Do you need help in this area? Most people say no. They meet their minimum monthly repayments and expect to own their home outright after the 240-month loan term.
But if you have a bond and you only pay the minimum instalment you do need help in this area!
What is a mortgage bond?
A mortgage bond is a long-term loan taken out using your property as surety for the debt. What is surety? Surety is basically a guarantee. In other words if you default on any payment on your bond your property may be taken back and sold to recover the outstanding loan amount. If the property is sold and the amount it is sold for is less than the outstanding bond (as well as lawyers fees etc) you will be held liable for the outstanding balance.
Why do I say if you have a bond you need help?
Well, I am sure you have heard that a bond is a loan taken at a low interest rate and is “good” debt.
From 1 perspective this may be true and by knowing and understanding this information you can use it to pay less for cars and other large purchases as explained in a previous blog post.
But as the average homeowner, paying your minimum bond repayment on a monthly basis related to the current interest rate, the interest rate may be lower but the actual amount of interest paid is far higher.
To compound the problem the interest rate could change with any MPC meeting and ensures continuous fluctuations in the monthly repayment amount, making it difficult to budget.
The question left to be answered is: What can I do to pay less interest and actually pay less for my home?
The answer is a simple one: Pay extra on your home loan every month.
Every cent of the extra you pay will be deducted directly from your capital and since interest is only charged on the outstanding capital this will reduce your instalment monthly by a small margin. If you do not decrease your instalment but rather set up a fixed repayment amount, the actual effect is that your home loan is paid off in a much shorter time. Not mention the saving you make on not paying the bank all that interest.
How do I keep my instalment fixed? Phone the bank you have your bond with and ask them to take a fixed amount on debit order every month. Then consciously deposit any extra money you have into the bond at the end of the month. If you have an access bond keep your emergency saving in here to further reduce your interest.
Eg: A R 500000.00 home loan at an interest rate of 12% over 20 years give you a monthly instalment of
R 5505.43 per month.
By paying only the minimum balance due the follow occurs:
Time to pay off loan: 240 months
Actual amount Paid: R 1 321 303.20
Capital amount Paid: R 500 000.00
Interest amount Paid: R 821 303.20
By paying R 100 extra per month the following occurs:
Your instalment becomes R 5605.43 per month.
Time to pay off loan: 224 months
Actual amount Paid: R 1 253 751.05
Capital amount Paid: R 500 000.00
Interest amount Paid: R 753 751.05
So with just an extra R100 per month you save R 67552.15 in interest and repay the loan 16 months earlier.
By paying R500 extra per month the following occurs:
Your instalment becomes R 6005.43 per month.
Time to pay off loan: 180 months
Actual amount Paid: R1 078 684.39
Capital amount Paid: R 500 000.00
Interest amount Paid: R 578 684.39
So with R500 per month you save R 242 618.81 in interest and repay the loan 60 months earlier. That is 5 years sooner!
Shocked?
Now tell me again that a home loan is the cheapest form of debt? I am sure that after this exercise you will agree that the only party making money from this loan is the bank.
If you have an access bond the extra paid into the home loan every month can be withdrawn for an emergency. It is a great saving place as it decreases the amount of interest you pay as well as ensuring a build up of savings for a rainy day or ensuring you own your home after only a few years.
Buying a second home is then easy. You can use it to generate an extra income from property rental or to increase your retirement fund not to mention the satisfaction of not paying a monthly home loan!!!
Tuesday, December 8, 2009
Thursday, December 3, 2009
Credit Cards
Basic explanation – layman’s terms for this type of debt
There are 2 types of revolving credit on your credit card. In effect 2 different credit limits.
The first limit is called a straight facility. This is the amount of credit extended on a monthly basis. This credit is interest free when certain terms and conditions are met. Usually these terms include that the full outstanding balance must be settled within 55 days and cash and fuel transactions incur interest from day of purchase or withdrawal. You should pay the full outstanding balance on this limit every month (have no balance due).
The second limit is called a budget limit. You can purchase goods on this credit line over a certain amount (normally R 300) and repay the credit over 6,12,18,24,or 36 months. Remember interest is charged on this loan from the date of purchase. Each purchase made using this facility is charged as a separate loan and will be listed on your statement as separate loans. Interest will be charged per loan and the repayments of each “loan” will be added together to make up the amount due at the end of the month. You should not have to use this facility, or at worst use it only for major purchases.
Task:
Card Balance owing Interest Rate Minimum monthly payment
1 R 4500.00 17.5% R 275.00
2 R 3200.00 16.8% R 192.00
3 R 6800.00 15.5% R 355.00
4 R 4500.00 16.9% R 268.00
5 R 12500.00 17.8% R 721.00
6 R 8200.00 22% R 492.00
7 R 5750.00 23% R 527.00
Rearrange the list according to balance owing:
Card Balance owing Interest Rate Minimum monthly payment
2 R 3200.00 16.8% R 192.00
4 R 4500.00 16.9% R 268.00
1 R 4500.00 17.5% R 275.00
3 R 6800.00 15.5% R 355.00
6 R 8200.00 22% R 492.00
7 R 5750.00 23% R 527.00
5 R 12500.00 17.8% R 721.00
How to pay them off:
Pay the minimum balance owing on each card.
Pay extra (as much as you can afford) into the first card on the list above.
Once the first card is paid of, begin paying the minimum amount plus the extra you were paying on the first card on the second card on the list.
Once the second card is paid off, take the minimum balance paid on both the first and second card with the extra you were paying on the first card and pay off the third card. Continue in this manner until all the cards are paid off.
E.g:
Pay minimum on all the cards then pay R 200 per month extra on card 2. When card 2 is paid off pay minimum on all cards and R 392.00 per month extra on card 4. When card 4 is paid pay minimum on each card and R660.00 extra on card 1 and so on and so forth.
As you can see the suggestion is not to pay the card with the highest interest rate first. Although this will work and is the normal suggested route of repayment recommended by most financial advisors. I have decided to use a different approach for two reasons:
Firstly: The card with the least outstanding balance will be paid off much quicker thus leaving you with extra disposable monthly income much quicker. This alleviates immediate financial stress that, if you are reading this you most likely have.
Secondly: It is more motivational if you can get some debt paid off and eradicated. When you manage to eliminate an entire credit card you are more motivated to get through the next one especially when the next one is paid off in half the time and the third one even quicker.
This will help you maintain the habit of paying off debt and then institute a habit of saving.
There are 2 types of revolving credit on your credit card. In effect 2 different credit limits.
The first limit is called a straight facility. This is the amount of credit extended on a monthly basis. This credit is interest free when certain terms and conditions are met. Usually these terms include that the full outstanding balance must be settled within 55 days and cash and fuel transactions incur interest from day of purchase or withdrawal. You should pay the full outstanding balance on this limit every month (have no balance due).
The second limit is called a budget limit. You can purchase goods on this credit line over a certain amount (normally R 300) and repay the credit over 6,12,18,24,or 36 months. Remember interest is charged on this loan from the date of purchase. Each purchase made using this facility is charged as a separate loan and will be listed on your statement as separate loans. Interest will be charged per loan and the repayments of each “loan” will be added together to make up the amount due at the end of the month. You should not have to use this facility, or at worst use it only for major purchases.
Task:
- Take all your credit cards from your purse.
- Get the latest statement from each of these cards.
- Make a list of the outstanding balance on each card from the highest to the lowest.
- Make a list again from highest to lowest of the minimum monthly payment to be made on each card.
- Line up your credit cards in order from the least monthly payment to the highest.
- Any amounts within a R100 range put the higher interest rated card above the lower interest rated card on the list.
Card Balance owing Interest Rate Minimum monthly payment
1 R 4500.00 17.5% R 275.00
2 R 3200.00 16.8% R 192.00
3 R 6800.00 15.5% R 355.00
4 R 4500.00 16.9% R 268.00
5 R 12500.00 17.8% R 721.00
6 R 8200.00 22% R 492.00
7 R 5750.00 23% R 527.00
Rearrange the list according to balance owing:
Card Balance owing Interest Rate Minimum monthly payment
2 R 3200.00 16.8% R 192.00
4 R 4500.00 16.9% R 268.00
1 R 4500.00 17.5% R 275.00
3 R 6800.00 15.5% R 355.00
6 R 8200.00 22% R 492.00
7 R 5750.00 23% R 527.00
5 R 12500.00 17.8% R 721.00
How to pay them off:
Pay the minimum balance owing on each card.
