides, you are investing to improve your future, not to meet the basic necessities of life. Finally, use your wealth wisely. Someone once said, "The reason most of us are not rich is that we would spend it all on ourselves.

Help others. Give a portion of your money to others. By releasing an anxious grasp on your money, you will open yourself to receive all that is meant to be yours. When you use money to make a difference, to have a positive impact, you get the chance to do more. Being greedy and selfish will not draw money to you. Investing in your community, will! From the cradle to the grave, we are presented with many a portrait of what financial success is. From the images of self-made millionaires to television commercials that show a retiree in his mid-thirties throwing darts to determine where he should take his next holiday, we are presented with illusion after illusion of financial independence.

Here is a simpler, more down to earth definition of financial success:. What it does do is state that financial success, like any other arena of success, is measured relative to an individual's happiness. You may have heard of many people with all the apparent trappings, a beautiful house, luxury cars and all the expensive toys, who are not happy and others who live from month to month earning modest salaries yet feeling confident, focused and in control.

When was the last time you were able to make a good and balanced decision when you were stressed out? Take your time. Really think about it Okay, we are guessing that you arrived at the same destination as we did- never! Stress leads to more stress, our psychological equivalent of chasing our own tails.

And adding to the problem, more and more of us are having our tails chased by the landlords, credit card companies, banks and people we owe. We invite you to embark on a journey with us to build the tools to end this circle of stress and frustration, and begin to walk a path based on education, financial goals and some work efforts. As schoolchildren we learn the fact that two points determine a line and that the shortest path between two points is a straight line. Place two dots anywhere on a page, lay a ruler down so you can see both those points, and then draw your line.

To start on our journey of financial success, we are going to assume that we have the common theme to our financial dreams as defined above- to be in control of our finances, not overcome with debt, and can rest easily at night without undue worry. Our dream represents a point out in the future at which we desire to arrive.

If we know where we want to go, we now need to know where we are before we can get there - our starting point! One amazing quality about these points on the path to our dreams is that as we could not draw a line without having the starting point as a reference, neither could we reach our dreams if we were not where we are today. You will not reach the end point, financial security, on the first step. Your job is to identify the first attainable point between you and your goal and then take that step. From this new point of accomplishment, not only will you be able to better see your goal, but you can also perceive how far you have come from your starting point.

We can look ahead and look back simultaneously and know where we are. This is going to be an exercise of self- awareness as well as the path to financial security. You have to be willing to look at your financial life objectively and clearly — to tell yourself the truth. It is always safer to know. We are really talking about your life. This is your life and you have to make your life fit for you, whether you are twenty-four or seventy four. You have to make your life work. We are constantly presented with images of success from the time we are children.

We are the Queens and Kings of the consumer economy. From being taught as children that if someone loves me they will buy me a gift, to the inundation of advertisements we see on TV, we are trained that we can buy our way to happiness. This process leads too many of us down a road of living hand to mouth, or even worse, into a circle of debt and unending stress. You can always find something else to chase your tail over!

Once you realise that you are giving away thousands of Rands in interest charges each year, then make a decision that "enough is enough". Decide to stop using your credit card, and avoid unnecessary credit purchases until all your debts excluding your home loan have been paid off. Here are four simple steps to achieving financial freedom. They earn a specific sum of money in their lifetime and like most people, they receive a salary cheque on a weekly or monthly basis. However, like most people, their lifetime earnings actually add up to three, four or five million Rands!

After taxes, they are free to choose what they want to do with the money. By dreaming of great wealth, many people believe that it will empower them with complete freedom of choice. What most people fail to realise is that the choices they are making right now are the keys to their empowerment. Every month, you decide to increase or lessen it.

There are two types of financial decisions: those that work for you and those that work against you. One of the very first questions you need to ask yourself is precisely how much does it cost you to borrow money? You will earn a fortune in your lifetime, but if you manage your personal finances like most people, you will share their fate. There is no grey area in your financial decisions: they are either working for you or working against you. Through lack of knowledge, most people make choices that work against them. South Africans are piling up credit card debt at a record rate.

Credit cards can be a legitimate payment system for responsible investors seeking rewards from loyalty schemes such as earning Voyager Miles. But too many people choose the wrong plastic. Are you a disciplined, punctual payer or one who relies on credit as a de facto loan? If you do a lot of travelling, choose a credit card with attractive loyalty structures and frequent flyer points. On the other hand, most department store cards have very high interest rates.

