Master Your Finances : The art of building wealth [1 ed.] 9781869226855, 9781869226848

Citation preview

MASTER YOUR FINANCES

The art of building wealth

CAROLINE MARWISA

MASTER YOUR FINANCES

What others are saying about Master Your Finances – The art of building wealth “I’ve read through your script - what a wonderful rendition!!! I’m really impressed. I think for someone writing for the first time, this is truly impressive. Even more important are the topics you are writing on - how to live life to the full!! It is simple, easy to read, demystifies personal finance, is short and precise, and provides for actionable steps.” —Bongani Mageba; Managing Executive, Stanlib, Johannesburg, South Africa “Caroline uses her experience in corporate financial management expressed at the level of the individual to share the art of wealth building. Just as major corporations employ strategies to manage money whilst being fully aware of their environment, an individual must be fully in control of their finances. Money mechanics, human behaviour, net worth, goal setting and financial control are explained in a readable and practical way to empower all readers. This book is a worthwhile investment for all who desire to have a mastery of money. Highly recommended by ‘Mr. G’ and a thumbs up!!” —Gerald Mwandiambira; CFP, Founder and CEO of Sugar Creek Wealth, Keynote Speaker, Facilitator, MultiMedia Presenter, Johannesburg, South Africa “I must say you have written it well and is very insightful. I like the simplicity by avoidance of using esoteric language or too much technical jargon. Any person with basic literacy can understand it.” —Charles Nyemba; Financial Services, Australia ‘’I just finished your book. WOW! It is an easy read and non-threatening for those with a phobia of numbers like me. Usually when I hear ‘wealth’ and ‘finances’ I automatically think numbers and I switch off. Well done and thanks for writing about wealth in a way simple to grasp.’’ —Mavis Mazhura; International Speaker/Coach, Author and Human Behaviour Specialist, Training Business to Business, Johannesburg, South Africa

“This book reveals the basic insights on managing your finances and wealth. These insights, if applied appropriately, can lead to financial freedom. Everyone including academics, professionals and entrepreneurs will find the content of the book to be of value.” —Rolland Eboru; Author, Managing Executive and Board Member at the South African Export Council, Cape Town, South Africa “Easy to read and practical, this book speaks to day-to-day issues that impact many people. An eye opener to personal financial issues that must be assessed and corrected to ensure wealth building and escape the trap of over-indebtedness. Caroline Marwisa is illustrating the issues that result in people being over-indebted and how to overcome this and build wealth. This book is a must for those who want to turn their financial situations around and those who want to continue to grow their wealth base. The systematic principles and action plans in this book make this an excellent resource for your personal and business library.” —Samarah Mushohwe; Audit Manager at the Auditor General, Johannesburg, South Africa

Copyright © KR Publishing and Caroline Marwisa All reasonable steps have been taken to ensure that the contents of this book do not, directly or indirectly, infringe any existing copyright of any third person and, further, that all quotations or extracts taken from any other publication or work have been appropriately acknowledged and referenced. The publisher, editors and printers take no responsibility for any copyright infringement committed by an author of this work. Copyright subsists in this work. No part of this work may be reproduced in any form or by any means without the written consent of the publisher or the author. While the publisher, editors and printers have taken all reasonable steps to ensure the accuracy of the contents of this work, they take no responsibility for any loss or damage suffered by any person as a result of that person relying on the information contained in this work. First published in 2017 ISBN: 978-1-86922-684-8 eISBN: 978-1-86922-685-5 (ePDF) Published by KR Publishing P O Box 3954 Randburg 2125 Republic of South Africa Tel: (011) 706-6009 Fax: (011) 706-1127 E-mail: [email protected] Website: www.kr.co.za Printed and bound: HartWood Digital Printing, 243 Alexandra Avenue, Halfway House, Midrand Typesetting, layout and design: Cia Joubert, [email protected] Cover design: Marlene de’Lorme, [email protected] Editing & proofreading: Jennifer Renton, [email protected] Project management: Cia Joubert, [email protected] Index created with TExtract / www.Texyz.com

MASTER YOUR FINANCES

The art of building wealth

Caroline Marwisa

2017

Dedication This book is dedicated to Gabe Unashe Shoo, our champion who taught me to be brave and make the most of the moment with a smile.

Contents About the author.................................................................................... ii Acknowledgements............................................................................... iii Introduction........................................................................................... iv Chapter 1: It’s not just about money, it’s about life................................ 1 Chapter 2: Taking ownership of your finances........................................ 9 Chapter 3: Your net worth..................................................................... 19 Chapter 4: What you own..................................................................... 29 Chapter 5: What you owe – Understanding debt................................. 43 Chapter 6: Dealing with over-indebtedness.......................................... 53 Chapter 7: What you earn..................................................................... 63 Chapter 8: What you spend.................................................................. 75 Chapter 9: Pulling it all together........................................................... 87 Chapter 10: Having a map and a mirror.............................................. 101 Resources the author recommends................................................... 110 References.......................................................................................... 113 Index................................................................................................... 117 Note to the reader.............................................................................. 120

i

About the author Caroline Marwisa is a qualified Chartered Accountant and has over 13 years’ financial services experience with the top financial institutions (Standard Bank and Barclays) in South Africa. Further, her exposure includes Standard Bank London, Stanbic Bank Zimbabwe, Stanlib Ltd, Absa Ltd and Absa Wealth, Investment Management and Insurance. She has worked in banking, asset management, investments, insurance and wealth management as a professional in finance, auditing, leadership and learning and operations. Caroline has served as a key individual, trustee and principal officer of retirement funds for over five years. It is her passion to inspire others to find their purpose and lead lives of significance, without being limited by a lack of availability of financial resources.

ii

Acknowledgements With special thanks to: •

• •

•

• • • • • • •

•

•

My mother, Mary Ray, for teaching me to dream and for her relentless determination when raising ten children and extended family members on a blue-collar salary. The wealth you built still pays dividends and rent! My husband, Roland, for being my personal coach and encouraging me to push for my goals. My six sisters for believing in me, being my biggest cheerleaders and my best friends. Special mention goes to Essie for being my role model and affording me opportunities in life. My two children, Anashe and Abby, for giving me the motivation to master my finances while creating experiences and affording you opportunities in life. My brothers, brothers-in-law, sisters-in-law, nieces and nephews for fulfilling my life in different ways. My Pastors, Ps Shiko and Francine Apwam, for your encouragement and prayers. My baby brother, Blessing, and all my prayer partners for standing with me in prayer over this book. My friends for all your support and encouragement. Ps Maggie and my friends at Homeless in the Park for teaching me about contribution. My teachers, both from my formal schooling and the university of life, for polishing my skills to produce this work. Granny Riana van Der Gryp, Aida Ferguson, Hendali Steynburg, Bongani Mageba, Charles Nyemba, Elvinah Marwisa, Yvonne Marwisa, Rolland Eboru, Mavis Mazhura, Samarah Mushohwe, Zameera Ally and anyone else who contributed to bringing this book to life. Everyone who has been part of the Master Your Finances journey over the past three years, especially my employer, Absa Ltd, for supporting me in various ways. Knowledge Resources and Wilhelm Crous for believing in this work.

iii

Introduction Businesses have mastered the fact that financial management is the lifeblood of the organisation; for centuries they have implemented the structures and systems to manage the same. This helps them to anticipate, manage and monitor their financial position so that they make informed choices before taking business decisions, and have early warning signs when things are not going well in order to remediate the situation appropriately. Individuals, on the other hand, often lack the tools or the knowledge to do the same. There are principles governing building wealth which need to be understood, yet human behaviour, whether natural or conditioned, influences individuals to interact with finances in a particular manner. Master Your Finances aims to achieve the following: • • • •

Provide awareness of the mechanics of finances; what you own, owe, earn, spend, contribute and invest. Provide awareness of human behaviours and how these impact on financial net worth. Assist individuals to align these behaviours and choices with their desired financial outcome. Provide options for the individual to feel empowered to take charge of their own finances, and design and implement a strategy to obtain the desired results!

Master Your Finances will transform your financial life by demystifying the complexities around wealth creation, opening you up to possibilities and suggesting practical ways to begin a successful financial journey.

iv

Chapter 1 It’s not just about money, it’s about life “A feast is made for laughter, wine makes life merry, and money is the answer for everything.” —Ecclesiastes 10:19 (NIV)

Money and decisions Have you ever stopped to ask yourself how many decisions we make on a daily basis that are influenced by money? Decisions are largely based on the availability of the financial means to support the various choices we make. You may have heard the saying that life is a series of choices that shape the path of each individual. I believe life is a lot more than that, however I concur that the statement holds some truth; our choices greatly influence our path in life. My nephew Gabe was born with a rare condition called Congenital Diaphragmatic Hernia (CDH), which was discovered in France when my sister Trish was already eight months pregnant. The plan was to deliver her baby boy and spend a couple of months with my other sister Elvinah before returning home to Zimbabwe where Trish lives with her husband. The plan turned into a nightmare when Gabe’s condition was discovered and set the family on an agonising journey of watching this brave little champion fighting for his life in intensive care

1

Master Your Finances: The art of building wealth

over the next five months, until he eventually made the transition to his eternal home. During this five-month period and afterwards, Trish’s life was turned upside down and there were a few instances when I realised that no matter how one wants to view money, it is a vehicle that makes life happen. It allows us to make decisions and choices we would not be able to make if money was absent or in short supply. At one point, the doctors were going to send Gabe to a specialist hospital in Paris because the hospital he was in could do nothing further and his parameters were outside the tolerance levels the hospital could work with. Taking Gabe to Paris meant a huge cost that no one in the family or all of us combined could put together. By some miracle, Gabe’s parameters reverted back to acceptable tolerance levels so he did not have to be transferred. Shortly before he passed on, I remember speaking to my sister while she was going through the worst time when the doctors were starting to lose hope about his chances of recovery. As a believer in the power of prayer and unity, I felt that if we could be together as a family praying together, the situation would turn around. Trish and I had a huge fight because she did not approve of me spending money I did not have on flights to France to support them and felt that I was making an emotional decision which made no financial sense. The decision to bury Gabe in France was largely influenced by the cost of repatriating his body to Africa, among other logistical considerations. Finances dictated how many family members could attend the funeral, while most of us had to make use of technology to watch the funeral via Skype. If money had not been an issue, two, possibly three, family members would have been in France during the five months to support the family and as many as could physically travel would have attended the funeral. This experience reinforced my sincere belief that we are here to live life to the full and not be limited by resources. Part of this involves being there for each other during difficult times, and we should not be limited in this. But sadly, a lot of life experiences are driven by whether or not our financial means permit us to experience them.