Pay extra (as much as you can afford) into the first card on the list above.
Once the first card is paid of, begin paying the minimum amount plus the extra you were paying on the first card on the second card on the list.
Once the second card is paid off, take the minimum balance paid on both the first and second card with the extra you were paying on the first card and pay off the third card. Continue in this manner until all the cards are paid off.
E.g:
Pay minimum on all the cards then pay R 200 per month extra on card 2. When card 2 is paid off pay minimum on all cards and R 392.00 per month extra on card 4. When card 4 is paid pay minimum on each card and R660.00 extra on card 1 and so on and so forth.
As you can see the suggestion is not to pay the card with the highest interest rate first. Although this will work and is the normal suggested route of repayment recommended by most financial advisors. I have decided to use a different approach for two reasons:
Firstly: The card with the least outstanding balance will be paid off much quicker thus leaving you with extra disposable monthly income much quicker. This alleviates immediate financial stress that, if you are reading this you most likely have.
Secondly: It is more motivational if you can get some debt paid off and eradicated. When you manage to eliminate an entire credit card you are more motivated to get through the next one especially when the next one is paid off in half the time and the third one even quicker.
This will help you maintain the habit of paying off debt and then institute a habit of saving.
Thursday, November 26, 2009
How much should you be saving?
Saving is the most important part of your financial life, it becomes addictive if you start and you want to save a larger portion and not spend as much when you see the amount grow in value.
You should be saving 10% of you income from the day you start working towards retirement. If your company offers a pension fund they to will normally put 10% to match yours and over your earning lifetime this should be sufficient to continue with your present lifestyle once retired.
Remember the later you start the less you will have, by a large margin (We will discuss this in another post). You must never be tempted to loan against or stop these savings as they are long term.
Any retirement fund is a good starting place, get yourself a financial advisor from one of the leading insurance companies, here in SA these include Libery Life, Old Mutual, Sanlam, Momentum etc.
The second saving pocket you should be creating is a short term or emergency fund saving, this should equal 8 months debt repayments or about 4 to 5 months salary. This should is for bad economic climates such as we are experiencing at the moment. Should you lose your job or interest rates spike higher you should have no problem ensuring that these effects go relatively unnoticeable if you are prepared with this fund. Once you have this fund it will slowly increase if unused due to interest. Remember if you take out any new credit loans, your savings need to increase by 8 times the loan repayment amount.
The third saving should be for the things you want. We tend to want things immediately so we do not save for them, but if we budget on wanting things in advance we can avoid going into credit to achieve these. We need to plan our annual holiday, how much we are planning to spend on it. Plan the amount we want to spend on luxury items etc. Then we need to keep an amount out and save it every month until we are in a position to take the holiday we want without maxing out our credit cards. By saving and earning interest on our savings we will have a few Rand extra for our holiday rather than pay it off over the next year and pay a few Rand more than expected because there was an interest rate increase.
To calculate how much you need to save for these items build a budget.
Sample budget for a new luxury purchase (eg: new lounge suite)
1. How much will it cost?
Purchase price: _____________
Delivery: + _____________
Total Cost:
============
2. How much will I receive?
Sale of old item: ______________
Nett amount required: 1 – 2 = _______________
3. Date I wish to buy the item: _________________
4. Date today: _________________
Number of months to save: 3 – 4 = _________________
5. Divide the Nett amount required by number of months to save and you will receive an amount per month to save.
Remember if you can’t afford to save that amount per month you won’t afford the repayments on the item anyway so you should not buy it. You should either postpone the purchase date or buy a lower priced item.
Now start saving, the greatest part about this is that once you have saved the amount per month for the number of months you decided on, you will purchase the new item and have spare cash!!!
You could spend that on spoiling yourself as a reward for saving instead on lending, for example if you bought a new lounge suite, you may have enough to buy a few throw cushions to match and your lounge has a make over!
Sample Holiday budget:
Total Cost:
Accomodation: ________________
Traveling expenses: + ________________
Food allowance: + ________________
Special trips/excursions:+ ________________
Treats: + ________________
Total cost:
==============
1. Date you plan to go on holiday: _____________
2. Date today: _____________
3. Number of months to save: 2 –1 = ___________
Divide total cost by nr of months to save and you get your savings per month:
Once again remember if you can’t afford to save this amount you can’t really afford the holiday, rather save the extra few months and go later, or scale down the holiday by camping or staying in a self catering resort, you will then have a little spare due to interest earned as opposed to paying interest on your return, once again treat yourself, buy a new swimming costume for the beach or stay 1 night in a luxury hotel. Remember, you will have more money than what you saved as opposed to paying more for the holiday than it cost, this means treats are the order of the day.
You should be saving 10% of you income from the day you start working towards retirement. If your company offers a pension fund they to will normally put 10% to match yours and over your earning lifetime this should be sufficient to continue with your present lifestyle once retired.
Remember the later you start the less you will have, by a large margin (We will discuss this in another post). You must never be tempted to loan against or stop these savings as they are long term.
Any retirement fund is a good starting place, get yourself a financial advisor from one of the leading insurance companies, here in SA these include Libery Life, Old Mutual, Sanlam, Momentum etc.
The second saving pocket you should be creating is a short term or emergency fund saving, this should equal 8 months debt repayments or about 4 to 5 months salary. This should is for bad economic climates such as we are experiencing at the moment. Should you lose your job or interest rates spike higher you should have no problem ensuring that these effects go relatively unnoticeable if you are prepared with this fund. Once you have this fund it will slowly increase if unused due to interest. Remember if you take out any new credit loans, your savings need to increase by 8 times the loan repayment amount.
The third saving should be for the things you want. We tend to want things immediately so we do not save for them, but if we budget on wanting things in advance we can avoid going into credit to achieve these. We need to plan our annual holiday, how much we are planning to spend on it. Plan the amount we want to spend on luxury items etc. Then we need to keep an amount out and save it every month until we are in a position to take the holiday we want without maxing out our credit cards. By saving and earning interest on our savings we will have a few Rand extra for our holiday rather than pay it off over the next year and pay a few Rand more than expected because there was an interest rate increase.
To calculate how much you need to save for these items build a budget.
Sample budget for a new luxury purchase (eg: new lounge suite)
1. How much will it cost?
Purchase price: _____________
Delivery: + _____________
Total Cost:
============
2. How much will I receive?
Sale of old item: ______________
Nett amount required: 1 – 2 = _______________
3. Date I wish to buy the item: _________________
4. Date today: _________________
Number of months to save: 3 – 4 = _________________
5. Divide the Nett amount required by number of months to save and you will receive an amount per month to save.
Remember if you can’t afford to save that amount per month you won’t afford the repayments on the item anyway so you should not buy it. You should either postpone the purchase date or buy a lower priced item.
Now start saving, the greatest part about this is that once you have saved the amount per month for the number of months you decided on, you will purchase the new item and have spare cash!!!
You could spend that on spoiling yourself as a reward for saving instead on lending, for example if you bought a new lounge suite, you may have enough to buy a few throw cushions to match and your lounge has a make over!
Sample Holiday budget:
Total Cost:
Accomodation: ________________
Traveling expenses: + ________________
Food allowance: + ________________
Special trips/excursions:+ ________________
Treats: + ________________
Total cost:
==============
1. Date you plan to go on holiday: _____________
2. Date today: _____________
3. Number of months to save: 2 –1 = ___________
Divide total cost by nr of months to save and you get your savings per month:
Once again remember if you can’t afford to save this amount you can’t really afford the holiday, rather save the extra few months and go later, or scale down the holiday by camping or staying in a self catering resort, you will then have a little spare due to interest earned as opposed to paying interest on your return, once again treat yourself, buy a new swimming costume for the beach or stay 1 night in a luxury hotel. Remember, you will have more money than what you saved as opposed to paying more for the holiday than it cost, this means treats are the order of the day.