Cut them up. Before embarking on any investment strategy, clear the slate of debt. Pay off all your high-interest debts, such as credit cards, bank overdrafts or expensive lay-by items that are hanging over your head first. Here are some quick tips to cut debt: Spend less than you make i. The rule of thumb always is simple: If you cannot pay for it today, then you cannot afford it.

Differentiate between bad debt and reasonable debt. The former incurs high interest rates such as credit cards , while the latter refers to mortgage interest rates. Be sensible, while aggressively paying off bad debt and do not risk missing minimum payments on items such as your home loan mortgage. Hopefully, we have convinced you that debt is your enemy. Our next step is to start the process of eliminating debt.

Here is a step-by-step guide to a new future with far fewer problems. Record every expense you make, divide your spending into categories and record these weekly or monthly.

Begin to identify where economies can be made and finally recognise that the process of making economies will be beneficial to your wealth and self-image. Putting together a spending plan and a lean, efficient budget is going to get you nowhere if you are not committed to changing the behaviour that has got you into trouble in the first place.

Ask yourself why you need that R car now, the new pool, the overseas trip every year. Is it to make you happy or to keep up the appearance of a perceived affluence? Many people get stuck in the debt trap because they insist on living a life they believe they deserve. It does not work that way. You lead the life you can afford, or you will end up poorer, not richer, in the long run and all those people you were keeping up with will disappear over the horizon.

Stress relating to debt often stems from having only a vague idea of what you owe. When it is all written down on paper in front of you, it is out in the open and you can start to deal with it. Identifying the exact size of your debt will put you in the strongest possible position to start dealing with it.

From this, you will begin to save a fortune in lost opportunities. You have to face up to your debt. We know. This may not appear to be very pleasant, and that is why the majority of people do not. They just keep their heads down and push forward in the hope of someday getting out of trouble. The truth is that this is a form of denial where a lot of the deep-seated "pain" is generated. The only way to stop the "pain" is to stop worrying about the symptoms and start dealing with the cause. Listing your debt is very therapeutic as you may realise, for the first time in many years that you are starting to regain control.

There are several steps necessary to eliminating debt. Making a list of your debt position is one of your first steps towards achieving financial freedom. Make a commitment to get out of debt and get the problem out in the open, so that you can gain some perspective of the reasons why you are in debt. Enlist the support of your family or very close friends and enjoy the here and now … you are not starving or sleeping on the street yet.

Merrill Gardens | Senior Living

Develop a positive mental attitude by telling yourself, morning and evening, that you have your desired personal characteristics and that you will achieve your goals. Once you have begun to visualise a better life and to set specific goals, you must persist until you begin to see the results. When times are good and money is cheap, institutions fall over themselves to offer you credit. But beware that debt trap. Take for example, Mr Joe Bloggs … who thought he was living the good life with an above average job and excellent education. He had a number of sensible investments and drove a new BMW car.

Yet, for all his education, he had never learnt to manage his finances, so when the one pillar of his house teetered, his world started collapsing. The pillar was his job. When the information technology IT bubble burst, he was made redundant and suddenly, he found himself unable to service his accumulated debt, which included the car, the house, the ski-boat, the overdraft, the credit cards and much of the furnishings in the house.

Weeks turned into months without a job and soon even his practice of borrowing from Peter to pay Paul revolving credit? He simple stopped paying his bills. What happened next happened quickly. A default was recorded on his credit record, a payment profile that prevented him from qualifying for any normal bridging finance. Cut off from any form of credit at all, his funds dried up completely. A summons was issued and delivered to him, demanding that he pay back his debts, He could not. A judge then issued a court order and his creditors handed the case over to a collection agency that called, once again, to demand payment.

By now Mr Bloggs was frantic. He set up a meeting with his bank, but to his surprise they were not interested in helping him, despite a good year relationship. They informed him that because a judgement had been obtained against him, they could not help him. What they did not tell him was that the judgement entitled the bank to immediately add The following week, the local sheriff arrived with a collection notice and attached goods in Mr Blogg 's house.

He noticed that that they attaching far more than the amount he owned. They informed him that this was because his former possessions were all destined for an auction, where they would be sold for next to nothing and so the volume had to be the byword. The value of Joe Bloggs debt effectively became times its original amount.

