Start at the beginning -- where you are now
The first step is to evaluate your present situation. To do this, make a list. Firstly, list your sources of income, your job, and any other possible sources of income (second jobs, income from direct marketing, interest on investments) including the amounts. Now make a list of your spending. The first part of the list is your necessities: the weekly or monthly costs that you incur on a regular basis (ie. rent or mortgage payment, water, telephone, etc). On the next part of the list, include the non-essentials; look at your last two or three months of your banks statements, or receipts collected, and list where you have been spending your disposable income, including what you spent it on and how much.
Once this information is established, you can take the next, vital step, to build a budget. There are a few things that are essential to planning for a sound future. This is what I like to call the "must have's" because these are the elements that are absolutely essential to financial security:
- Budget -- live within your means
- Savings -- pay yourself first
- Emergency Fund
-Your nest egg
- Plan for your Future
- Financial Planner
Budget
Use these lists of income and expenditures to create a budget. Take a clean sheet of paper and divided it into three columns: Income/Expense, Credit (+) and Debit (-). In the first column, listed source(s) of income and then enter the monthly amounts you bring home in the credit column. Then list the essentials like rent or mortgage payment and utilities, groceries. Entered the average amount you spend on each in the Debit column. To do this, go back three or four months of bills, and add them up, then divide by the number of months (3 or 4) to get the average. For weekly payments, multiply the number by four to get a monthly amount. Then look at your final list of other spending you have recorded over the last few months, and averaged out what you spent on gifts, clothes, entertainment, and other non-essentials.
Once this task had been completed, add up the credit column, and then total the debit column. If the total in your credit column was more than that in your debit column, you are living within your means and will be able to structure a savings plan to plan for the future and for your retirement. If the credit column is lower than your debit column, then you are living beyond your means, and you are spending more than you're making. It's time to make some adjustments to your spending, and look for ways to make reductions in the non-essentials list in order to balance those numbers.
Savings
An essential step to budgeting and planning for the future is savings. You should be squirreling away a portion of your take-home pay into savings. The popular suggested amount is ten per cent. You should put that as your first expense on your essential list, ideally 10% but as much as you can muster. This is how you will create wealth for yourself. This is the money that you can later invest, to earn you income, and may eventually become part of your retirement plan.
Paying yourself first can serve many purposes. This can serve as your emergency fund, for the new roof you need, the flight overseas for an ill parent, or any countless unforeseen necessary expenses. It can also serve as your vacation fund, or special purchase fund, so that you're not going into debt when you decide to take your family on a vacation, or install that long-awaited pool for everyone to enjoy.
Emergency Fund
As I mentioned above, it is important to have an emergency fund. We've all heard the expression "when it rains it pours". The last thing you need to worry about after your husband gets laid off is paying for someone to repair the hole in the roof. Or maybe on your way home from work you get side-swiped by an irresponsible driver and your insurance company decides the cost of the damage exceeds the value of the car and you're faced with having to buy a new car with the pittance your insurance paid for the value of your vehicle. These emergencies have a way of happening at the most inconvenient times, and without an emergency fund, can leave you scrambling. You might have to borrow from the bank, or worse, family, to make ends meet. An emergency fund, even with a couple of thousand dollars, will prove to be invaluable.
Planning for the future
Aside from emergencies and special luxury purchases, the most important element of savings is planning for the future. Although it is easy to live in the moment, everyone needs a nest egg for their golden years. We cannot rely on government pensions to allow us to live comfortably in our retirement years.
The only way to avoid this is to start putting money aside for your retirement. These days, people live well into their eighties and nineties, so you could be looking at up to 30 years of retirement living. You want to be financially comfortable and independent. There is a huge difference between being able to survive on the income you have allocated for your retirement and being comfortable.
The most effective way to maximize your retirement planning is to consult with a financial advisor about your options. There are investments loans used to build wealth, insurance policies and countless other options that should be explored.
Financial Planner
A financial advisor can assist you with all of the above steps: analyzing your current spending habits, help you create a budget, how much you can set aside for savings, planning your retirement, and investing those funds so they work for you and earn the maximum amount of return. The financial advisor works out a plan that reflects your investment goals, within your accepted tolerance level.
This is where it is important to find a good financial advisor that you trust. And regardless of who they are, and how much you trust them, you must always keep abreast of your investments, and follow how they are performing.