Wednesday, November 25, 2009
Student Bank Account Comparisons:
Suddenly you turn 19 and find yourself in the unreal adult world. You receive a letter in the post informing you that you should visit your branch and supply proof that you are either still a student or have completed high school. You must also bring your ID book and proof of residency. If you don't visit the bank your account will be closed.
You head off to the bank and they inform you that you are not longer eligible for a children’s account but that you need to change you account to a Student account as you will be studying next year.
You will now have to pay bank charges similar to an adult account and can get access to a credit card and overdraft facility. Whoa…wait a minute, an overdraft facility? Credit card? You only get pocket money, you have not even entered the workforce yet!
The biggest question is which account you should choose, which bank to deal with and what benefits you get from each.
I decided to compare bank accounts from the 4 major banks for this, the student level this time but I added Capitec bank, the Newbie bank that advertises a higher interest rate and lower charges. The only difference being that the 4 major banks supply cheque accounts while Capitec is a transaction account. Lets do the comparison:
Click here!
I would choose ABSA after all the considerations even though there is not interest. I would open a separate saving account to earn interest and take advantage of no transaction fees as ABSA has the most widely spread ATM’s.
Making use of either the overdraft or credit card is probably not advisable at student level and I would make sure that those services are kept for a later date.
You head off to the bank and they inform you that you are not longer eligible for a children’s account but that you need to change you account to a Student account as you will be studying next year.
You will now have to pay bank charges similar to an adult account and can get access to a credit card and overdraft facility. Whoa…wait a minute, an overdraft facility? Credit card? You only get pocket money, you have not even entered the workforce yet!
The biggest question is which account you should choose, which bank to deal with and what benefits you get from each.
I decided to compare bank accounts from the 4 major banks for this, the student level this time but I added Capitec bank, the Newbie bank that advertises a higher interest rate and lower charges. The only difference being that the 4 major banks supply cheque accounts while Capitec is a transaction account. Lets do the comparison:
Click here!
I would choose ABSA after all the considerations even though there is not interest. I would open a separate saving account to earn interest and take advantage of no transaction fees as ABSA has the most widely spread ATM’s.
Making use of either the overdraft or credit card is probably not advisable at student level and I would make sure that those services are kept for a later date.
Monday, November 23, 2009
What to do when you get a bonus or windfall?
It is that time of year again, when the lucky one’s will be receiving their Christmas bonus. You have probably already spent the money in your mind. Hopefully only in your mind and you haven’t already purchased something that will need to paid when your bonus is due!
Bonuses don’t come along everyday. As an employee you will generally get an annual bonus or a 13th cheque. Usually this comes in December, which gives added pressure to using it to pay for that awesome holiday or buy the kids those much wanted toys or video games. Maybe spoil yourself!
But you need to take a step back. These bonuses don’t come along everyday and yet these small windfalls could be used to get you financially secure for the rest of your life! You just have to decide to use them wisely.
So what is wise you may ask….
Sadly in this day and age the bank is not really the best place for you to save your money. The interest rates are low even on fixed term investments and the temptation to spend the available balance in your bank account is way too high for most of us to stand. If you do choose this option make sure it is an interesst bearing account you can't withdraw from for a fixed period of time.
2. Paying it into your mortgage Bond:
Placing the amount into your bond would be a wise decision, the total bonus will then be taken off your capital and your bond repayments will decrease permanently, any future interest rate hikes will have a lower effect and your property will be paid for in a shorter period of time.
If you fix your repayment amount to the current amount you pay your loan will be paid off in record time!
If you have other debts, however, this may not be the best option as the interest rate on your home loan is lower than other loans.
3. Settling an Account:
If you are paying down debt this may be one of your best options. You can settle a credit card, close your store account, pay off a personal loan or rid yourself of that pesky overdraft. These are high interest debts that you don’t need. The year ahead will look much brighter if you are able to save a little instead of live month to month.
4. Adding it to your Retirement:
Using the windfall to top up your retirement policy is another good option, we tend not to save enough towards retirement and an added capital injection would bring the policy payout up and turn it into a more inflation beating policy. Helping to ensure you retire without worry. The added advantage of this option is that on most retirement policies you are not taxed on the payout.
5. Investing
Starting an investment account for the stock exchange – risky but if you are young enough this option could end up being very profitable and help you realise your dreams. If you are a little older and more conservative but still want to invest, try a mutual account or purchase some unit trusts. Remember the key investment strategy is diversity! As the saying goes, “Don’t keep all your eggs in 1 basket”
6. Spending
If you were planning on making a big purchase using this to pay for it as a cash purchase as opposed to buying on credit is another option, not as good as investing but better than obtaining further credit. Perhaps you really need a fridge for your new apartment or your washing machine just gave up the ghost. Either way avoiding the debt trap is better than paying the extra interest!
Making the choice:
Deciding what to do with your windfall is dependant on your current position in life. Your past decisions and your future dreams will play a role. Choosing wisely can save you a pretty penny in the long run.
The worst thing you can do with a windfall is spend it on small items here and there. It disappears faster than you can say you had it. I use this trick for my bonuses and windfalls and it never fails:
Deposit the money into a saving account and do not touch it for 30 days.
If you keep it in the bank for the full 30 days you will have dreamt about what you should be spending it on or where you should be saving or investing it. You will have looked at your options, determining the consequences of each choice and you will make a wiser decision.
Bonuses don’t come along everyday. As an employee you will generally get an annual bonus or a 13th cheque. Usually this comes in December, which gives added pressure to using it to pay for that awesome holiday or buy the kids those much wanted toys or video games. Maybe spoil yourself!
But you need to take a step back. These bonuses don’t come along everyday and yet these small windfalls could be used to get you financially secure for the rest of your life! You just have to decide to use them wisely.
So what is wise you may ask….
- Putting this lump sum in the bank?
- Paying it into your mortgage bond?
- Settling an account?
- Adding it to your retirement saving?
- Investing.
- Spending it on something (hopefully a large purchase) you want?
Sadly in this day and age the bank is not really the best place for you to save your money. The interest rates are low even on fixed term investments and the temptation to spend the available balance in your bank account is way too high for most of us to stand. If you do choose this option make sure it is an interesst bearing account you can't withdraw from for a fixed period of time.
2. Paying it into your mortgage Bond:
Placing the amount into your bond would be a wise decision, the total bonus will then be taken off your capital and your bond repayments will decrease permanently, any future interest rate hikes will have a lower effect and your property will be paid for in a shorter period of time.
If you fix your repayment amount to the current amount you pay your loan will be paid off in record time!
If you have other debts, however, this may not be the best option as the interest rate on your home loan is lower than other loans.
3. Settling an Account:
If you are paying down debt this may be one of your best options. You can settle a credit card, close your store account, pay off a personal loan or rid yourself of that pesky overdraft. These are high interest debts that you don’t need. The year ahead will look much brighter if you are able to save a little instead of live month to month.
4. Adding it to your Retirement:
Using the windfall to top up your retirement policy is another good option, we tend not to save enough towards retirement and an added capital injection would bring the policy payout up and turn it into a more inflation beating policy. Helping to ensure you retire without worry. The added advantage of this option is that on most retirement policies you are not taxed on the payout.
5. Investing
Starting an investment account for the stock exchange – risky but if you are young enough this option could end up being very profitable and help you realise your dreams. If you are a little older and more conservative but still want to invest, try a mutual account or purchase some unit trusts. Remember the key investment strategy is diversity! As the saying goes, “Don’t keep all your eggs in 1 basket”
6. Spending
If you were planning on making a big purchase using this to pay for it as a cash purchase as opposed to buying on credit is another option, not as good as investing but better than obtaining further credit. Perhaps you really need a fridge for your new apartment or your washing machine just gave up the ghost. Either way avoiding the debt trap is better than paying the extra interest!
Making the choice:
Deciding what to do with your windfall is dependant on your current position in life. Your past decisions and your future dreams will play a role. Choosing wisely can save you a pretty penny in the long run.