But his woes were not over. Unfortunately, Joe Bloggs is not alone. South Africans, it seems, love to live rich, even if they are not. Living the champagne lifestyle on a beer income? We are an instant gratification nation. This is one of the reasons so many South Africans experience difficulty with debt. We do not recognise debt as debt, but often mistake it for necessity, even as an everyday expense.

One prudent bit of advice would be to see the bigger picture of your life and lifestyle. The first move in breaking out of the debt trap is take a step back and look at your life. This is often the most important part of getting out of debt. Then brutally and effectively assess your needs, expenses and income and then come up with a sustainable financial strategy for the real world.

Your real world! So, you should be paying off ALL of your debts as fast as possible! We advocate paying off credit cards, which should rather be called 'Debt Cards', before you start saving and investing on the share market. Furthermore, everyone should be aggressively paying off their home loan as fast as possible.

Of course, this statement would step on a toe or two Getting debt-free looks like a smart thing to do now that pensions have shrivelled and jobs are starting to disappear Better to own everything and then invest Our objective here is to make you aware of the road most travelled by self-made millionaires and help you change and improve your financial situation by understanding some of the 'secrets of the wealthy '.

When you purchase a television set or furniture item and finance it via your credit card or raise a bond to purchase a home, the interest rate quoted on your contract is known as the Annual Percentage Rate APR or "Flat" interest rate. Flat interest rates are what it would cost you to borrow the money for one year. In practice, most people will pay off loans over two, three, five or ten years and this causes your interest to compound.

So, in effect, you have paid an interest rate of Let us see what we would be paying effectively on interest rates over longer time periods. Interest Paid: Total amount of interest charges Amount Paid: The total of principal plus interest True Interest: True percentage cost of borrowing for more than one year. How does this affect you? You will earn a finite amount of money during your lifetime and the more you agree to give away, the less you have for the growth of your nest egg.

Credit cards can be very useful, if you pay off the full balance each month. However, very few people do just that. If you use credit cards, and do not pay off the full balance each month, you will be costing yourself a fortune in interest charges. The smaller your monthly payments, the more debt you roll forward, and the compounding effect on this increases your losses.

Paying interest over lengthy periods has the effect of compounding your losses. By regularly paying interest charges on your major or not so major purchases is like letting the bank use your money to achieve their financial goals, leaving you financially dependent for life. Furthermore, habitual borrowing, even in relatively small amounts, over a long period, will take away every spare Rand you earn.

Have you ever wondered why your credit card company is willing to accept such low monthly payments? Most people pay their monthly bills, so if you fall into the minimum payment trap you will pay back a lot more than you borrowed! Remember, you will make a finite amount of money in your lifetime, so you cannot afford to throw it away on interest charges! People who have achieved substantial wealth, through their own efforts, have largely avoided the high cost of borrowing by paying cash for the vast majority of their purchases and saving money that would otherwise have been paid in finance charges.

Looked at another way, the cost of borrowing money is not just the "effective" lost Rands you are paying, it is also the lost income you will never receive from those Rands. What, for most people, appears to be the small cost of borrowing is, in fact, an enormous lost opportunity. By lost opportunity, we mean:. Put another way, a lost opportunity is the possible benefit lost by taking a particular action.

Make sure to ask the lender what the annual percentage rate of the loan is, how much it will cost in total and whether it has to be secured on your home or other assets? Another question you should ask is what procedure will be followed if you are unable to meet the repayments. Communicate with your creditors and deal with secured debt first, then with unsecured arrears.

Deal with officials by name and be honest about your circumstances. Creditors do not like to spend time and money taking debtors to court if it can be avoided. Understand the consequences of ignoring court orders against you. This is a quick way to cancel unwanted debts, but take the time to learn how to sell. Sell only what you do not want or need. Secondly, identify your main strengths and weaknesses and try to find work which will best use your abilities and experience. You must make strenuous efforts to get extra income and part-time work is the first thing to look for.

If possible, get some training in a field that will enhance your market value, such as computing or bookkeeping. Let us say that by watching your spending habits, you are able to save R per month. We suggest that you first divert this money temporary towards debt elimination. Start by paying off the account with the least number of instalments outstanding.