2

Chapter 1: It’s not just about money, it’s about life

According to Cussen (2014), the biggest percentage of people who file for bankruptcy do so as a result of medical costs incurred when a loved one is diagnosed with an illness that drains their financial resources. Most people would sacrifice their possessions and financial security in order to save the life of a loved one. Imagine how many different choices people would make in life if money was not a limiting factor. How many choices do people not even consider because they cannot afford the price tag? How many shops, holidays, experiences, choices of where to live, education and so forth are there that we automatically close ourselves to because we know we cannot afford to make those choices?

Money and relationships Lawyer South Africa cites financial problems as one of the top ten social problems contributing to stress in marriages that end in divorce. In addition to money being one of the major causes of divorce, I have seen couples who previously did not have money suddenly making a lot of it, which became a source of marital problems. Money is an integral part of any relationship and even the law makes provision for the different marriage contracts that couples can enter into, depending on how the couple intends to handle their finances together. It is important to obtain the necessary knowledge of the implications of the different marriage contracts on building wealth as a couple. The default marriage contract is referred to as ‘marriage in community of property’. This contract combines the two estates from the date of marriage, meaning each spouse immediately becomes liable for/ entitled to half of the other spouse’s liabilities/assets. The assets and liabilities acquired before the marriage form part of the joint estate, with the exception of specifically excluded inherited assets. ‘Marriage out of community of property with accrual’ means that assets and liabilities acquired before the marriage are excluded from the combined estate, while ‘marriage out of community of property without accrual’ views the two estates as separate.

3

Master Your Finances: The art of building wealth

To determine the best contract for each of the spouses it is important to consult a lawyer, as the type of contract chosen has various implications during the marriage, at divorce and at death with respect to how assets are divided, any tax implications, and even how the credit behaviour of one spouse may impact on the other. If one spouse is in business or has a bad credit record, it may be advisable to consider marriage out of community of property for the family’s financial wellbeing in times of financial distress. I strongly recommend seeking legal advice to determine which marriage contract is best before getting married, as it is almost impossible to change this after the marriage. In his book, Five Love Languages, Gary Chapman discusses people whose love language is “receiving gifts”. Needless to say, for this group the budget would have to include ‘gifts’. However, for this group and all others, there are still day-to-day basic expenses to think about. These basics can make or break a relationship when they are not in place. For a relationship to succeed, the couple has to be open to discuss financial matters in a mature way. The couple must develop the discipline to understand their combined financial situation, set goals together and work towards those goals. Couples also need to create discipline in managing their financial affairs and realise the impact that their choices have on their partner. Even where couples are married out of community of property, one spouse’s financial choices will have a bearing on the other spouse. Where couples openly discuss and manage their finances, financial progress is evident despite the levels of income. On the other hand, if the couple is not working together, despite having a high combined income, their financial progress is retarded because the two are not harnessing the combined leverage they have. I have seen countless examples where the financial decisions and actions of people impact their families, and the financial situation and security within a family affect the quality of relationships and in families.

4

Chapter 1: It’s not just about money, it’s about life

Money and health In order to lead a healthy lifestyle, people have to pay attention to the air they breathe, the food they eat, the water they drink, their exercise levels and their sleep (University of Washington Women’s Health: 2008; Advanced Wellbeing: 2015; Vanda Villanyi: 2010). Of course, medical attention is required when one becomes ill. The common denominator in all of these factors is that they cost money or involve money in some way. Organic food options, for example, always come at a premium, households are slowly investing in water purification systems, and the gym costs money. While sleep appears to come free of charge, money problems can take away the ability to enjoy peaceful rest. I recently gave birth to my second baby and was shocked at the excess bills I had to pay, which the same medical aid I had used four years ago with my first born was not willing to cover. Pressure keeps mounting on individuals to pick up increasing medical costs, thus money plays an important role in maintaining our health and the health of our families.

Career choices We have all heard the advice that if you follow your passion, the money will come. The reality for most people, however, is that their career choice is driven largely by the income the career generates. Most people will choose careers that pay well and then when they have secured their finances, they may take a leap of faith to pursue their passion. “While people recognise the need to follow their passion, most people who do either starve or take up menial jobs waiting for their careers/vocations to take off. So next time you hear someone tell you to do what you love, ask him or her: “Are you doing what you love?” If he or she says yes, then ask: “What followed your passionate decision, money or poverty?” If the answer is “money”, he or she is probably lying.” —Hannah Morgan, career specialist

5

Master Your Finances: The art of building wealth

Whether you believe in making a career choice that guarantees financial security or in following your dreams and allowing the money to follow, positive or negative financial implications will result.

Making dreams come true Fulfilling our dreams involves understanding our life’s purpose with respect to ourselves, others and God. There are many tools available to assist in determining what that purpose is and the corresponding dreams that will ensure the purpose is achieved. I went on a personal visioning exercise facilitated by Mark Campbell, a Human Resources expert, which made me realise a few things relating to my purpose in life. Personal Visioning is a coaching exercise with a qualified coach which helps one to explore and discover traits pointing to one’s purpose or passions. My experience was a two-day, one-onone exercise with Mark, whose vocation is to run such sessions for individuals or teams. This book would not have happened if not for the seed planted during that exercise; the coaching assisted me to gain clarity about what is of great importance to me, what drives and fulfils me, the problems in the world around me that bother me, and the nice-to-haves that I do not want to compromise on because they, in a funny way, bring about my unique signature. As I began to unpack what that meant, I started writing down the dreams I wanted to achieve, some of which have already been realised. The common denominator with realising most of these dreams was that I had to invest financial resources. And yet I still have many unfulfilled dreams that require significant amounts of money that are beyond what I can conceive currently. That being said, I also believe that dreams that are clear enough have the power to draw the required resources.

What then? In essence, the importance of money in general lies at the heart of our existence and all that we do. Major aspects in life require money in some form in order to navigate the joys and sorrows that life brings. Take special moments, such as getting married, the birth of a child,

6

Chapter 1: It’s not just about money, it’s about life

starting your own business and travel, and the bitter pills life brings like death, illness and divorce. These usually come with considerable financial implications, not only to facilitate the rituals and ceremonies that go with them, but also for the life changes that are brought about by such experiences. Although implementing and practising the suggestions made in this book will lead to creating and building wealth, it is my hope that this book will also enable you to dramatically improve your financial health while you live a meaningful life that impacts your sphere of influence positively and in the spirit of true stewardship! I define stewardship as obtaining the best value using the resources at your disposal so that your life, the lives of those around you, and your environment, are all in a much better position because of the choices you have made.

7

Chapter 2 Taking ownership of your finances “Empty pockets never held anyone back. Only empty heads and empty hearts can do that.” —Norman Vincent Peale

Making building wealth fun Most people fly blind when it comes to their finances; there is just no mechanism to take stock and make solid goals during their active years when they are working and earning. They generally only wake up when retirement age is looming. Once we realise that money is a part of life in every way, we have to find ways of making this topic understandable and enjoyable so that many people will embark on this journey to financial freedom. I reiterate the word “journey” because it is a part of our life and will be passed on to the next generation; it is not a destination. Every area of a person’s life is tied to their finances somehow. Finances dictate how a person lives their life, the choices they make, what they stand for, what their priorities in life are, and whether or not they have a short or long-term view. Very few good things in life are cheap or free, yet most people are ignorant about this important aspect of life, leaving their financial fate susceptible to manipulation and fostering habits that do not take them closer to their goals. Most spend their time and efforts working 9

Master Your Finances: The art of building wealth

to build other people’s financial freedom and neglecting their own, their loved ones, and the initiatives they choose to support. Some will compromise their values in order to make a living. Most people do not take time to consider what they should be doing in the present that will have a positive impact on their financial future, so it is fair to conclude that this aspect of life is worth the investment required in education and time. The first step in taking ownership of your finances involves making a decision to do whatever it takes to be on top of things when it comes to your wealth. Choosing to read this book is an indication that you are taking charge. It is essential to invest the time needed to obtain the necessary knowledge around this subject.

It takes resolve Like anything else in life, being successful at something means making a conscious decision to leave the old ways of doing things and old mentalities behind to adopt something new that will bring you closer to your goals. It means being clear about what you would like to achieve and what you do not want to see any further. “If you don’t design your own life plan, chances are you will fall into someone else’s plan. And guess what they have planned for you? Not much.” —Jim Rohn

The same applies to our finances. If you do not plan what you want your finances to look like, you will fall into someone else’s financial plan or lack of a plan. It takes resolve to set yourself on the path to building wealth, acquiring the right principles and implementing them to achieve the desired results. It is important to understand the reason why you have decided to embark on this journey to take charge of your finances. What will sustain you on the journey is your reason for doing it, and not what you need to do or how it needs to be done. So get clarity on why you want things to change for you financially. Resolve to take ownership of your finances and not leave things to fate or others. Resolve to do what it takes to come out on the other 10

Chapter 2: Taking ownership of your finances

side and reach your goals. Get rid of fear and doubt and take on a determined, winning attitude.

Getting rid of fear, greed and procrastination “Don’t let the fear of losing be greater than the excitement of winning.” —Robert Kiyosaki

The three evils of financial success are fear, greed and procrastination. While fear and procrastination debilitate one from executing on actions that will progress towards financial freedom, greed usually causes one to take foolish decisions by wanting to maximise on a seemingly good deal. Often these evils do not follow rationality, but are an emotional response to some form of experience. My sister decided to turn one of her residential properties into a crèche. She sounded very excited about the idea and a big part of her was convinced this would work. The numbers made sense and this would be a great venture to address a real need in the community. In discussion about the idea, I joined in the enthusiasm and I agreed with her that it was a great idea. A few moments later doubt crept in and she admitted she was scared of what could happen. The reason why she was afraid was that the rentals from this property were helping to supplement her family’s income. Understandably, she couldn’t take the chance at that particular point in her life. With children in school and many bills to pay, it just did not seem like a wise idea considering the chance that it may not work. On the contrary, what if it succeeded and this venture thrived? Often, it is fear that cripples some of the great ideas that come our way, keeping us stuck in the old way of doing things and resulting in no change to our financial circumstances. Fear cripples our ability to be creative and takes away the confidence that we require to be diligent in making meaningful changes that will propel our lives forward. With fear, I am not talking about the serious evaluation of your situation that is required when making decisions and choosing the safest or best option. I am talking about the crippling kind of fear that stops you from moving forward and changing your circumstances.

11

Master Your Finances: The art of building wealth

Fear, greed and procrastination are part of our wiring as humans, but luckily, there are mechanisms in existence to protect us from ourselves. The solution to fear is obtaining the relevant information; with the right education, a lot of perceived risks in investing suddenly disappear. An example is the belief that fixed deposits are safer than shares; actual research shows that shares have consistently outperformed other asset classes, whereas some fixed deposits have resulted in a depletion of the real value of money invested due to inflation. The solution to greed is diversification and adequate risk management through the support of a mentor. Risk management procedures force one to have limits in terms of how much money will be invested and the types of classes. Procrastination can only be permanently solved by some form of automation through the use of debit orders for investments.