The worst thing you can do with a windfall is spend it on small items here and there. It disappears faster than you can say you had it. I use this trick for my bonuses and windfalls and it never fails:
Deposit the money into a saving account and do not touch it for 30 days.
If you keep it in the bank for the full 30 days you will have dreamt about what you should be spending it on or where you should be saving or investing it. You will have looked at your options, determining the consequences of each choice and you will make a wiser decision.
Friday, November 20, 2009
Bank Fees: Kids Saving/Transactional Accounts
“All under 18’s bank accounts are equal.” Well that is what I thought. Surely they don’t charge management fees to a child! Can I not deposit the coins my child has saved for months in his piggy bank into his account for free? Doesn’t everyone give a good interest rate to children to inspire a culture of saving from a young age?
If you are anything like me, you have never shopped around looking for the lowest rates on your bank account, especially not on your child’s bank account. If your child has a bank account you probably did what I did and opened an account at the same bank you currently bank with. But is this always the best decision?
This morning I received a statement on my child bank account and was shocked. He had paid a monthly account free, a cash deposit fee and an ATM withdrawal fee. These fees totalled: R 54,50. For a child of 9 years of age I felt this was a lot. He also has a balance in his account of over R 2000.00 and earned a measly R1.90 interest.
In these times where a poor saving habit is a culture, it should be more important than ever to encourage our children to save. After speaking to the call centre consultant at the bank I decided to compare under 18 bank accounts to find the best deal for my child.
I have drawn up a comparison table between the 4 major South African banks. I have not included all the fees as most of these fees would probably never be charged on this account. I have only added the most commonly used fees and interest rates, omitting items like dishonoured cheques (most children do not have cheque book) and R/D cheque returns (Most children do not receive cheques from anyone). Telephone and Internet banking fees (can your under 18 really perform complex transactions?) Debit orders (under 18’s don’t have credit accounts) etc.
So for basic banking fees that your child will probably use:
Click here!
From my rankings I have decided on the Standard Bank sum1 account. Even though the fees could be higher if the account is misused, the interest rate is much higher.
Transactions limits for my child are set at:
If you are anything like me, you have never shopped around looking for the lowest rates on your bank account, especially not on your child’s bank account. If your child has a bank account you probably did what I did and opened an account at the same bank you currently bank with. But is this always the best decision?
This morning I received a statement on my child bank account and was shocked. He had paid a monthly account free, a cash deposit fee and an ATM withdrawal fee. These fees totalled: R 54,50. For a child of 9 years of age I felt this was a lot. He also has a balance in his account of over R 2000.00 and earned a measly R1.90 interest.
In these times where a poor saving habit is a culture, it should be more important than ever to encourage our children to save. After speaking to the call centre consultant at the bank I decided to compare under 18 bank accounts to find the best deal for my child.
I have drawn up a comparison table between the 4 major South African banks. I have not included all the fees as most of these fees would probably never be charged on this account. I have only added the most commonly used fees and interest rates, omitting items like dishonoured cheques (most children do not have cheque book) and R/D cheque returns (Most children do not receive cheques from anyone). Telephone and Internet banking fees (can your under 18 really perform complex transactions?) Debit orders (under 18’s don’t have credit accounts) etc.
So for basic banking fees that your child will probably use:
Click here!
From my rankings I have decided on the Standard Bank sum1 account. Even though the fees could be higher if the account is misused, the interest rate is much higher.
Transactions limits for my child are set at:
- 1 Cash withdrawal a week.
- Piggybank saving deposits are limited to R100 once a month.
Saving Tip #5: Everyday changes
Learn to bake….this sounds crazy but baking from scratch at home is both fun for the family as well as a cost effective way to get treats without the sting of the high prices. Don’t use premix packets as they are much more costly than the basic ingredients.
Learn to cook….yes I know you cook every evening. But try not to use instant meals from a packet or box as these are very expensive. Rather try a few recipes, swap with friends, look up the recipes on the net. It takes no longer to make spaghetti bolognaise from scratch than from a box but costs half the price, as does, chicken a la king, beef stroganoff or a stew. Use packets of soup for casserole bases as these are cheap and have similar spices to the box meals.
If you live in a complex or are friendly with the neighbours try starting a dinner club, where everyone meets at one person’s house for supper on a rotational basis. It is cheaper to feed many and you don’t have to cook every night. It is also a cheap way to socialise to boot!
Buy in bulk! Coke wholesalers, Makro, Trade centre among other offer great discounts on bulk purchases. Take advantage of specials and split the spoils and the costs with your friends and family.
Take your supper meat out the freezer in the morning and leave it in a bowl inside the microwave (to keep flies away and stay out of direct sunlight) to defrost. When you get home you do not need to run your microwave to defrost your meat.
Fix any water leaks immediately, a dripping tap can use up to 420 litres of water per year. To test for a water leak, turn off the stopcock and see if your water meter is running, it should not be.
Switch off your stopcock on the incoming water pipe if you go away. If any leaks occur or you left a tap dripping this will be of no consequence and won’t increase the cost for your vacation.
Pay all accounts on time! I cannot emphasis this enough. Late payment fees, interest, penalty interest and administration fees add up. Not to mention how much more you pay if you are handed over to a lawyer for collection.
Extra penalties are charged on some accounts: E.g. Electricity, there is interest on overdue amount, R 25 final notice fee and R 150 reconnection fee if disconnected. That starts to add up and is probably the equivalent to a month’s water bill.
Learn to cook….yes I know you cook every evening. But try not to use instant meals from a packet or box as these are very expensive. Rather try a few recipes, swap with friends, look up the recipes on the net. It takes no longer to make spaghetti bolognaise from scratch than from a box but costs half the price, as does, chicken a la king, beef stroganoff or a stew. Use packets of soup for casserole bases as these are cheap and have similar spices to the box meals.
If you live in a complex or are friendly with the neighbours try starting a dinner club, where everyone meets at one person’s house for supper on a rotational basis. It is cheaper to feed many and you don’t have to cook every night. It is also a cheap way to socialise to boot!
Buy in bulk! Coke wholesalers, Makro, Trade centre among other offer great discounts on bulk purchases. Take advantage of specials and split the spoils and the costs with your friends and family.
Take your supper meat out the freezer in the morning and leave it in a bowl inside the microwave (to keep flies away and stay out of direct sunlight) to defrost. When you get home you do not need to run your microwave to defrost your meat.
Fix any water leaks immediately, a dripping tap can use up to 420 litres of water per year. To test for a water leak, turn off the stopcock and see if your water meter is running, it should not be.
Switch off your stopcock on the incoming water pipe if you go away. If any leaks occur or you left a tap dripping this will be of no consequence and won’t increase the cost for your vacation.
Obey the road rules. Traffic fines are an expensive unforeseen cost that if left unpaid could land you in jail. The 2 minutes you saved skipping the stop or speeding can never make up the cost of a fine.
Save for luxury purchases. Do not charge them to your credit card. If you don’t pay interest on the luxuries you buy, you can save between 17% and 25% of the cost of the item.
Pay all accounts on time! I cannot emphasis this enough. Late payment fees, interest, penalty interest and administration fees add up. Not to mention how much more you pay if you are handed over to a lawyer for collection.
Extra penalties are charged on some accounts: E.g. Electricity, there is interest on overdue amount, R 25 final notice fee and R 150 reconnection fee if disconnected. That starts to add up and is probably the equivalent to a month’s water bill.
If you cannot meet your monthly instalment, phone your creditor. They are more likely to help you if you called them rather than the other way around. They may even waiver some penalties and interest if you make a firm arrangement and stick to it. They just want their money after all.
Don’t under estimate the power of a phone call. Call every credit card supplier and ask for a reduction on your current interest rate. Use the fact that you have been a longstanding client of theirs or that you pay more than the minimum balance every month to your advantage. If your credit record is good, tell them you have been offered a card at a lower interest rate, most suppliers will match that rate.
Not all these saving tips will apply to everyone, you may already be using some. But if you are not, it’s never to late to start. Be creative with money saving ideas, try to use your savings to create further savings. If you are conscious of saving money you will be amazed at how quickly you can become debt free.