The relationship with your financial planner should become a life-long relationship. You need a safe place to get counsel that you will need for the rest of your life. The ability to communicate with each other effectively is key. So someone who returns your phone calls and makes it habit to touch base with you every now and then is very important.
Financial health and wealth is such a huge part of our lives; we should never hesitate to seek advice when it comes to planning and making decisions. Seeking advice and taking these steps will put you on the road to financial freedom.
The price of good advice
Article By: Henry van Deventer (acsis financial planning coach)
Tue, 01 Dec 2009 11:25
Question:
I have recently 'invested' in a financial planner. She charges an hourly rate (R1710) for advice and a portfolio review, and a planning fee of R1140. In addition she also charges 2.85 percent on any investments we make through them, on top of what the investment company charges for the investment.
Is this normal practice as the fees seem quite high? Am I being ripped off by my financial planner?
Answer:
I can understand your concern. When we consider the fees we pay to financial planners, a number of questions come up: How am I paying my planner? What am I paying for? How much should I pay? Can I do this myself? By looking at the answers to these questions, we can create a framework of reference and a quality checklist that should stand us in good stead.
How do I pay my advisor?
When it comes to paying for financial advice, the first thing we need to do is to discard the myth of 'free' advice.
If we are not paying a financial planner a fee out of our own pocket, the truth is that these advisors get paid commissions by product providers. These commissions are often more than we realise (a long term policy of R500 per month will typically pay about R5000 worth of commission). And make no mistake — these commissions are definitely recouped from you as the investor over time.
So by going the 'cheap up front' route we run the risk paying for the product that best rewards the advisor and is least encouraged to incentivise objective advice. By the time we realise this, it's often too late to do anything about it.
If we rather choose to pay a fee for advice, we need to understand what we pay for and how much.
First, there is the fee for the advice process and financial plan itself. Typically, these fees are charged either for the planning process (fees tend to range between R2000 and R30 000) or on a per hour basis (roughly between R500 and R1500 per hour for about eight hours of work).
What am I paying for?
So is it worthwhile paying for a financial plan, or can you do it yourself? Well, let’s briefly look at what the financial planning process should deliver:
A financial planner will help you clearly define what you would like your money to allow you to do, sort through your priorities to help you decide what is most meaningful (e.g. living debt-free or starting a business) and help you identify strategies that will make this financially possible.
Bad decisions destroy wealth. Your financial plan should give you a clear idea about what the right decisions for you are before you make them (in terms of lifestyle, your good and bad behaviours and your specific objectives).
Your financial plan will summarise all your building blocks (investments, retirement funds, policies, etc.) and detail the most effective way of using or restructuring these to help you reach your goals. This will take account of your personal tax positions, estate plan and structures such as trusts and companies.
Your plan will give you a clear indication of the kind of growth you need your assets to achieve and should recommend ways of achieving it. It will also recommend the best ways of dealing with risks such as death and disability.
If you believe the above to be of value, how much you pay for it will depend on the experience and qualifications of your specific financial planner.
Make sure to check for relevant qualifications (being a Certified Financial Planner is a good place to start) and be clear up front what the advice process will entail and what you can expect at the end of it.
Should I pay more than one fee?
The second fee a financial planner could levy is an implementation fee. This is the charge for making the investments and restructuring your insurances in a way that will give you the best chance of achieving your goal. These fees have an up-front and an ongoing component. It is important to distinguish that financial advice (as discussed above) and implementing recommendations are different things. Paying separate fees for this is not unusual.
For investments, up-front fees tend to be between zero and five percent plus VAT. Ongoing annual fees generally range between 0.5 percent and one percent plus VAT.
These are sometimes negotiable, but generally — as is the case with medical or legal advice — the cheapest is seldom the best.
Shopping around for competitive fees is not a bad idea, especially if your advisor is going to charge separately for implementation. Some advisors are able to gain access to products at special low rates that bring down costs further.
Make sure you ask your advisor what he is doing to make your implementation cost-effective over time. Most financial planners do not charge for reviews, as your ongoing fees tend to cover the expense.
In summary, I think your fee structure is not unusual, although it is at the higher end of the scale. If you are satisfied that the product (quality of advice, qualifications, experience and solutions) justifies the fee, that is great. If not, this might be a good time to start shopping around.