Getting rid of doubt Self-doubt is our biggest enemy. Often we do not trust our instincts enough because we think we are not good enough or someone else has an advantage over us. We justify why it is easier for someone else to be living their financial dreams and we refuse to see how we too could be the ones living our dreams. We have lost faith and have become sceptical about everything. Even if an opportunity should come our way, we might turn it down as a result of doubt. Getting rid of doubt starts with acknowledging the areas where we doubt our own potential. Others will start believing in us only when we build confidence about our potential. It takes great care and wisdom for someone to see something in us that we do not see in ourselves. What if everything that made us view ourselves as a victim was actually the reason for our strength? What if somehow there was order in all the steps we have taken in life and where we are currently? We have got to keep believing that there are greater and better chances for us to make it in life. To succeed financially and build lasting wealth, we have to make a decision to get rid of the doubt that cripples us.

12

Chapter 2: Taking ownership of your finances

The journey It would be a futile exercise to talk about our finances without establishing a clear vision for our lives. I make the fundamental underlying assumption, which has been proven time and time again, that “everyone has a specific purpose in life”. If we have a poor image of ourselves we will find this hard to comprehend, yet it is true and until we acknowledge that, we will continue falling into others’ plans for our lives and be tossed to and fro without proper roots and a sense of direction and purpose. Many names are used to describe this. Some call it a “calling”, others call it an “assignment”, and some call it a “vocation”. Some fall into it by providence or chance, others go searching for it, and some have found it and are living it. Whatever you name it, whether you have found it or not, whether you are living it or not, there is a reason why you came into this world. And this reason, vision or sense of purpose is not only for you, but for others as well. If you give up on your vision, not only will your life be worse off, but the lives of those in your sphere of influence will be worse off. Not fulfilling your purpose could cause those around you not to fulfil their purpose. That is the extent of your influence on others. You cannot be replaced. Think about it, even in statistical terms. What are the chances that there could be someone else with the same gifts, talents, experiences, skills and opportunities as you? There is only one you, so work out what your vision and purpose are. One of my respected mentors in strategy once said the following: “Unless you take time to understand your purpose, you might settle for something less or go through life over-emphasising the wrong things”. He believes that there are two main ways of coming to realise your purpose; either by trouble or by truth. Trouble refers to those experiences that were uncomfortable and even painful to go through, however they opened your mind to what could be, strengthened you and stretched you. Sometimes, when we do not pay attention to what life is teaching us, this is exactly when some of these wake-up calls show up in our lives.

13

Master Your Finances: The art of building wealth

I once heard a story told by a presenter at a workshop I attended. He spoke about the feather, the brick and the truck. He was using these images to explain how life finds a way to grab our attention to change something or do something about our situations. He mentioned that first we get a feather, mostly in subtle ways, pointing us in the right direction. It could be a thought, a message on a billboard, or something in a movie offering a gentle nudge to our situation. Failure to pay attention and heed the instruction or message will then bring a brick, and if a brick does not work, a truck will run us over, forcing us to rethink our situation and make the necessary changes. Now that is a very painful way of getting the message. At other times, our misfortunes cause us to wake up and start doing things differently. Truth refers to a path of self-discovery where you take time out to think about the various facets of your life. Learning to understand that our lives are made up of different aspects and getting a grip on how everything fits together leads to understanding. Understanding the purpose of our lives is a great milestone. This helps us to know where we need to be. There will always be a difference between where we are and where we need to be. In his book, 7 Habits of Highly Effective People, Stephen Covey suggests four interdependent factors that drive whatever is at the centre of our lives. The following passage from Covey’s book explains each dimension. Security: Your sense of worth, identity, emotional anchor, selfesteem, basic personal strength or lack of it. Guidance: Your source of direction in life, an internal frame of reference that includes standards or principles or implicit criteria that govern moment-by-moment decision-making and doing. Wisdom: Your perspective on life, sense of balance, judgment, discernment, comprehension. Power: The faculty or capacity to act, the strength and potency to accomplish something.

14

Chapter 2: Taking ownership of your finances

Covey argues that these four paradigms are directly linked to how we live our lives in terms of family, friends, work, pleasure and so on. Growing up, I always had the habit of writing down resolutions for the new year at the end of each year. I have found over the years that whatever I wrote down would eventually come to pass. I have since developed my resolutions list and have created a vision board where I have the following topics covered: - - - -

Spiritual walk Family and relationships Health Contribution

- - - -

Wealth Career or vocation Home and luxuries Travel and adventure

What is always interesting to me is that as I write down how I want to live my life in all these areas, certain themes begin to emerge that define who I am as a person and what my life is all about. At the start of each year, my pastor, Pastor Shiko Apwam, always asks the congregation to write down seven things we want to see and seven things we do not want to see in the coming year. Through this process I have become more introspective about myself, and in so doing I continuously ask the following questions: What do I want to see in this area? What do I not want to see? How do I want to live my life in this area and why? During the personal visioning exercise with Mark Campbell mentioned previously, he asked me to list three key things I wanted to accomplish in different areas of my life. It was easy to list all the things I wanted, but then he asked me, “Why?”, and I realised it was not such an easy question to answer. However, I strongly believe that knowing the reason why we want to achieve a certain goal will help us identify which of the four dimensions listed by Stephen Covey we are fulfilling. You might be wondering where I am going with this or how this relates to building wealth. I would like to propose that this has everything to do with it. There are many ways to build wealth, however I want to help you build wealth in a manner that is meaningful to you as 15

Master Your Finances: The art of building wealth

an individual, which would also be meaningful to those around you. Ultimately we have only one shot at life, and we want to make sure we spend it in a valuable and meaningful way where we look back and have no regrets. Building wealth is integrated with the way we live our lives as long as we become aware of the actions that will help us achieve our financial goals. Having a vision board written out and visible will also assist you to make decisions and check whether or not the choices you are making take you closer or further from your desired vision for every area of your life. As you go through each section and I suggest ways of building wealth, it is imperative to perform a check against this vision board and ensure whatever strategies you select as vehicles to build wealth are aligned to your vision for each area of your life. Ideas that you will choose to implement will make for a good ride if they are aligned to your purpose in life. I believe that the various areas in our lives are not disjointed parts; it is when we are trying to be different things in different circumstances that we get frustrated. When we start bringing alignment to what drives us with everything we do, we will go through life with zest and passion.

Attitude Despite where we are currently, we will require stamina to stick to the picture that we have painted of our desired state. The attitude we ought to have is not one of being a victim, but one of taking control of our financial security. We hear many sad stories of how people have been disappointed and ruined financially because they entrusted their financial well-being to others, to their employers, or even to the government. Many people do this without consciously thinking about it, and some wake up to calamity only to realise that they have surrendered their financial independence to others and perhaps the situation has not served them well. This has catastrophic consequences, not only for the individual, but also for whoever depends on them financially. My desire is that we all wake up and realise that the responsible thing to do is to understand where we are financially and not leave our financial situation to fate. 16

Chapter 2: Taking ownership of your finances

Action items 1. Complete your vision board: The template can be found on www.masteryourfinances.net. This will act as a sounding board for crafting strategies to pursue along your journey of wealth building. 2. Perform a check against this vision board to ensure that the strategies you choose to build wealth are aligned to your vision for each area of your life.

17

Chapter 3 Your net worth Defining net worth As a starting point, we need to establish a common understanding of how wealth is measured. It is important to understand the various components that go into wealth creation and how each component either adds or takes away from wealth. A person’s net worth is a measure of the amount of money that would be left if that person had to sell everything they own and pay off everything they owe. For the purposes of this book, this is how we have chosen to define an individual’s financial wealth. Some gurus in personal finance have taken this definition further and have said that wealth is measured in time, i.e. if you took all you owned and sold it and settled all your debts, how far would this money take you if all you did was pay for your living expenses? This gives you an indication of how far you are from bankruptcy. You have heard the saying that the average individual is less than three pay cheques away from poverty. It is a harsh thing to say, however it may inspire someone to make different choices to secure their financial future. The aim of this book is to create awareness around this aspect and suggest ways that you can increase your net worth, regardless of the starting point. Nothing is prescriptive, and it is up to you to identify 19

Master Your Finances: The art of building wealth

how the suggestions could be applied to your unique situation and to come up with ideas and a plan that would work for you. As we go through this book, the intention is to come up with a plan that complies with the SMART principle. This means that our actions must be specific, measurable, achievable, realistic and time-bound. I strongly believe before embarking on any type of journey that we have to be able to measure our progress at each point. Most importantly, however, it is vital to know what our starting point is, what our destination is, and the route that we will take. This is not a ‘get rich quick’ scheme, but a holistic approach to building wealth that integrates each individual’s personal circumstances, their vision and their purpose in life. The idea is to produce a guide to a lasting and fulfilling financial life. Once we understand what financial wealth is and what drives its growth or destruction, we will be able to link the consequences of certain behaviours to our financial situation, which will hopefully cause us to select those choices that will drive us closer to our intended goals as per our vision board. In defining our net worth, it is necessary to note that this is not static; it is either on an upward trend or dwindling at any particular point in time. That brings us to the next point of discussion.

Stewardship Stewardship is about leaving something in a better condition than when you found it. I will extend the meaning to leaving people in a better condition than you found them. This statement alone dispels some of the ideas people have around wealth. The fact that someone has assets to their name and is financially free does not indicate the stewardship that person has displayed in managing their wealth. It might just be that the individual was working from a large base and so they might have a false sense of comfort when in reality their net worth is dwindling as time goes on. Eventually, if someone does not employ appropriate measures in managing their finances, that buffer wears away as it is not being sustained by behaviours that increase the person’s net worth. Similarly, starting from a low base should

20

Chapter 3: Your net worth

not discourage someone from building their net worth, as this is a process that will only work if the individual makes deliberate choices to increase their net worth. Again, it can be quite encouraging to monitor this picture over a period of time. Net worth is a measure of how much wealth an individual has accumulated over time; it is the difference between what you own and what you owe. The higher your net worth, the greater your financial wealth, and the better chance you have to grow your wealth exponentially. When I was in high school I remember having a discussion with one of my best friends, who has remained a friend to this day. We were analysing why some students seemed to have more privileges than others. At that time, some of our fellow students were already driving cars. In those days, even a working adult earning a decent salary could not necessarily afford to buy a car. There were no lines of credit available, so people bought what they owned using cash. We ended up concluding that it must mean someone in our ancestral chains had not done their part. We pictured a scenario where each person in a family tree took what the previous generation had and improved on it, and that over time the family generations would get wealthier. Of course I realise that we are not in control of everything that happens in life and that can impact our finances. All I am suggesting is that as far it depends on us, let us do what is within our power to ensure that we pass on a better heritage and financial situation to the next generation. By analysing this concept of stewardship, we concluded that if everyone in the chain strives to uplift the standards from the previous generations, we should see progress from one generation to the next, and if this can start with each individual, over time the lives of those in our sphere of influence would continue improving. As individuals we should get to a stage where we look to the needs of others and collectively improve the lives of those even outside our families, communities, countries and continents. It seems a far-fetched dream, but that is the power of the individual. Just look at how social media has taken the world by storm. It is reported that 21

Master Your Finances: The art of building wealth

quite a few websites have attracted bigger memberships than the populations of some countries. That is the power of the individual connecting with other individuals. This is some food for thought.