Tuesday, November 17, 2009
Saving Tip #4: Staff
Domestic Worker
Most people here in South Africa have a domestic worker. I would never tell you to get rid of her as most of us need help with the house, especially with a full time job. Not to mention the emotional attachment you build with the lady who washes your underwear, but do you really need her everyday? Try cutting it down from 5 days a week to 3 days per week, just to do the big jobs like ironing and washing the windows etc.
To make up for the lost employee without working yourself into the ground try this:
Rope the kids into helping when she is not around. How? I hear you say:
If you save R 180 per week you are essentially saving R 720 per month. If you use half of that saving to repay debts and save the other half you will never look back.
Garden service
During winter you should request your garden service to come fortnightly instead of weekly, this will half the cost, when the lawn does not require mowing.
Baby Sitter
If you are serious about saving you should already be decreasing the number of evenings you are going out. If you still need to go out occasionally or have to work an evening shift try this.
Offer to swap a babysitting shift with your neighbour. You will sit for them one evening and they can sit for you one evening. You can build up a sitting club along your road or within your complex. Your children can play with the neighbourhood children instead of being at home alone and never have to hire a sitter again!
Most people here in South Africa have a domestic worker. I would never tell you to get rid of her as most of us need help with the house, especially with a full time job. Not to mention the emotional attachment you build with the lady who washes your underwear, but do you really need her everyday? Try cutting it down from 5 days a week to 3 days per week, just to do the big jobs like ironing and washing the windows etc.
To make up for the lost employee without working yourself into the ground try this:
Rope the kids into helping when she is not around. How? I hear you say:
- Make your own bed and make sure your kids make theirs too (good pocket money chore).
- Clean the bath when you get out or better yet, let the kids bath with bubbles or take a bubble bath yourself. (You can wash the bath half as often)
- Wash the dishes as a family after supper. One person stacks, another washes, one wipes the sides etc. Leave the dishes to drain, you can pack them away while you are cooking the next meal.
- Check that the kids have hung up their towels after bathing as well as their school uniforms when they get home.
If you save R 180 per week you are essentially saving R 720 per month. If you use half of that saving to repay debts and save the other half you will never look back.
Garden service
During winter you should request your garden service to come fortnightly instead of weekly, this will half the cost, when the lawn does not require mowing.
Baby Sitter
If you are serious about saving you should already be decreasing the number of evenings you are going out. If you still need to go out occasionally or have to work an evening shift try this.
Offer to swap a babysitting shift with your neighbour. You will sit for them one evening and they can sit for you one evening. You can build up a sitting club along your road or within your complex. Your children can play with the neighbourhood children instead of being at home alone and never have to hire a sitter again!
Wednesday, November 11, 2009
Saving Tip #3:Vehicle
Lift clubs
- Set up a lift club if possible, it could even be just for dropping kids at school, E.g.: You drop and collect the neighbours kids on Monday and Thursday and they drop and collect yours on Tuesday and Friday. Every other Wednesday you swap. Save the extra 3 kilometres to the school 3 times a week. If you save 3 km’s 3 times a week you save 36km’s in a month which equates to 3 – 4 litres of fuel, not to mention wear and tear.
- Plan your trips so you don’t end up going twice in the same direction.
- Service your car regularly, an unserviced car uses more petrol.
- Check your tyre pressure, under or over inflated tyres use more fuel.
- Drive with your windows closed. A slightly open window causes drag and increases your fuel usage.
- Stick to the speed limit – this is usually the most efficient energy saving speed for most cars (speed limits were after all introduced to help save petrol during the fuel crisis)
- Don’t accelerate fast or brake too hard. Both these practises increase fuel consumption. Rather try to stick to a constant speed.
- Only put petrol in your vehicle in the morning. Petrol expands with heat and thus when warmer, the pump will read 1 litre even though it has pumped just less than 1 litre of fuel.
- Never let your fuel level fall below half, evaporation increases when the tank is less than half full.
- When filling with fuel always ask the attendant (or take care for yourself) to fill the tank to the automatic stop only. Many people overfill the tank and when driving around corners suffer fuel loss. Look under your fuel cap, you will see the leak if you have overfilled. Not only that, much of that fuel stays in the pipe but has been charged for giving the next customer free fuel.
- If you need to go to the shop on the corner, take a family walk, not only is it good for money saving on fuel and wear and tear, but good for your health, weight, fitness and it gives you that hard to find quality family time. Last week we counted how many steps it took to walk to the shop, my little one learnt to count to 100 on the trip too! You can talk about colours, rainbows, clouds, road rules, road signs, shapes, anything, it becomes a learning excursion and the kids thrive on the attention paid to them, not to mention how great you feel for taking the walk and the saving on the environment!
- Re-evaluate your insurance every year. Insurance companies never tell you that they are paying out less every year, but they put up your premium every year. Call your local car dealer, if you drive a Mazda call them, Toyota call them etc. ask for the book value of your vehicle (have the make, model etc with you) then call your insurance company and ask them to adjust you insurance policy to pay out the greater of the book value or the amount owed to the bank under finance. Your premium will most likely decrease, giving you a free saving. Remember to do this annually, close to the beginning of the year as this is when book values are established.
- Top up insurance is one of those great necessities in life. However, they only have to pay out if something happens and there is a shortfall on your normal insurance. Check with your insurance, there comes point where your ordinary insurance will be sufficient to cover what you owe to the bank. Remember you need top up insurance as long as the value of the car is less than the amount owed under finance. After that it is an unnecessary cost and you can cancel it without the loss of benefit.
- Check the price of insurance if you increase your excess amount…this sounds scary to some people but you can save up to 50% of the premium by increasing your excess. If you have a savings pocket or emergency saving fund, the extra excess with be no problem and you will save substantially on your premiums per month.
- Shop around, your insurance premium can vary considerably from company to company.
Monday, November 9, 2009
Saving Tip #2: Electricity
This is one of your large unseen expenses, especially with the latest increases and the expected future increases. You don’t always realise how much you use, and any saving in this department would be a good saving booster, not to mention an environmental saviour. Here is how to limit the amount of power you use.
Cooking
Cooking
- If you need to get boiling water on the stove, boil the kettle and pour it into the pot, you will use 50% less power.
- Use the minimum amount of water in the kettle when you boil it. You do not have to fill the kettle every time you make a cup of coffee.
- If your fridge is empty, or close to empty, place a few bottles of water in it – these items store the cold and help keep your fridge temperature constant (it turns on and off less often thereby saving electricity).
- Also place water bottles near the top of the fridge, cool air travels down and will keep the fridge colder for longer.
- Break the habit of opening the fridge and staring into it undecidedly, this is a major electricity expense.
- Reheat food in the microwave, not on the stove.
- If you are cooking in the oven, place the food into the oven as soon as the light switches off, also keep the door closed as the heat escapes quickly.
- Use a pot which is the same size as the stove plate. Putting a small pot on the big plate wastes energy.
- Ensure all standby items are switched off at the plug, eg TV, DVD, Cellphone chargers, laptops, stereo’s, plug adaptors etc. These appliances use approximately 4% of your total electrical bill whilst not in use. To spot a vampire appliance look for a standby light or a remote.
- Switch off lights whenever you leave a room, be consistent with your children, if you complain because they left something on every time and make them return to switch it off, they start to remember to do it.
- Swap all your light bulbs for either LED globes or CFL globes, these draw 50% less power. They cost more initially but save in the long term as you only have to replace them every 5 years.
- Put outside lighting on a day/night switch. You only need the lights after dark after all.
- Add a timer to your pool pump. Your pool will stay blue with as little as 4 hours running time per day. Remember to run the pump outside of peak hours to avoid maximum demand rates.
- Hang your washing on the line instead of using your tumble drier. If you hang items correctly you can avoid ironing many cotton items.
- Only switch on your washing machine for a full load, a half load uses the same amount of water and electricity.
- Towels do not need to be washed daily, give each person in the house their own towel to use and hang up immediately, you can then wash them less often.