In a very short time you will have done what most people think is almost impossible — apart from you bond, you will be debt-free! However, to stay that way, you will need to form the habit of paying cash for your consumer purchases. You will love the freedom of not having all those monthly bills to pay, and will be saving thousands of Rands in interest charges. The end of your debt is in sight and the best is yet to come. Learn how to save and invest Once you have eliminated your debt, get into the savings habit by putting away part of your income each month. Try to get into the habit of saving something from everything you earn.

Saving and investing money is like training for the Comrades Marathon. You cannot start training for the race a couple of weeks before the event. It takes months, if not years, to get a hundred percent fit for the race.


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The same goes for your money. The most successful savers are those people who have made saving a part of their life; it becomes part of their mind-set. By getting into the habit of saving something from everything you earn, you are starting to use the power of compound interest, also known as interest on interest. This is the secret of a successful savings plan. At heart we are all idealists and start saving, but somehow we fall into the trap of stopping to save.

First we skip a month, then the second month and so on until eventually we find we have stopped saving altogether. At the same time our spending pattern has changed and we spend all the money we earn, sometimes even more. This is commonly known as one of Parkinson 's Laws: Expenditure rises to meet income. It is sad but true that most people do not have the self-discipline to stick to their investment plan. There will always be a reason why we will start "next-week" or "next month" with a savings plan.

And pretty soon your savings plan will all be forgotten. Each year we delay starting a savings plan, we lose out on a great deal of money. It is not the interest on your money in year one of your savings plan that you lose; it is the cumulative effect of compound interest over many years that you lose. At age 65 it would have grown to no less that R36, 5 million! What would have happened had the same person waited until 30 to make the same investment? The money would have grown to only R5, 9 million.

This is a difference of nearly R30 million. It sure was an expensive delay. So what then is the solution? Make your savings plan as easy and as convenient as possible. Have the money deducted up-front from your salary, so you do not ever have the cash in your hand. Because then you might be tempted to spend it. Sign a debit order if you have a bank account. That way it becomes a way of life. And very soon you will forget that the money is being deducted from your salary. It is the habit of saving together with the growth on your money that builds wealth over time.

We defined financial success as the ability to "sleep comfortably at night without worrying how you are going to pay your bills tomorrow because you are aware and in control of you financial position. To quote from the book Illusions: The Adventures of a Reluctant Messiah by Richard Bach: "You are never given a wish without also being given the power to make it true. You may have to work for it, however. Let us now embark on building and utilising some simple tools that will help you progress towards financial success and security.

To many people accounting is a something of a weakness that they may want to strengthen. Like many of us, playing with numbers is not really our game and we spend most of our lives trying to avoid them. However, in business, as in the rest of life, everyone can do a job. Yet those people who understand the numbers that support the business, seem to be the most successful. With retirement within sight, it could be time to adjust your investment strategy, although this will depend on how you intend to access your pension. By moving into lower-risk assets such as cash and fixed interest, you will shelter your pension from any upsets on the stock market.

First, take a look at the figures. Armed with these figures, plus details of any other income you can expect in retirement — for example, work, buy-to-let rent or Isas — you can draw up a retirement budget. Mr Reading recommends using lifetime cash flow forecasting to model this. Two key decisions you will need to make will be how and when you plan to take your pension, as these decisions will affect your investment choices. While you may still be paying into your pension, most people will focus on taking an income from retirement savings.

IHT might also influence your income decisions. The new rules allow you to leave your pension IHT-free to anyone you like. If you can live off other income, it may be worth leaving your pension. Plans allow you to make provision for an inheritance. For example, you could earmark a percentage of the property value that will remain in your estate and only set up drawdown on the remainder. Tax relief on contributions make pensions an attractive way to save for retirement, but the benefits can be boosted even further using something called salary sacrifice.

Many employers will add in the national insurance contributions they save, which, at You do need to be careful about actively reducing your salary, as it can affect mortgage borrowing and benefits. Although Christine Massey pictured above , a customer engagement manager from Surrey, has no immediate plans to retire, reaching age 55 has made her focus much more on what she would like to do in retirement. Loans from family are now necessary to help young people get on the housing ladder, but millions of pensioners could end up poorer as a result.

Two in five employees over 45 are unaware of how much pension they will receive. After Tony Rowden and his wife, Beverly, retired they decided they wanted to travel round the world. Here, Tony explains how they are funding their travel plans out of their pension pots with a fixed-term annuity.