S Steps to work out your net worth Make a list of all the assets you own We have a section dedicated to the types of assets an individual can possess and what is advisable depending on the individual’s goals. At this stage, you are measuring the starting point of your journey. A net worth calculation worksheet can be found on www. masteryourfinances.net to guide you. This lists everything you own, whether it was received as a gift, inherited, or bought using cash or credit, which has a monetary value that can be realised if sold. This ranges from furniture to collector’s items, cars, houses, factories, machinery, investments and so on.

Put a cash value to each item This is the amount of money you will be able to realise if the asset is sold. I propose that we look at the price at which the asset can be sold easily over a three to six-month period. Usually, this would significantly reduce the value attached to an item, but for the purposes of this exercise, it is sensible to adopt this approach.

Add up the values of your assets for your ‘Total assets’ Refer to the net worth calculation worksheet Make a list of every debt you owe This should be an easy exercise, but for some it might be a bit more complicated. These are amounts owed to the bank, retail outlets with credit lines, family and friends, suppliers, the tax man and so on. We have a section dedicated to what you owe, but the worksheet also guides you in listing all your debts.

22

Chapter 3: Your net worth

Write down how much you owe for each debt This is the value your creditors would accept as full settlement of the debt you have with them. It might require contacting the bank and finding out the settlement value on your car or any other assets you have purchased through bank finance.

Add up the debts for your ‘Total liabilities’ Refer to the net worth calculation worksheet Work out your net worth To calculate your net worth, you simply take your total assets minus your total liabilities. There are three possible positions, which we will explore in the section that follows. Net worth can be above zero, close to or equal to zero, or below zero. Whatever the value of your net worth in your journey, it is simply a peg in the ground indicating where you are right now. It is not meant to discourage you, but rather to sensitise you and make you aware of where you are currently. This is a result of the choices you or others have made in respect of your finances. Again, if we picture a journey, it marks where you are in relation to your destination. As mentioned before, the process of building wealth is an ongoing journey where you never arrive, but you can set milestones along the way of specific targets you wish to achieve. Working out your net worth also assists in identifying the gap between where you are currently and where you want to be according to your vision board. Perhaps you aim to have a fully paid up house within five years in the Wealth section of your vision board. Your net worth calculation will indicate what gap needs to be closed to get to your long-term goal.

23

Master Your Finances: The art of building wealth

Three categories Above zero or close to zero If your net worth is above or close to zero, this is a great starting point. The sections that follow will suggest areas to consider in order to continue growing your net worth. Your aim might be to build structures that will continue to generate income which is not dependent on the effort you put in. Your goal might be to achieve the freedom to pursue the things that really matter to you and to be assured that your basic financial needs are taken care of. Again, the aim of this book is to work with each unique situation to create an action plan that will make us good stewards of what we currently have.

Sub-zero If your net worth is below zero, it’s not the end of the world. However, you do have to come up with solutions as soon as possible to stop the situation from getting worse and to recover from this position. I have spoken to many people who feel hopeless because they are in this situation. Here you need to be cognisant of the African proverb that says, “There is a solution to everything”. It is true; no matter what financial situation you are in right now, there is always a solution. I dedicate a section of this book to discussing remedies for people dealing with over-indebtedness.

Strategies to increase your net worth As we have chosen net worth as the measure of wealth, we will explore different strategies to increase our net worth, which hinge on the following principles:

24

•

Increase in value of assets – We will explore some ideas that will assist in increasing the assets we own by acquiring more assets or increasing the value of the assets we own.

•

Reduce debt – We will consider methods we can employ to reduce the non-value adding liabilities and understand the

Chapter 3: Your net worth

difference between good and bad debt so that we can employ the power of leveraging to build wealth. •

Increase in banked profits – This principle suggests that whatever we earn in excess of what is required to meet our obligations, living costs and contributions, has to be applied to increase our net worth. In certain instances, guidelines will be provided to focus on saving or investing in any given period of time. I prefer to use the term ‘bank our profits’ to illustrate this concept.

Target net worth Of course it is important that your net worth figure be above zero, but just how much this figure should be is what is termed ‘target net worth’. This is the figure of net worth you require if you are going to be financially free. Financial freedom is defined as the ability to meet living and lifestyle financial demands without having to actively work for the money, but through the consumption of income generated from accumulated assets. We will define assets in the next chapter, but it is important to talk about target net worth as this is the figure one should be working towards. The income generated should be capable of meeting your financial demands without depleting your capital. This can become quite a complex exercise; the most simplistic way to explain this idea can be observed from farming. Take for example a dairy farmer and assume he has no other assets and liabilities. If the farmer were able to live off the milk produced by 100 cows, enjoy his desired lifestyle and cover the costs of producing the milk, his net worth would be 100 milk cows. It is important to note that if his herd grows above 100, he can easily sell or give away the excess capacity and still be financially free. However, if he decides to sell some of the cows, he must ensure that his herd does not reduce below 100 at least during his lifetime. This is the value add service that a qualified financial advisor provides to assist with putting together a plan to accumulate one’s assets, and then match the cashflow demands that would be required over the expected life of the individual, whilst taking into account tax and other considerations. In the chapters that follow, we will explore what you earn, what you owe, what you spend and other topics to consider in the art of building wealth. 25

Master Your Finances: The art of building wealth

There are various ways of calculating your target net worth, but ultimately, whatever that figure is, it should be capable of producing your income needs over the course of your life as well as the inheritance you desire to leave behind. Let us explore a few methods of calculating target net worth: 1. Financial Freedom Income Method – this method calculates the net worth required to satisfy a certain income level without relying on income earned from one’s own work. This method assumes that the income required will grow by 4% over the rest of the lifetime of the individual, and like the example of the dairy farmer above, one would create an income generating portfolio of assets resulting in the target net worth as calculated below. Example: monthly income required by Mr A who is 40 years old is R35,000 after tax. This 40-year old would need to build a portfolio of income generating assets resulting in a R5,25 million target net worth. The formula below is the mathematical formula for calculating the present value of a growing perpetuity, assuming a required rate of return of 12% per annum and a growth rate of the annual income of 4%. Target Net Worth = Annual After Tax Income/ 0.08 Target Net Worth = R5,250,000

This means that when the portfolio grows to R5,25 million, Mr A will be able to sustain his lifestyle from income earned from his portfolio without the need to work. That is why personal finance coach and author Ann Wilson calls this method the Financial Freedom Net Worth Figure. This method also gives one a final figure to aim towards, yet how does one know whether or not they are on track to building their target net worth? The following two examples indicate where one should be with respect to building wealth. The first method is more aggressive and may ring true for super achievers when it comes to building wealth. The conservative method recognises 26

Chapter 3: Your net worth

that especially when people start out, they are in a negative net worth situation as a result of debt from study loans, first car costs, home loans etc. 2. Aggressive Milestone Method (Stanly & Danko, 1996) – this formula tells you where you should be with your net worth based on your income level and age. This formula was developed as part of a study performed on a sample of millionaires in the United States of America. The biggest criticism is that it does not give a realistic figure for younger people. I choose to call it the aggressive method as it enables us to calculate a range of values representing where your current net worth should be. Example: Mr A above, whose age is 40 years and Annual Gross Income is R580,000. Target Net Worth = Age X Annual Pre-Tax Income / 10 Target Net Worth = 40 X 580,000/10



= R2,32 million

A 40-year old earning R580,000 annually should have a net worth of R2,32 million according to this formula.

3. Conservative Milestone Method – Hamm (2007) adjusted Stanly and Danko’s (1996) formula to cater for those with a negative net worth resulting from debt when they start working, and assumed that the debt would be paid by age 27. He addresses the criticism that the above formula does not give a realistic figure for younger people and assumes a higher rate of return on the net worth (rate of return is the expected growth percentage of assets). I choose to call it the conservative method to use together with the aggressive formula to enable us to calculate a range of net worth figures representing where your current net worth should be. Example: Age 40 years and Annual Gross Income of R580,000.

27

Master Your Finances: The art of building wealth

Target Net Worth = (Current Age -27 years) X Annual Pre-Tax Income / 5 Target Net Worth = (40 - 27) X 580,000/5

= R1.5 million

A 40-year old earning R580,000 annually should have a net worth of R1.5 million according to this formula. Please note that this formula gives a negative net worth figure if the individual is below age 27, which may represent those who would have started with some debt.

The way to interpret the above methods is simple; Mr X’s target net worth figure is R5,25 million. This means that if he had a net worth of this amount, he would be financially free by living off his assets. In addition, at his current age, his net worth should be between R1.5 million and R2.3 million.

Action items 1. Complete your net worth calculation: the worksheet template can be found on www.masteryourfinances.net. 2. Calculate your target net worth as per A, B and C above. How does your current net worth compare with A and B? 3. After reading the next two chapters, list a few ideas of the actions needed.

28

Chapter 4 What you own Defining assets There are various definitions for these powerful resources which are mostly known as assets. Accountants define assets as resources within your control from which you can derive some future benefit. Assets range from liquid to illiquid assets; the quicker and easier the asset can be converted into cash, the more liquid it is. Conversely, those that are not easily convertible into cash are illiquid assets. An asset has properties that allow the holder of the asset to enjoy benefits, and there is a monetary value attached to them which can be measured with reliability. With this in mind, an asset can be in the form of cash, deposits, shares, bonds, unit trusts, and assets for personal use such as a house, a car and so on. Assets can also form part of a business such as machinery, equipment and so forth. This chapter explains what you own and its impact on wealth creation. Additionally, I discuss the importance of distinguishing between living and lifestyle assets and wealth building assets, and what one should consider to ensure that one’s wealth grows and is protected.