- Your iron draws a lot of power to heat up. Make sure you iron in batches, not 1 item at a time.
- Put a geyser blanket on your geyser.
- Switch off your geyser when you go to work, you don’t need hot water while you are not there, don’t forget to do it when you go on holiday.
- Add “Aerolite” in your ceilings to keep the temperature in your house stable. It will save on cooling in summer and heating in winter.
- Open any north facing curtains in winter, it will warm the house considerably.
Thursday, November 5, 2009
Saving Tip #1:Shopping
Never shop without a shopping list.
Buy what is on the list and give yourself a small reward for sticking to the list. E.g. 1 item not on the list only per shopping trip. To make a list for the first time takes a little effort, but here is how to do it…
Shop less often
Buy for the whole month on 1 trip and by bread and milk weekly not daily. Every time you enter a store you are tempted to buy something extra, limit your excursions. This saves petrol too!
Dealing with Kids in the shop
If your children ask for sweets at the shop, tell them to spend their pocket money on it, they will quickly realise sweets actually cost money and will limit their spend for themselves. Buying sweets daily at the shop is an expense you should not be incurring.
Bulk Buying
Buy in bulk….some places like Fruit and Veg city offer larger quantities for lower prices, sadly the product does not usually last too long. Shops like Makro sell bulk goods at prices your local shop get them at. Shop for your neighbours or family too, when you go shopping split what you bought and swap with your friends or family, they need to buy too and if you can pay the lower prices and share the cost you all win. Take turns at going to the store and splitting the food. Try different things to see what works best for you.
Lunchtime
Buy lunch box items so you don’t give tuck money, this is expensive….add a days tuck money per week to your child’s pocket money and ensure they use their own money when they want tuck. Pack lunch for yourself everyday as opposed to buying lunch, treat yourself if you do by going out for lunch or supper once a month.
Buy what is on the list and give yourself a small reward for sticking to the list. E.g. 1 item not on the list only per shopping trip. To make a list for the first time takes a little effort, but here is how to do it…
- Decide on the number of meals you eat at home in a month. Usually 1 meal per day.
- Split your list into categories, the isles in the shop are normally set out in this way too. Frozen foods, fridge goods, grocery items, snacks, cleaning materials, bathroom items are all excellent section headings.
- Tick off items as you add them to your trolley.
Shop less often
Buy for the whole month on 1 trip and by bread and milk weekly not daily. Every time you enter a store you are tempted to buy something extra, limit your excursions. This saves petrol too!
Dealing with Kids in the shop
If your children ask for sweets at the shop, tell them to spend their pocket money on it, they will quickly realise sweets actually cost money and will limit their spend for themselves. Buying sweets daily at the shop is an expense you should not be incurring.
Bulk Buying
Buy in bulk….some places like Fruit and Veg city offer larger quantities for lower prices, sadly the product does not usually last too long. Shops like Makro sell bulk goods at prices your local shop get them at. Shop for your neighbours or family too, when you go shopping split what you bought and swap with your friends or family, they need to buy too and if you can pay the lower prices and share the cost you all win. Take turns at going to the store and splitting the food. Try different things to see what works best for you.
Lunchtime
Buy lunch box items so you don’t give tuck money, this is expensive….add a days tuck money per week to your child’s pocket money and ensure they use their own money when they want tuck. Pack lunch for yourself everyday as opposed to buying lunch, treat yourself if you do by going out for lunch or supper once a month.
Friday, October 30, 2009
Buying a car using your home loan
So you have a little equity in your home loan and are planning on buying a car. Do you finance the car under a normal hire purchase agreement or do you use the equity in your home loan to purchase the car? Would buying a car using your home loan be a good or bad idea?
It may surprise you if I said good idea but that is exactly what I am going to say. If you are going to finance a car rather finance it using the equity in you home loan and you could save yourself thousands.
There are of course rules to taking this path. Without discipline you will pay a lot more than expected so follow the rules carefully and you can take advantage of this little known fact.
The vehicle purchase side:
The home loan side:
You purchase a vehicle for R 80000.00. Your monthly instalment, calculated at 14%, is R 1953.72 per month for 56 months. You then pay for the vehicle in cash by withdrawing R 72000.00 from your home loan (you negotiated a 10% discount for cash). You then pay an instalment of R 1953.72 per month extra into your home loan for 56 months.
Why do you save thousands?
I will use an example to explain.
Lets say you have an outstanding bond of R 400 000.00 with an instalment of R 4 265.72 at an interest rate of 11.5% . You keep paying your home loan as normal. You purchase the car on hire purchase like you normally would.
After 56 month:
The amount outstanding on the home loan would be: R 368 149.34
The amount paid for your vehicle would have been: R 109 408.32
You paid out a total amount of R 417 408.32
Interest paid amounts to: R 305 557.66
Capital paid is: R 111 850.66
You take the equity in the home loan of R 72 000.00 to buy the car. You now fix your instalment at R 6 219.44 for 56 months.
After 56 months:
The amount outstanding on your home loan would be: R 347 060.64
The amount paid for your vehicle would have been: R 72 000.00
You paid out a total amount of R 417 408.32
Interest amounts to: R 292 468.96
Capital Amounts to: R 124 939.36
Looking at this you can see that after only 56 months you have saved R 21088.70 in interest on your home loan without paying a cent more!
And the savings don’t stop there…you won’t have to pay interest on the saved amount for the remainder of the loan term. Just an added benefit!
It may surprise you if I said good idea but that is exactly what I am going to say. If you are going to finance a car rather finance it using the equity in you home loan and you could save yourself thousands.
There are of course rules to taking this path. Without discipline you will pay a lot more than expected so follow the rules carefully and you can take advantage of this little known fact.
The vehicle purchase side:
- Shop around for the vehicle you want.
- Once you have chosen the vehicle pay a visit to the garage where you are planning on purchasing it. Ask them for a quotation on the monthly instalment you will be paying when you finance the vehicle through a vehicle finance option. Make sure you could afford that payment as if you were purchasing it on hire purchase.
- Sleep on it, discuss it with your spouse, partner or best friend, recheck your finances and the affordability of the vehicle. (Don’t forget you need to insure it) Make sure you are comfortable with your decision to purchase the vehicle.
- Revisit the garage. This time negotiate a cash discount for the vehicle with the garage (most garages will give you a discount if you pay cash)
- Withdraw the amount payable for the vehicle from your home loan. Electronic transfer to your personal cheque account is normally the easiest way.
- Pay for the vehicle in cash. (Not hard cash – a transfer or cheque will be fine, ask the garage how they would want the payment made)
The home loan side:
- In order to ensure you are disciplined, set this up at the same time as paying for your vehicle.
- Arrange for your home loan to be paid at a fixed payment per month. The fixed amount should be your regular home loan repayment plus the quoted monthly instalment you would have paid on your vehicle.
- This should be paid set up for the same number of months you would have paid the hire purchase agreement. To revert back to a flexible payment thereafter.
You purchase a vehicle for R 80000.00. Your monthly instalment, calculated at 14%, is R 1953.72 per month for 56 months. You then pay for the vehicle in cash by withdrawing R 72000.00 from your home loan (you negotiated a 10% discount for cash). You then pay an instalment of R 1953.72 per month extra into your home loan for 56 months.
Why do you save thousands?
I will use an example to explain.
Lets say you have an outstanding bond of R 400 000.00 with an instalment of R 4 265.72 at an interest rate of 11.5% . You keep paying your home loan as normal. You purchase the car on hire purchase like you normally would.
After 56 month:
The amount outstanding on the home loan would be: R 368 149.34
The amount paid for your vehicle would have been: R 109 408.32
You paid out a total amount of R 417 408.32
Interest paid amounts to: R 305 557.66
Capital paid is: R 111 850.66
You take the equity in the home loan of R 72 000.00 to buy the car. You now fix your instalment at R 6 219.44 for 56 months.
After 56 months:
The amount outstanding on your home loan would be: R 347 060.64
The amount paid for your vehicle would have been: R 72 000.00
You paid out a total amount of R 417 408.32
Interest amounts to: R 292 468.96
Capital Amounts to: R 124 939.36
Looking at this you can see that after only 56 months you have saved R 21088.70 in interest on your home loan without paying a cent more!