11 November 2009
PPC confesses to cartel
Johannesburg - Cement producer Pretoria Portland Cement (PPC) on Wednesday admitted that internal investigations have revealed that the company was involved in market-sharing arrangements with other cement producers in the late 1990s.
The Competition Commission also confirmed that it has granted PPC conditional leniency from prosecution under the Competition Act, in exchange for PPC's complete and truthful disclosure of all cartel activities between PPC and its competitors.
"PPC applied for leniency shortly after the Commission raided and seized documents and electronic data from PPC's premises and those of its competitors Lafarge Industries South Africa, AfriSam Consortium and Natal Portland Cement Cimpor in June this year.
"The raids were in pursuance of the Commission's investigation of possible collusion in the cement industry," the Competition Commission said in a statement.
The commission said that PPC, in its application for leniency, confirmed the existence of a cartel to divide markets among the four cement producers.
"According to this information, the four cement producers agreed to divide the cement market amongst themselves in order to maintain the market shares that each producer held prior to 1996 when a lawful cement cartel existed and was regulated by exemptions to the competition legislation," the Competition Commission said.
The agreement was implemented up until this year through highly disaggregated sales information each producer submitted to the Cement and Concrete Institute of South Africa (C&CI) through an audit firm appointed by C&CI. The four cement producers are the main members of C&CI.
In addition, the Competition Commission said there was an agreement that PPC would not compete in the Northern Natal market in exchange for Lafarge not competing with PPC in the Botswana market.
In exchange for immunity from prosecution PPC has agreed to cooperate fully with the commission until the investigation and tribunal proceedings are finalised.
In terms of the agreement PPC must also stop its involvement in cartel activity and refrain from submitting competition sensitive information to the C&CI.
"The problem with competitors dividing markets between themselves is that they successfully shield themselves from competition and can thus price above competitive levels with no opposition or alternative from a competitor," said the commission, which is now conducting further investigations.
PPC said it appointed external legal advisers to conduct an investigation following notification of the commission's investigation in June.
The company said its investigation revealed the market-sharing arrangements with other cement producers.
It said these arrangements were introduced into the organisation under the guise of being autonomous behaviour involving "a few former employees who knew about the arrangements and made ongoing arrangements to disclose detailed sales information through the C&CI."
"Management and the board have taken full responsibility and we believe that we have acted quickly, decisively and correctly by cooperating with the commission," said PPC CEO Paul Stuiver.
"We were shocked and disappointed when these issues were revealed and we apologise. We want to reassure the public and all who work for PPC that we do not tolerate this kind of behaviour. We will get rid of it and ensure that this does not happen again," said Stuiver
10 November 2009
JSE is dropping
JOHANNESBURG -
Within half an hour of worse than expected US jobs data coming out the JSE All Share Index lurched alarmingly downwards before recovering to close at 25 933, up 0.1%. David Shapiro of Sasfin provides some insight.
"The move shows you how traders were positioned. I've never seen [a move like this]. If you look at the chart it's quite frightening. It just shows you how volatile markets are. The fact that unemployment went above 10% ignited a tinderbox, the market dropped to such an extent that we reversed about 1.5% in literally half an hour. It's just crazy. This just gives you an idea of how sensitive, jittery and volatile markets are. They are impossible to read. It's a very, very difficult market to trade in at the moment. If you are going to be in the market then make sure that you're buying the kind of share that you want, that will give you a longer-term return."
The market was expecting the US to lose 175 000 jobs in October, putting unemployment around 9.9%. The actual number came in at 190 000 putting unemployment at 10.2%, the worst rate since 1983.
An interesting component of the jobs data out of the US is temporary jobs, which increased 34 000. The thinking on Wall Street is that corporates are shifting employment to temporary workers until the recovery is more certain.
Asked whether he is now concerned about the recovery, Shapiro responds with "no I don't think so. We trade on a minute by minute basis, that's how traders are. At the end of the day all it is signalling is that there are tough times ahead. It's not going to be an easy recovery. Jobs are going to be a very important part of the recovery. As long as there are no jobs then money will be pumped into the system and rates will stay low. Jobs will only be created once there is a real sustainable turnaround and investment resumes ".
Gold is regarded as a hedge against risk and inflation by some investors. The gold price was up around $1 094 an ounce, off earlier highs near $1 100.