29

Master Your Finances: The art of building wealth

Two categories – using or building wealth Living and lifestyle assets Living and lifestyle assets create the demand side of financial resources, while wealth building assets provide the income required to meet that demand. These assets support our human needs as well as our chosen lifestyle. They are for personal use or consumption, such as the house you live in, your car, furniture, boat, private jet etc. Some finance experts go so far as to say that these are actually liabilities and not assets, because of the requirement to outlay financial resources for their maintenance and upkeep. I still say that they are assets because one can always decide to dispose of them, which would generate cash. Living or lifestyle assets create a demand for financial resources that should be covered by wealth building assets. If the demand is high, the wealth building assets need to be big enough to fulfil that demand. The size of living and lifestyle assets is a matter of choice, however understanding the relationship between the two may bring sobering thoughts to just how big living and lifestyle assets need to get. Not adequately planning for this relationship results in insolvencies, regardless of the level of income. I want to propose that one considers the following points with respect to living and lifestyle assets: 1. Sources of happiness – We live in a material world which is forever pressurising people to go for the bigger and nicer house, car etc. Yet research proves that while it is important to have decent lifestyles, happiness comes more from relationships, fulfilling work and acts of generosity, rather than material things. 2. Maslow’s hierarchy of needs – Maslow argued that it is human nature to be motivated by a higher unsatisfied need; he suggested that there is a hierarchy of human needs from the most basic needs to self-actualisation. While self-actualisation itself may have little to do with money, the various levels below place a demand on financial resources. Avoid the trap that this brings by

30

Chapter 4: What you own

not always going for a higher unsatisfied need. The bigger car or house will not grow your financial situation, even though it will satisfy your desire for bigger and better possessions. 3. The law of diminishing marginal utility – Ever noticed how things are usually “to die for” and one cannot wait to get their hands on that new car? However, once the car is in the garage, the level of excitement starts dwindling until the car becomes like any other car. In this context, this law refers to the wearing off of the excitement related to acquiring a new asset. The point is that while it is great to enjoy a spectacular lifestyle, this comes at a cost which must be funded from somewhere. I am a firm supporter of people enjoying the privileges life brings. It is important, however, to determine what those privileges are and approach these with purpose. It is important to understand that there will always be flashier cars, nicer houses and more gorgeous shoes. I propose that you make a list of your required possessions that define the lifestyle you desire. On my vision board I deliberately have a section called ‘Home and Luxuries’. This is my ‘because you’re worth it’ part of life. We want our work to be meaningful and bring handsome rewards, however we also want to be able to enjoy the fruits of our labour. Having a section written down under Lifestyle on our vision board means we deliberately set goals and choose the lifestyle we want for ourselves and our households. We rank the needs in order of importance, which will differ from individual to individual. We have to have a sense of priority to our lifestyle demands; as and when the resources become available, we acquire what we require to satisfy our lifestyle needs. Firstly, it is not a haphazard approach but a deliberate one, ensuring that our needs and wants are satisfied without stretching ourselves and living beyond our means. Life is not a dress rehearsal; every moment counts and therefore we need to maintain a certain balance. It is also necessary to employ the required discipline in choosing to wait for the exact lifestyle we really want while putting the structures in place that will enable us to maintain that lifestyle sustainably. 31

Master Your Finances: The art of building wealth

The diagram below represents how we should be thinking about assets.

Maximise wealth building assets (supply)

Minimise living and lifestyle assets (demand)

Figure 1: How we should be thinking about assets Source: Author’s own work

Wealth building assets Wealth building assets are used to generate income immediately or in the future so that your earning potential is not tied to the efforts you put in. In creating wealth, it is imperative that there is a portfolio of assets that generate income whether you wake up to work or not. Great wealth strategies will have in place assets that generate income for years to come, that is, they are not limited to a person being alive. In appraising the income to be generated from assets, you need to have a medium to long-term view on assets that hold or increase in value, and ensure that the cost of generating that income is maintained at a level lower than the income itself. In other words, the assets must bring much higher financial benefits over the time they are within your control than the costs associated with carrying them. Wealth building assets fall into three groups, namely: 1) Income Producing Assets; 2) Capital Appreciating Assets; and 3) A combination of 1 and 2. It is extremely important to understand what value an asset brings to the wealth creation mix. My sister and I bought a piece of agricultural land and it was a huge sacrifice paying the instalments over an 18-month period. When we 32

Chapter 4: What you own

eventually paid it off, we were so excited that we now had a paid-up asset. Our excitement was short-lived however, when we realised that our asset was of no value to us unless we sold it off, rented it or farmed it. Selling was just not an option after the struggle to pay it off; we were too emotionally invested in the land. Farming was not an option as we did not have the operational ability to run with the activities. We eventually settled for a small rental income to cover the rates and taxes while we hold onto the land for capital appreciation or potential rezoning into a residential development. We learnt a few lessons as a result of buying that piece of land, which I will share below: 1. Wealth building assets must be profitable – Approach wealth building assets as you would approach a business; the numbers must make sense before buying the asset. This means that you know the value of the asset so that you can negotiate a bargain or not pay above the market price, and understand how you will make money from the asset. 2. The role the asset will play in your wealth portfolio – Decide upfront if the asset will be held for income, capital growth or both, and the calculations must support your decision. The asset needs to pay itself off without any help from other income sources. It is a business, remember. 3. Change in value – The market value of assets normally forms specific patterns over their lifespans. Different categories of assets, by their nature, will increase, decrease or hold their value over time. As a principle, a solid base of assets that hold their value or increase in value over time should form the foundation of any person’s wealth strategy. A good example is property. Accountants use the term ‘depreciation’ to refer to the decrease in value that occurs over time and through use, i.e. from the time an asset is bought to the time the asset can no longer be utilised productively for its intended purpose. These are called ‘depreciating assets’. Firstly, it is again important to understand how the value of an asset changes from the time it is acquired in relation to the benefits that it can bring.

33

Master Your Finances: The art of building wealth

4. Costs to hold or maintain – To build wealth, as an underlying principle, the benefit from holding the asset in the form of returns or final disposal must always exceed the cost of purchasing and the costs associated with holding the asset. It is very important to be aware of the costs related to holding an asset. For example, buying a car means that on an annual basis, a service must be performed on the car and there are insurance, fuel and cleaning costs. In property, there are taxes, the cost of repairs and maintenance, levies and so on to be paid. Many people get into trouble as a result of underestimating the actual cost of holding an asset. As an example, many people will decide to buy a car based on the assumption that they can afford the repayment instalments, while neglecting to factor in the other associated costs of holding the asset itself. 5. Eggs in one basket – It is imperative when buying assets for wealth creation not to put all your eggs into one basket. This is obviously because, if something happens to the basket, you would lose all your eggs at once. The idea is to have a portfolio of assets whose value will increase in spite of external events. The concept of not putting all your eggs in one basket is called ‘diversifying’. You can diversify your asset portfolio by buying different classes of assets, investing in different industries, locations and so forth. It is a form of protecting your portfolio from adverse external conditions that may impact the value of the assets. 6. Sources of benefit from wealth building assets – Understanding the various sources of benefits from an asset will help you to decide whether you should obtain legal title to an asset, or lease it from someone else and utilise it to benefit in one of the various ways listed below:

34

-

Use the asset in the production of income in a value adding process, such as manufacturing a finished product which can then be sold at a profit.

-

Sell the asset and apply the proceeds towards wealth creation.

Chapter 4: What you own

-

Use the asset as a pledge in raising financing for other wealth generating assets or initiatives.

-

Rent the asset out for regular income.

-

Realise the residual value of scrap assets by selling the components.

Once you have established which assets you already have or which ones you intend to procure, you must have a strategy for deriving benefits from the assets. Accumulating the right kind of assets over time is the key to building wealth. In the above discussion, we have established the following principles that enable you to build wealth: •

Buy an asset at a price lower than market value.

•

Buy an asset whose value has the potential to increase over time.

•

Buy an asset that generates regular income from its use or rental.

•

The cost of carrying the asset must be lower than the value of the asset or the income generated from the asset.

Wealth building asset groups There are different groups of assets, ranging from physical assets to intangible assets. Physical assets have substance and are usually purchased at a cost or built from separately identifiable components, whereas intangible assets do not have physical substance and often result from some process of building them over time. The important thing is that benefits can be derived from both. Most people have assets they do not even realise they have, or if they do, they do not know how to start generating benefits from these assets. We will explore how assets can be used to generate income, but first let us look at the different classes of assets. I distinguish wealth building assets into six categories: 1. You – The more I study the subject of personal finance, the more I appreciate that you are actually your greatest wealth building asset. The propensity to earn an income from your skills, time, 35

Master Your Finances: The art of building wealth

effort and ideas is limitless, provided you commit to a lifelong journey of personal development and putting your ideas into action. This includes formal education, informal education, experience, building your brand, committing to excellent service, and looking out for problems to solve. Not only artists should be creating; everyone has a creative seed in them. Imagine your employer as a customer and start thinking about how to delight them by giving the best service ever, so that they will choose you over and over again. This will force you to think about ways to improve your capacity and capability. 2. Assets that you build – These are assets that require a massive amount of action upfront, but when established, will require much less effort to maintain. This group of assets normally yields some of the best returns in comparison to effort or capital invested to build them. A great example of this is the franchising industry, which is growing by the day. The World Intellectual Property Organisation defines intellectual property (IP) as a creation of the mind, and distinguishes between IP and copyright. Generate income or revenue from IP by writing a book, a course, creating a movie, or other ideas, and obtain the relevant legal backing and sell licences or rights to use the material. Building an application that generates income each time there is a download or through advertising via the app is another example. Creating intellectual property takes a lot of time, yet the benefits can be long lasting in generating passive income. 3. Assets that you buy – These include assets with physical substance and range from land to residential and commercial buildings, plants, equipment, tools, inventories of goods and so on. These assets are usually applied in some process of production of income through rental, providing services or producing goods. 4. Assets you invest in over time – By consistently saving a portion of one’s income and using it to invest in financial instruments like shares, bonds, options, unit trusts, exchange traded funds and so on, individuals can take advantage of the power of time 36

Chapter 4: What you own

and compounding to build considerable wealth. This group of wealth building assets works with: 1) the amount invested; 2) the time the investment is held in the market; and 3) the expected investment return from the asset. To obtain the best results, one must maximise the amount invested and start as early as possible to take advantage of the power of compounding. Over time, shares have been proven to produce the highest rates of return, therefore a long-term investment strategy in shares yields superior results. It is important to apply the diversification principle to manage the risks related to an investment in shares. 5. Relationship assets – Often your network of contacts can provide sources of value from which you can derive benefit; examples include customer lists and customer and supplier relationships. The focus is on building a trusted relationship that aims to give value to your networks so that when the opportunity arises, you can add value and get paid for it. 6. Converting living and lifestyle assets into wealth building assets – There is a new breed of business that is emerging through the use of platforms that connect individuals with excess capacity in their living and lifestyle assets with people willing to pay/ rent that excess capacity. Examples are Airbnb and Uber, which have allowed individuals to rent excess rooms in their homes for lodging and convert their vehicles into taxis through the use of technology platforms. The combination of the results of the six categories creates the nestegg to fund all financial demands you may have. The financial demands are represented by the Target Net Worth Financial Freedom Figure covered in Chapter 3. Your strategy must aim to reach this figure during your active years so that you do not have to reduce your lifestyle when you can no longer work to earn an income. Better still, if you can accumulate this figure, then you are financially free.