And the savings don’t stop there…you won’t have to pay interest on the saved amount for the remainder of the loan term. Just an added benefit!
Wednesday, October 28, 2009
How to stick to your budget:
So you completed the budget on the last post. Now you have to stick to it. This is the hardest part, every time you walk into the shop you are tempted to spend. How on earth are you planning on avoiding this?
A change of mindset is required. This tip may help:
Most bills should be automatically paid via a debit or stop order, eg mortgage bond, credit cards, insurance, cellphone bills and school fees. If you have not loaded these bills on a debit order system, phone the relevant companies and ask for this to be done. Not only does it ensure you bills are always paid on time but the cost of a debit order transaction is less than half of writing out a cheque or drawing cash.
Debit order paid accounts should be no problem as the money is deducted straight from your bank account as soon after payday as possible. Change the dates if you find you spend the money before it has been taken off your bank account as returned debit orders can be costly and reflect badly on your credit record.
The balance of the budget is where the biggest “cheat areas” are. So make up a set of envelopes mark each one with the name of the expense and the amount you have budgeted for as per the examples shown below.
Envelope 1: Envelope 2: Envelope 3:
Groceries Entertainment Gifts
R 5000.00 R 2000.00 R 300.00
In the old days you could put the money in each envelope, but this is too risky in this day and age, not to mention it costs. The transaction fees for swiping your card are much lower than drawing cash.
So instead of carrying cash around carry the empty envelopes. Each time you spend money deduct that amount from the amount written on the envelope and when you reach R 0.00 you have no longer got funds available until payday in that specific area. Try keep your till slips in the envelope related to the spending, that way if you run out of money you can look through your till slips and decide which items you do not really need and next month you can eliminate them from your purchases. (More about this next time)
If you run out of money in an envelope.....
Do not “steal” from another envelope!
If you have spent your budget for that activity or area, it is spent and you will make it through the month until payday without any more purchases. Remember that if you carry the envelopes around with you and complete them as you spend you will know when you are reaching the end of your budgeted limit and slow down before you reach the dreaded R 0.00.
Each of your envelopes should look something like this at the end of the month. Hopefully you too have a positive balance.
Sample Envelope
At the end of the month if you have any money left in an envelope use that money to pay off you debts faster, starting with your credit cards. If all your other debts are paid off deposit the amount into your home loan, you will be surprised at the difference it makes both to your minimum monthly instalment or even better if you don’t decrease the minimum payment to the length of the loan.
Make sure your savings, both holiday and general are in a separate bank account which earns interest. That bank account should be a savings account and preferably not have a debit/transaction card. If it does, leave it at home, do not take it with you. A safe is the best place for it to eliminate temptation.
A change of mindset is required. This tip may help:
Most bills should be automatically paid via a debit or stop order, eg mortgage bond, credit cards, insurance, cellphone bills and school fees. If you have not loaded these bills on a debit order system, phone the relevant companies and ask for this to be done. Not only does it ensure you bills are always paid on time but the cost of a debit order transaction is less than half of writing out a cheque or drawing cash.
Debit order paid accounts should be no problem as the money is deducted straight from your bank account as soon after payday as possible. Change the dates if you find you spend the money before it has been taken off your bank account as returned debit orders can be costly and reflect badly on your credit record.
The balance of the budget is where the biggest “cheat areas” are. So make up a set of envelopes mark each one with the name of the expense and the amount you have budgeted for as per the examples shown below.
Envelope 1: Envelope 2: Envelope 3:
Groceries Entertainment Gifts
R 5000.00 R 2000.00 R 300.00
In the old days you could put the money in each envelope, but this is too risky in this day and age, not to mention it costs. The transaction fees for swiping your card are much lower than drawing cash.
So instead of carrying cash around carry the empty envelopes. Each time you spend money deduct that amount from the amount written on the envelope and when you reach R 0.00 you have no longer got funds available until payday in that specific area. Try keep your till slips in the envelope related to the spending, that way if you run out of money you can look through your till slips and decide which items you do not really need and next month you can eliminate them from your purchases. (More about this next time)
If you run out of money in an envelope.....
Do not “steal” from another envelope!
If you have spent your budget for that activity or area, it is spent and you will make it through the month until payday without any more purchases. Remember that if you carry the envelopes around with you and complete them as you spend you will know when you are reaching the end of your budgeted limit and slow down before you reach the dreaded R 0.00.
Each of your envelopes should look something like this at the end of the month. Hopefully you too have a positive balance.
Sample Envelope
At the end of the month if you have any money left in an envelope use that money to pay off you debts faster, starting with your credit cards. If all your other debts are paid off deposit the amount into your home loan, you will be surprised at the difference it makes both to your minimum monthly instalment or even better if you don’t decrease the minimum payment to the length of the loan.
Make sure your savings, both holiday and general are in a separate bank account which earns interest. That bank account should be a savings account and preferably not have a debit/transaction card. If it does, leave it at home, do not take it with you. A safe is the best place for it to eliminate temptation.
Tuesday, October 20, 2009
Budgeting
Most people I meet don’t budget, they tend to spend whatever they have and when the money is finished, it’s finished. They are the type of person who, if your debit order is a day late it won’t be honoured and halfway though the month they are not sure why they have no money left. They have little or no savings and tend to purchase goods on impulse.
Not sure if you are one of these people? Answer the following questions:
1. Do you draw up a budget every month?
2. Do you discuss this budget with your partner whilst drawing it up?
3. Do you compare your actual expenses to your budget at the end of the month?
4. Are budget expenses equal your actual expenses?
5. Do you plan your purchases before making them?
If you answered NO to the above questions, you should be taking a look at your financial situation and start budgeting.
Don’t know where to start?
Here’s a good beginning:
Copy this budget layout
Now complete it (with your spouse if possible):
A few tips to make it easier:
Draw up a new budget every month. Compare last months budget to this months budget. I recommend keeping these records for 6 months to compare them. The budget will highlight your strengths and weaknesses when it comes to money management. You can then address specific areas and train yourself to improve your weaknesses.
Not sure if you are one of these people? Answer the following questions:
1. Do you draw up a budget every month?
2. Do you discuss this budget with your partner whilst drawing it up?
3. Do you compare your actual expenses to your budget at the end of the month?
4. Are budget expenses equal your actual expenses?
5. Do you plan your purchases before making them?
If you answered NO to the above questions, you should be taking a look at your financial situation and start budgeting.
Don’t know where to start?
Here’s a good beginning:
Copy this budget layout
Now complete it (with your spouse if possible):
A few tips to make it easier:
- Your salary should be your gross salary, the amount you earn before deductions.
- Other income should include all other sources of income – eg rental, royalties, annuities etc.
- Short term insurance is insurance for your assets. Eg, car, household.
- Other policies will include payments made on investment policies, unit trusts etc
- Store card payments need to be calculated by adding all your store card instalments together.
- Credit card payments must be calculated by adding the minimum payment due for each card together.
- Entertainment includes all things entertaining. eg Going to a restaurant, movies or the theatre, Buying new Playstation or Xbox games, any money you plan on spending on keeping yourself entertained for the month. Remember this is the place you should be looking at cutting expenses first.
- Clothing should be cash bought clothing – you should not be buying clothing on credit. If you are – keep the payment in the store card figure, but plan to buy clothes with cash from now on. You thus need an amount to spend on clothing – give each member in your household a limit or amount for your budget, if you have no idea how to work out how much you spend, take last months total purchases on your clothing store cards – this is a good place to start, also remember it is a good place to cut if you are short of money.
- Hairdresser and beautician cost should be added for the month – another first to go item.
- Gifts – only if you have a birthday this month – after doing this for a while you will start to save every month for gifts and thus need a little every month as opposed to a lot sometimes. Birthday party costs should also be added here.
- Bread and Milk is another tricky cost – try this way “I go to the corner shop 3 times per week and spend an average of R 100, this means R 300 per week and R 1200.00 per month.”