37

Master Your Finances: The art of building wealth

Getting started with wealth building assets The different asset types and classes discussed vary in complexity. Before investing in or buying a particular asset, it is imperative to obtain either the relevant education to transact on your own behalf, or appoint an expert in that particular type of asset or class to assist with the decision to buy. Of course you will pay for the service, but it is better to pay upfront to save yourself from making expensive mistakes. Financial instruments require someone who is an accredited financial advisor or broker with the relevant licence in that specific category. Always insist on the financial advisor’s mandate to ensure that he or she is appropriately qualified to advise on the type of asset you want to invest in. You could also double check on the Financial Services Board’s website (https://www.fsb.co.za/fais/search_fsp.htm) to ensure that you are dealing with a reputable financial advisor. Whatever investment you or you and your financial advisor decide on, you need to know which companies you are dealing with. Each company is obliged to give you information about the complaints procedure in the event of inappropriate advice or any prejudice experienced with financial institutions. In this complaints procedure, the company should disclose the consumer protection body or ombudsman governing that particular organisation.

Insurance – protecting your assets There are various risks attached to owning an asset. Losing an asset to an unforeseen event is devastating and means an erosion of your wealth base. It is imperative to understand the risks associated with holding a specific asset. These risks include theft, accidental damage, damage due to natural disasters such as floods and earthquakes, etc. If there are ways to manage the risk and put measures in place to avoid the risk from materialising, that would be great. Alternatively, you can decide to accept the risk knowing that should any of the risks materialise, you are able to take the associated loss. The more common way of managing the risk is to take out insurance. This means handing over the risk to someone else for a monthly fee. The higher 38

Chapter 4: What you own

the chances of the risk occurring, the greater the need for insurance will be. The cost of insurance should be factored in when assessing the cost of holding an asset. In taking ownership of your finances, it is good financial practice to consider the insurance cover and premiums you are paying on an annual basis. A former colleague advised me early on to obtain quotes on my car insurance at the beginning of every year and then to go back to my current insurer to negotiate lower premiums. This is because each year the value of your car reduces, thereby lowering the premium, but most insurance companies will not voluntarily decrease your insurance premium. Over a long period of time these savings can be quite substantial and the funds can be applied towards wealth creation. Most importantly, you need to ensure that you have the relevant cover to protect your assets.

How to finance your assets You might think it’s great to know about assets and that the assets will assist you in building wealth, but what if you cannot afford to buy assets? Does it mean you cannot build wealth? It is not a cheap exercise to buy most physical assets. If you have the required funds to purchase the relevant asset that meets the criteria above, that is great. If not, you can find ways to obtain funding from elsewhere. This funding usually comes at a cost though. The cost of using other sources of funding is interest. Traditionally, banks offer credit extensions for specific assets, for example secured lending, for which the bank takes collateral over the asset being purchased, e.g. vehicle financing and home loans. Banks will also normally extend unsecured lending in the form of credit cards, revolving credit and personal loans. Unsecured lending usually comes at a much higher cost in the form of an interest charge. This is why it is usually smarter to access funds available in your bond to finance other assets, because you will be paying a lower interest rate on your home loan. It is only advisable to access funds in your home loan in extreme circumstances, when there is a compelling enough opportunity that will generate sufficient income to enable you to continue to pay off the bond in the agreed period. This might mean making additional payments into your bond when the funds are available. While banks are traditionally the method of financing the 39

Master Your Finances: The art of building wealth

purchase of assets, you can be creative around this. Remember the golden rule of financing is that you match the loan with the useful life of the asset, for example food is paid for immediately. The longer the payment period, the higher the interest expense you incur, and over the long run, this works against your wealth creation process. Your parents or family can be a good source of funding as well, provided they are able and keen to loan you the money. Instead of owning 100% of a particular asset, you could find others to combine your resources with and still participate in a deal without necessarily having to go to the bank for funding. Ultimately, it is about starting small and then growing over time.

Action items 1. Make a list of the assets you currently own and determine whether you are utilising them appropriately with the various benefits in mind. 2. Could you sell an asset and generate needed capital to invest in other lucrative wealth creating initiatives? 3. Could an assets be leased out for a higher return than the wear and tear on the asset and other ongoing costs, including maintenance and insurance? 4. Could an asset be applied to some business to generate revenue? 5. If an asset is past its useful life, can it still be sold for a residual value? For example, breaking up the parts of an old, broken down car and realising revenue from the sale of the parts could generate revenue. 6. Generate income or revenue from IP by writing a book, a course, creating a movie, or other ideas suggested, and obtain the relevant legal backing and sell licences or rights to use the material. Creating intellectual property takes a lot of time, but the benefits can be long lasting in generating passive income.

40

Chapter 4: What you own

7. Be on the lookout for assets that meet the criteria discussed above: -

Significantly lower price than market value.

-

Priced at market value, but with the market value expected to grow exponentially.

-

Capable of generating income at much higher returns than the carrying cost.

8. Consider investing in financial instruments after acquiring the necessary knowledge, or by appointing a qualified and licenced financial advisor.

41

Chapter 5 What you owe – Understanding debt Is all debt bad debt? It is necessary to dispel the illusions around debt. When applied appropriately, debt can be powerful in triggering massive transformation in economic participation. To quote an article by the Stanford Graduate School of Business, “In rural India, a loan of $50 can spell the difference between poverty and economic self-sufficiency for an entire family”. This refers to a programme where micro loans are issued to poor people earning less than $8 per month who have some kind of entrepreneurial proposal. These loans are awarded to women’s clubs of at least eight people in the same community, who work together to ensure the loans are repaid. The results of this programme are phenomenal, with 77% of the participants significantly reducing their poverty and 38% of those who have participated since 2004 no longer being considered poor. Again, it is the application of the debt that determines whether one becomes a prisoner locked into debt repayments or a free economic participant.

Defining debt – the good and the bad Debt is when individuals use someone else’s money right now for a promise to pay back the money with or without interest at a future 43

Master Your Finances: The art of building wealth

date or over a period of time. Understanding how debt links in with your wealth creation plan is critical. Most people know that to create wealth, you have to invest in wealth building assets. Frequently the problem is that these ventures require substantial financial outlay, creating a problem for most people who do not have the capital required for some of these readily available ventures. There is a distinction between good debt and bad debt. Good debt is when money is used to invest in personal development or assets, which will result in future benefit flowing to the individual, for example study loans and bonds on rental properties. Bad debt, on the other hand, is when an individual uses someone else’s money for consumption, for ventures, or for seemingly good investments, where the costs outweigh any benefit one stands to receive from such ventures. The reason this is bad debt is that for short-term or immediate gratification or benefit, one is left with a burden to repay the debt without having created something that improves the flow of benefits to cover the costs associated with the debt. So the next time you are tempted to go into debt, consider whether it is good or bad debt, and at least make the decision understanding the impact this will have on your wealth and financial goals. Understanding the difference between good and bad debt underlies the power of true leverage! This is how to use someone else’s money to create and increase wealth. The picture below shows that good debt can be utilised to create and increase wealth.

44

Chapter 5: What you owe – Understanding debt

Increase good debt Reduce bad debt

Improve wealth creating potential

Figure 2: Debt – Wealth relationship (Author)

Distinguish between personal debt and wealth building debt Many people get into trouble by mixing financing for wealth creation with financing of personal assets. I recommend that a distinction be made between personal debt and wealth creation debt. Personal debt is debt that is taken out to fund lifestyle assets like a house, car, boat and so forth, while wealth creation debt is debt taken out to invest in assets, a business or business transactions in order to generate profit and eventually grow equity. My recommendation is that personal debt should be limited to assets that are almost impossible to save for and buy outright, such as a house and a car. In some jurisdictions where there are no credit lines, even these assets are bought for cash. A plan should be put in place to pay off all personal debt in the shortest possible period. Debt associated with wealth creation should be separated from the person by use of legally acceptable separate entities, where the individual then holds shares in the business, but the risk of over-indebtedness is separated from the individual. That way, should the markets turn and the venture is unprofitable, the individual’s personal assets are protected from a claim from business liabilities. 45

Master Your Finances: The art of building wealth

I recommend that you consult a qualified accountant and lawyer who deal with business structures to protect your personal wealth.

Be your own banker Debt can be used as leverage by using someone else’s money to increase your own wealth, if the asset can generate returns that exceed the cost of that funding. This does not necessarily mean that you can acquire any asset on credit. The asset that is to be acquired through debt must be priced below the prevailing market price. We can learn some lessons from banks when they evaluate asset-backed loan applications. Technically, until the loan is paid off, the asset belongs to the bank, despite legal title and possession being conveyed to the purchaser immediately. Since the loan is supported by the asset in question, should the purchaser default on monthly payments to the bank, the asset becomes the bank’s asset and the bank has to ensure that they have a very good chance of getting their money back from the asset if this happens. In evaluating the application for the loan to purchase a particular asset, among other considerations, the lender will evaluate the value of the property and compare it with the loan amount you are applying for. In South Africa, home loan applications generally require a 10 to 20% down payment, whereas previously banks used to give up to 108% loans to cover transfer costs for first time home buyers (Moneysmart: 2013). Some of these measures are indicative of the times we live in. Similarly, as individuals, we have got to take this lesson and ensure that every loan is attached to some asset whose value is higher than the amount owing. As a general rule, the loan balance should be less than 80% of the value of the asset. The trick with every loan agreement is firstly to ensure that the asset is a bargain, to pay as much of a down payment as you can, and to negotiate the lowest interest over the shortest possible repayment period.

Wealth building debt Owing to the risk attached to running business ventures or initiatives, the most important recommendation is to separate the business from 46

Chapter 5: What you owe – Understanding debt

the person as far as possible, as stated earlier. Before you apply for a loan to fund an income generating initiative or business proposal, it is important to first do the maths, i.e. to work out how much profit you will make through that initiative. Think about how much income will be generated from sales from the initiative. Calculate all the expenses to obtain those sales. This includes the cost of inputs, inventory, telephone expenses, wages and so on. The profit is calculated from the difference between sales and expenses. Let’s say that the initiative requires R10,000 to start, sales are estimated to be R14,000, with expenses of R4,000. The profit will thus be R10,000. If the loan is obtained at 10% interest, interest on the loan will be R1,000 and this initiative will make a net monthly profit of R9,000. This is an excellent initiative and you should go ahead and take out the loan. On the contrary, if in our example the expenses are R15,000, this is a bad investment initiative unless the sales can grow significantly over time and the expenses remain at the current rate or decrease. Loss making initiatives reduce net worth and should be avoided. Further, it is highly recommended to take on business ventures with the necessary knowledge or by partnering with people who have the relevant knowledge and skills. Putting money into an area where you have limited knowledge is a recipe for disaster. Knowledge is power, therefore always ensure you understand the numbers in any business venture or get the services of someone who understands the numbers. You could consider other ways of raising the financing required for business ventures. There are a lot of people who have the money to invest in a compelling proposition for a stake in the profit or equity of a business. Even if it is recommended to put legal distance between the person and the business, stewardship is still imperative in business ventures.

Understanding your debt The ultimate picture we are striving towards is having debt that puts money into our pockets. We also want to create a buffer between the 47

Master Your Finances: The art of building wealth

value of the assets attached to the loan and the loan owing. This not only increases your net worth, but forms some insurance in unforeseen circumstances where you might be in a position where you are forced to sell assets quickly, so that you don’t realise a loss. This buffer also makes it easier to access further loans should they be required for opportunities that increase your net worth. To avoid the debt prison, only debt that provides leverage should be entertained. In other words, the debt must be putting money in your pocket as opposed to taking money out of it. This is the reason why loans should not be taken for any reason other than those stated above. .

The moment a loan is taken for consumption, e.g. to buy food, clothing, holidays, dinners, excursions and so forth, that loan will work against you; it will eat into your income and reduce your net worth. There are practical realities in life, and it is possible that circumstances like death, sickness, children’s education and so forth drain your financial reserves, necessitating the acquisition of loans to get by. This may seem like an option, however it is important to understand the implications of over-indebtedness that may result from such choices.

Repaying your debt Use the power of negotiation to ensure that when you enter into debt agreements, you obtain the lowest possible interest rate and minimise the length of time it will take to repay the loan as far as possible. Pay off unfruitful (bad) debt first, as this will provide the mental motivation required to put things in order when every debt owed has an asset that can be shown for it. Once all the unfruitful debt is paid off, strive to create a buffer between the amount owing and the value of the asset held. You can always renegotiate the terms of your credit with your banker or lender to ensure you have the most favourable deal. Gather the necessary discipline to set a time limit to pay off debt and stick to it. Other methods you could apply include paying the smallest debt off first, or paying the debt with the highest interest rate first. I recommend that you apply these methods within the guidelines given above. Once a certain debt is paid off, apply the repayment amount to increase the repayment on the next debt to be tackled, and continue 48

Chapter 5: What you owe – Understanding debt

like that until your balance sheet makes sense. In other words, pay off all unfruitful debt until it has been eliminated and each fruitful debt has at least 20% equity, where the loan amount is less than 80% of the value of the asset.

Avoiding the debt trap Now that we understand the difference between good and bad debt, we can make informed decisions to enter only into good debt contracts if we need leverage. The debt trap mentioned here refers to the situation where an individual does not have a choice but to take out unproductive or bad debt. In other words, the information or awareness is present, but the situation demands that you take out bad debt. This is when urgent circumstances arise that demand financing, but those circumstances do not result in a tangible financial benefit.

The power of holding cash in an emergency fund One good way of avoiding the debt trap is by maintaining enough cash reserves to deal with known and anticipated requirements and providing for incidentals. This cash will typically be held in a savings account that is easily accessible with minimal penalties, but protected from unnecessarily dipping into this fund for ‘nice to haves’. A good example is a 30-day savings account. When you understand the power of cash, this may motivate you to start putting the cash away for times when it is needed or emergencies. Cash has many uses as it is the currency with which most transactions are concluded. Cash enables you to cover your expenses, meet debt obligations and provide for those additional extras. Cash provides the power to jump at opportunities when they arise. Sometimes, opportunities come up where perhaps a demand for a certain good or service arises for a short window period. Perhaps the usual suppliers of a certain product did not plan properly and have excess demand. Those that have the resources available to fulfil the need can take advantage of the opportunity and make huge profits. This was the case when millionaires emerged in Zimbabwe despite the economic hardships facing the country; individuals who could supply goods and services 49

Master Your Finances: The art of building wealth

when the big companies ran out of stock were in a position to take advantage of various opportunities that arose.

Planning and insurance When drawing up a budget, it is important to think about and provide for expenses or requirements that come up once in a while, such as replacing car tyres. These are usually requirements that are known and can be anticipated and planned for, even though most people ignore them and are caught unawares when the need arises. Most people can easily anticipate the financial requirements for holidays, yet many fail to provide the necessary financing for these trips. Normally these vacations are known and planned well in advance, but people end up taking out a loan or going into debt to fund their holidays. To avoid the debt trap, all costs that can be anticipated should be planned and provided for ahead of time. Planning cash flow requires you to think about all the anticipated money to be received and listing all the anticipated costs and the timing of both to determine points at which shortfalls may arise. This will assist in making financial decisions and also weighing the benefits against the costs. Where it is difficult to anticipate certain costs, but it is possible for the costs to arise should some event occur, this calls for insurance cover. This is where a small regular payment (usually monthly premiums) is made to an insurance company for a promise to cover the costs of events should they arise. Insurance coverage ranges from long-term to short-term, covering death, disability, loss of income, loss of assets and so on.

Shortfalls between debt owed and value of asset Some assets tend to depreciate in value as soon as they are purchased. An example is new motor vehicles. When taking out car finance for a new car, you need to understand the rate at which the debt reduces over the loan period compared with the projected change in the value of the car over the same period. For example, a new car may be worth R300,000 today, but by the end of year one, it may be worth R235,000. Assuming that a loan is taken out to finance the car at an interest rate of 10%, the loan balance will be around R250,000. Based on the 50

Chapter 5: What you owe – Understanding debt

example, the loan will be greater than the value of the car, meaning that if a person is forced to sell the car by the end of year one, they will be liable to pay R15,000 for an asset they no longer own. It is especially important to understand how the value of the car changes compared to the rate at which the loan diminishes.

Banking your profits Banking your profits means preserving personal money that is left over from income when all expenses and obligations have been covered. Suggestions have been given in the section on ‘What you own’. For business ventures, it means ploughing profits back into the growth of the business or for creating a buffer for the lean times. A friend once told me that her father ran a successful computer company which managed to weather the crash in the computer industry because he ploughed the profits back into the business during the good years. The company could be sustained for 30 years until he decided to sell the business. Banking your profits provides a buffer and a refuge when sudden or unexpected financial requirements come up. This is a preventative measure to avoid debt traps.

What about taxes? Keeping your tax affairs up-to-date is a good way to prevent debt traps. Some people neglect to file their tax returns and pay the necessary taxes, but the tax man is becoming smarter. Furthermore, in this information age, more and more systems can be linked with each other. This is a smaller risk for the formally employed, as the employer pays over the tax to the Receiver of Revenue and submits information for the employee’s tax return. However, the responsibility to file the tax return still lies with the individual. Where tax returns are not filed and/or taxes due are not paid, there are penalties and interest that accumulate. When the Receiver eventually catches up with you, you may have created a huge debt for yourself unnecessarily. This debt trap ought to be avoided by employing the services of tax practitioners if you are not able to complete and file tax returns. Of course, the same goes for any other obligation related to any transaction or contract you 51

Master Your Finances: The art of building wealth

enter into. Be vigilant and understand the terms of each contract to ensure you keep your side of the bargain to avoid debts that will creep up on you unexpectedly.

Conclusion To conclude, the first step in understanding debt and how to manage it is to understand the difference between good or fruitful debt and bad or unproductive debt. Good debt is encouraged, while bad debt is strongly discouraged. Furthermore, a boundary should be created by putting legal distance between personal debt and business debt. This protects the individual from a turn in the economy or sudden misfortune that results in over-indebtedness. Registered business entities like a Pty (Ltd), trusts, and so on assist in preserving wealth for individuals between their personal finances and business finances. Being your own banker also provides the necessary precautions to limit the risk involved with sudden reductions in the value of assets, resulting in debts being higher than the value of the assets the debts are funding. Being your own banker means making sure that loans are kept at a balance of less than 80% of the value of the asset acquired. Avoid debt traps by holding sufficient cash reserves to meet obligations that can be anticipated, planning sufficient cash flows and the timing thereof, and taking out insurance for uncertain but possible obligations and events.

Action items 1. For every debt you owe, mark if it is good or bad debt based on the definitions given above. 2. For every debt you owe, mark if it is for personal or wealth building purposes (including what has been invested). 3. Identify all the wealth building debts that are in your personal name and distinguish between the good and the bad debt. 4. Make a plan to pay off all personal bad debt as soon as possible. 52

Chapter 6 Dealing with over-indebtedness “According to a statement in the South African Reserve Bank’s Quarterly Bulletin for December 2015, the household debt-to-disposable-income ratio was 77.8% in the second quarter of 2015.”—Statistics South Africa (April 2016)

Defining debt Although Stats SA has recorded an improvement in household debt to disposable income ratio since 2008 (88.9%), the statistics are still alarming; debt is an area that cannot be ignored if we are to have a financially healthy community. The statistic points to a wake-up call at an individual level. How have we got to this stage? Have we simply lived beyond our means or did the economy get us here? While the situation is bad, there is always a solution to everything, and we will discuss a few options in this chapter. “There is no problem without a solution.” —African proverb

Often people find themselves in precarious situations by using debt to pay for their needs, and in most cases this is because credit was readily available. In addition, none of us went to school to learn about good and bad debt and how to use and manage debt wisely. In some instances, we may have been negligent or simply did not pay enough attention to the choices we made or the impact of these choices. In 53

Master Your Finances: The art of building wealth

other instances, a turn of fortune like a spouse losing their job or a serious illness that drained all their finances may be the reason others find themselves over-indebted. Whatever the reason why someone’s debt got out of hand, there are ramifications that come with it. When debt has got to the point where their net worth is less than zero and/ or a person is unable to meet their debt obligations in a timely manner, the following consequences tend to plague the debtor.

Effects of over-indebtedness Emotional and mental stress The stress and emotional and mental effects of not meeting financial obligations are incalculable. Being in this situation kills a person’s hopes and dreams, which creates a sense of helplessness that destroys the energy one needs to overcome this situation. Having to deal with calls from creditors and their agents also comes with its own frustrations. Some cases of suicide have been recorded as a result of the stress that occurs when a person is so heavily indebted that they struggle to meet their obligations. This stress is caused by a feeling of helplessness because people do not know how to resolve the situation they find themselves in.