- Add all your income – place it in “Total income” Add all your expenses – place it in “Total expenses”
Amount left = Income – Expenses
Draw up a new budget every month. Compare last months budget to this months budget. I recommend keeping these records for 6 months to compare them. The budget will highlight your strengths and weaknesses when it comes to money management. You can then address specific areas and train yourself to improve your weaknesses.
Wednesday, September 16, 2009
How to handle pocket money
Step 1: What does your child do to earn the money?
Set up a series of chores and expectations. These should be measurable. For example, I expect your bed to be made everyday, wash the dishes once a week, and pack your ironed clothes in your cupboard every Sunday. Perhaps I also expect you to feed the animals daily and to maintain a C average at school.
All these are measurable. Deduct money for every chore not done and each expectation not met. This way, children learn to work for what they earn rather than just getting money for nothing. Out there in the real world the motto goes: “Nothing for nothing and very little for 10 cents”.
Step 2: Decide what you expect you child to be paying for.
This should include all social excursions, airtime for their telephone, luxury clothing purchases, birthday presents for friends and any special things they want. Also ensure it includes tuck shop money and sweet money (no more paying for sweets at the shop on the way home from work). Most parents say that alone saved them thousands.
Airtime:
Be conservative, remember there are social networks which cost very little like Mxit and facebook so communication should not be very expensive. A “please call me” can still be used if they want to speak to you.
Outings:
Remember don’t allow them to go to too many outing, no more than 1 per weekend and preferably ensure at least 1 weekend has a social outing that either does not cost money or forces them to stay home and enjoy some quality family time. Birthday presents for friends would fall in here.
Luxury Purchases:
These items should be saved for, rather give them less and get them to save for 2 or 3 months to buy that special shirt or fancy handbag. Buying what you want when you see it does not teach your child the value of money.
Tuck shop:
Tuck shop money should be for 1 day per week at most. Sandwiches and a fruit for school will be sufficient and you can add making it to their chore list and save yourself the time.
Sweets:
Be Smart, 1 sweet a week over and above tuck shop is more than enough. You don’t have to spoil your children, you may even find they would rather not have a sweet anyway if they have to pay for it themselves.
Example Budget:
Airtime per month: R 30.00
Social outings per month: R 200.00
Luxury purchases: R 100.00
Tuck shop money: R 40.00
Sweets: R 30.00
Saving(20%): R 100.00 (see previous post)
Total Pocket money: R 500.00
You need to calculate a budget before you decide on the amount you want to give them according to your means and their current lifestyle. You can only introduce this plan to your child once you are familiar and comfortable with it. If you have not decided, they will convince you they need more and you will end up paying it!
Set up a series of chores and expectations. These should be measurable. For example, I expect your bed to be made everyday, wash the dishes once a week, and pack your ironed clothes in your cupboard every Sunday. Perhaps I also expect you to feed the animals daily and to maintain a C average at school.
All these are measurable. Deduct money for every chore not done and each expectation not met. This way, children learn to work for what they earn rather than just getting money for nothing. Out there in the real world the motto goes: “Nothing for nothing and very little for 10 cents”.
Step 2: Decide what you expect you child to be paying for.
This should include all social excursions, airtime for their telephone, luxury clothing purchases, birthday presents for friends and any special things they want. Also ensure it includes tuck shop money and sweet money (no more paying for sweets at the shop on the way home from work). Most parents say that alone saved them thousands.
Airtime:
Be conservative, remember there are social networks which cost very little like Mxit and facebook so communication should not be very expensive. A “please call me” can still be used if they want to speak to you.
Outings:
Remember don’t allow them to go to too many outing, no more than 1 per weekend and preferably ensure at least 1 weekend has a social outing that either does not cost money or forces them to stay home and enjoy some quality family time. Birthday presents for friends would fall in here.
Luxury Purchases:
These items should be saved for, rather give them less and get them to save for 2 or 3 months to buy that special shirt or fancy handbag. Buying what you want when you see it does not teach your child the value of money.
Tuck shop:
Tuck shop money should be for 1 day per week at most. Sandwiches and a fruit for school will be sufficient and you can add making it to their chore list and save yourself the time.
Sweets:
Be Smart, 1 sweet a week over and above tuck shop is more than enough. You don’t have to spoil your children, you may even find they would rather not have a sweet anyway if they have to pay for it themselves.
Example Budget:
Airtime per month: R 30.00
Social outings per month: R 200.00
Luxury purchases: R 100.00
Tuck shop money: R 40.00
Sweets: R 30.00
Saving(20%): R 100.00 (see previous post)
Total Pocket money: R 500.00
You need to calculate a budget before you decide on the amount you want to give them according to your means and their current lifestyle. You can only introduce this plan to your child once you are familiar and comfortable with it. If you have not decided, they will convince you they need more and you will end up paying it!
Thursday, August 27, 2009
Convince your kids to save money
I tell my children they have to save 20% of their pocket money while living at home. They should save this high % because they will never again get the opportunity to save this easily and probably not at this high % once they have to pay rent or a bond and the other expenses that adults have to.
How do I convince them to do this?
Incentive: To encourage saving I give them an incentive.
The scheme works like this:
My child earns R300.00 per month pocket money. They have to save 20%, that is R60 per month every month. I open a savings account at my local bank and deposit the R60 every month into that account and give my child the R240 balance as his pocket money. At the end of the year, my child has saved R60 per month for 12 months, a total of R720. According to the incentive scheme I must give my child 50% of their savings, that is R360.00. My child now has a total saving of R 1080, add the interest they earn from the bank and your child has saved approximately R 1100 in only 1 year from a pocket money of only R300 per month.
The first year is the hardest, but you as the parent should withhold their saving portion and deposit it for them. Once your child has received their first years saving bonus an addiction starts building.
This addiction grows stronger every year. Start saving from a young age, and what is learned from childhood, will become normal adult behaviour. Try encouraging them to spend only 50% of the saved amount on something special at the end of the year and save the other 50% towards next year. As the amount grows exponentially, because it will, they feel more proud of themselves and want to save more and more.
You must keep in mind that you are still the adult and that you should still be controlling where their saved money is kept and how much interest they earn while trying to maximise their gains.
Start out with a savings account at your local bank. When the savings reach R5000 start looking for alternative places to keep their money. Compare investments and pick the investment that earns the highest interest rate but is still a low risk product. Unit trusts, investment policies and fixed deposits pay a higher interest rate than an ordinary savings account and are all good options.
Remember to keep a balance in their savings account for their 50% spend at the end of the year as it can be tricky and costly to move money from higher interest rate accounts for short to medium term spending.
How do I convince them to do this?
Incentive: To encourage saving I give them an incentive.
The scheme works like this:
My child earns R300.00 per month pocket money. They have to save 20%, that is R60 per month every month. I open a savings account at my local bank and deposit the R60 every month into that account and give my child the R240 balance as his pocket money. At the end of the year, my child has saved R60 per month for 12 months, a total of R720. According to the incentive scheme I must give my child 50% of their savings, that is R360.00. My child now has a total saving of R 1080, add the interest they earn from the bank and your child has saved approximately R 1100 in only 1 year from a pocket money of only R300 per month.
The first year is the hardest, but you as the parent should withhold their saving portion and deposit it for them. Once your child has received their first years saving bonus an addiction starts building.
This addiction grows stronger every year. Start saving from a young age, and what is learned from childhood, will become normal adult behaviour. Try encouraging them to spend only 50% of the saved amount on something special at the end of the year and save the other 50% towards next year. As the amount grows exponentially, because it will, they feel more proud of themselves and want to save more and more.
You must keep in mind that you are still the adult and that you should still be controlling where their saved money is kept and how much interest they earn while trying to maximise their gains.
Start out with a savings account at your local bank. When the savings reach R5000 start looking for alternative places to keep their money. Compare investments and pick the investment that earns the highest interest rate but is still a low risk product. Unit trusts, investment policies and fixed deposits pay a higher interest rate than an ordinary savings account and are all good options.
Remember to keep a balance in their savings account for their 50% spend at the end of the year as it can be tricky and costly to move money from higher interest rate accounts for short to medium term spending.
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