Relationships are strained When debt has got out of hand, this can have far reaching implications for the individual, and in some instances, for the family around them. Over-indebtedness impacts negatively on relationships and families in general. Financial problems are rated in the top ten reasons for divorce. Most people who are heavily indebted also reach out to close family and friends, and it is not unusual that they would have borrowed from everyone around them. When they cannot repay the loans, this spirals into strained family and friend relationships. There are certain expectations placed on figures like parents to provide for the needs of their families and indebtedness robs them of fulfilling these financial responsibilities, resulting in broken trust and destroyed relationships. 54

Chapter 6: Dealing with over-indebtedness

Wealth and security diminish As discussed in the section about net worth, liabilities have the effect of reducing your wealth. This is why it is imperative to determine whether the debt results in leverage or in destroying value. That is the distinction made between good and bad debt. In addition to this, the negative emotions surrounding heavy indebtedness further cripples an individual and prevents them from recovering from the situation. The result is a loss of dreams or loss of the belief that they can still attain their goals. When things get more serious, people may have to deal with losing their assets, where creditors attach the assets pledged as collateral. Even if the assets are not listed as collateral, creditors can apply to the court to be allowed to attach a defaulting debtor’s assets. In other instances, defaulting debtors stand a chance of having their income attached or legal action being instituted against them. Skipping payments also reduces their credit rating, impacting negatively on their ability to raise capital, and they run the risk of being blacklisted. All this diminishes an individual’s ability to provide for their family and meet their day-to-day obligations, let alone build wealth.

There is a way out “Believe you can and you’re halfway there.” —Theodore Roosevelt

If you have started experiencing any of the effects mentioned above, do not lose heart. There is a way out. Some people want to ignore the situation and wish it away, which is the worst thing to do. With the right support, direction and choices going forward, this situation can be rectified. If you have been using debt but have never given thought to some of the ideas suggested above, this is also the time to understand and evaluate the decisions made with respect to debt accumulated to date. Below are a few steps for dealing with debt and over-indebtedness.

55

Master Your Finances: The art of building wealth

Recognise there is a problem The sad reality is that people generally become heavily indebted over a period of time and only realise it when things have gone too far. It does not have to be that way. Debt creates a trap; as it says in Proverbs 22: 7, “The rich rule over the poor, and the borrower is the slave of the lender.” Unless the financial benefits of the debt outweigh the cost of the debt (good debt), the borrower will become a slave to the lender. Do not wait until the situation gets out of hand. Simply evaluate which debt and how much debt is bad debt, and quickly devise a plan to repay all bad debt and reduce overall debt by following some of the guidelines suggested in this book. Remember, good debt provides leverage for the individual to build wealth, but this tool should be used with caution. The following points are clear signs that should act as triggers for you to recognise that there is a serious problem and that action must be taken:

56

•

When your expenses start becoming higher than your income, or a large portion of your income goes towards expenses and debt repayments.

•

When the outstanding debts are higher than the value of what is owned.

•

When fear grips you and mental and emotional stress begins to torment you as a result of debt.

•

When you are contemplating leaving your job to access your pension or you are considering suicide.

•

When your relationships are under strain when it comes to financial matters and responsibilities.

•

When those dreadful creditors calls start coming in or legal action has commenced.

Chapter 6: Dealing with over-indebtedness

Take ownership of the reality I believe that we can never grow or change anything unless we face our situation and accept responsibility for the choices we have made that have resulted in our current reality. If we believe we are victims, we feel powerless to bring any meaningful change to our circumstances. However, if we recognise our active participation in creating the debt we find ourselves in, we are empowered to reverse some of those choices and begin a journey to freedom. Yes, there are situations where the cause was beyond our control, such as tragedy and trauma, but even these situations have solutions; do not accept them as debilitating. Instead, recognise that you have enough wisdom and strength to recover from them too.

Resolve to recover from this situation Stop entertaining negative thoughts; do not kill yourself or leave your job, as that will only make matters worse. No matter what other lucrative opportunity seems to have come up, these are distractions that have been invited by the fear in you. You can recover from this situation and you will; just resolve to do it. Getting to the point of surrender is imperative to beginning the journey to recovery. If any of the signs mentioned above have started showing, the situation may never change unless the decision is made to create a different picture. Being honest with yourself that there is a problem and recognising the role that choices within and without your control have contributed to the situation, in addition to a deep resolution to want something different, are all critical in this journey to financial recovery. Recognise that you cannot employ the same tactics to come out of the situation as the ones that created the problem in the first place. In resolving to work towards a different outcome, new tactics have to be employed in those areas identified as within your control that contributed to the situation. The following recommendations can be adopted in resolving to recover financially before you can start on the journey to wealth creation.

57

Master Your Finances: The art of building wealth

Spiritual anchor – The first problem solver is God. This is the starting point to check if things are in order with the man upstairs before attempting to take any action. Asking for guidance and courage to pull through this situation will be imperative as there are matters beyond your control involved. There is a lot human beings can control in life, however the mystery of life is the part we do not control and that is the part we need to surrender and ask for help from the powers that be. Right relationships – I have learnt that any solution is always attached to a person. It could take just one person or a number of people to turn the situation around. Make peace with the fact that you will not be able to do it alone. Find a companion for the journey who is a confidante; a person with whom you feel safe and secure enough to share the truth, and be as authentic about your situation as possible. This situation must be dealt with at all levels: spiritual, physical, emotional and mental, and it is advisable to get people who can support you in each area. In rare circumstances you can find one person who is competent to assist you on all levels, but mostly, these roles would be fulfilled by different people. Whichever person you take advice from, ensure that they are competent to provide the relevant guidance and advice in an area. The right relationships will help you to come up with an appropriate plan, stick to it and keep you accountable. Stocktaking – Businesses perform stocktakes to understand how many products or resources they have on hand. This is compared to the information available on record in terms of the sales that have been made and the cash on hand to understand if what is on the system agrees with the practical reality. Otherwise, the business could go bankrupt without anyone realising that the product or resources have been diminishing slowly through spoilage or pilferage. The same applies to your financial situation. Get in touch with your situation and understand how bad it is. Understand your net worth make-up and your income and expenditure to know if the situation is temporary if nothing further is done, or if you are heading for financial disaster.

58

Chapter 6: Dealing with over-indebtedness

Get educated on the options available Do nothing – There is always the option to do nothing, but at least understand what this means by performing stocktaking as suggested above. Contact your lenders – Contacting all your lenders to explain your situation may yield unbelievable results. Some lenders may be willing to hear you out and adjust the terms of your loan temporarily by reducing your repayment amount, or permanently by agreeing on a settlement. This is still a much better option than doing nothing. The worst they can say is no and then you need to employ other alternatives. When contacting lenders, request proof in writing of any new repayment terms or settlement terms agreed to. Make a note of all conversations and correspondence with details of reference numbers, dates, times and contact persons. Make and keep copies of all letters and correspondence. Where settlement was negotiated and agreed to, maintain a record of the letter confirming the cancellation of the debt in question. It may sound strange to discuss settlement when one is already in financial difficulties, however circumstances vary. Some people may get retrenched and therefore have access to a large sum of money in the form of a retrenchment package. This can be used to negotiate with lenders to settle the debts if the lenders are agreeable. For other more fortunate people, their close friends and relatives may be willing and able to assist by putting together a large sum of money to assist with the settlement of their debt. Remember to be truthful and practical about what is possible when negotiating amended terms. This option is still by far the best if the situation can be managed this way, however it requires the individuals to be alert and aware of their financial situation, constantly evaluating their position by employing some of the recommendations made in this book. Get professional help – Professionals can assist individuals to recover from over-indebtedness. Methods applied vary from assisting with consolidation loans, placing you in debt counselling or review, or declaring bankruptcy. Lawyers and registered debt counsellors can 59

Master Your Finances: The art of building wealth

assist by becoming the middle man between you and your creditors, and evaluating the situation to help you make a decision about the best option for your situation. Consolidation loans involve taking out one big loan to pay off debts and then managing one repayment, which is usually stretched over a longer period. This option normally works where the individual has a good level of equity in their home to cover the loan amount, which will be used as collateral for the loan. Debt counselling or debt review entails employing the services of a registered debt practitioner to obtain protection from creditors by becoming a middle man and negotiating affordable repayment terms on your behalf. The process works in instances where the over-indebted individual is employed or self-employed and earns an income where creditors have not yet instituted legal action against the borrower. Where creditors have already instituted legal action, the debtor may file for bankruptcy. Certain criteria need to be met and this process involves an application to the High Court to grant bankruptcy. The debtor is then afforded a new start in their financial life subject to certain conditions. These options have been included in order to raise awareness of the various possibilities available and to encourage individuals who find themselves in the unfortunate circumstances of over-indebtedness, however it is highly recommended that you work with a qualified and registered professional to assist with debt recovery. Make sure you understand the implications of any of the choices on your credit rating (for example, do you get listed with the credit bureaux?), and understand the implications of such a listing on your ability to open bank accounts or engage in any other contracts such as credit and lease agreements, and the impact on obtaining employment. Most employers perform credit checks and listings with the credit bureaux may impact on your ability to secure future employment. The benefits include protection from calls from creditors, easing your stress related to these calls and demands. The National Credit Regulator is also a good place to visit as a first port of call to obtain advice. Since individual circumstances differ, it is difficult to recommend a blanket approach, but ensure the full implications of any course of action are

60

Chapter 6: Dealing with over-indebtedness

fully considered and speak to people who have been through each approach to fully appreciate what each option entails. Devise a plan – Employ the SMART (specific, measurable, realistic, achievable and time-bound) principles for goal setting when devising a plan. Based on the information available, choose the best options to go with, come up with specific courses of action, and put a time limit to each one. Make sure the goals are realistic and practical. Write down the plan and build in measurement criteria and milestones every month. Discuss the plan with someone who will and can keep you accountable. Build in reward mechanisms along the way. For achieving each milestone, stop, celebrate and treat yourself and your family. Coming out of debt will often mean trimming the fat and making certain sacrifices for the whole family. Be disciplined around the plan and ensure you keep to it for the full time period. Look at your plan on a weekly basis to track how you are faring against set targets. Document your progress. Ultimately, whatever plan you employ to get out of debt will involve reducing the amounts owed, extending the period of repayment in order to reduce repayments, or coming up with other ideas to increase the income that is available to cover your debt obligations. Some good suggestions can be found in the section on ‘What you earn’. Take action – Whichever course of action you decided on in the plan, it will require some effort to be implemented and for something to be done. If you tell at least three people what you aim to do and remind yourself regularly, it should spur you into action. Understanding why you need to do it and attaching the reason to the impact those actions will have on the most important people and relationships in your life will also provide the fuel required to get things done. People who take action are far better off than those who merely talk about doing something. Without taking action, the plans will be sheer talk. In crystallising the action plan, ensure that it is linked to your vision board. This will take the boredom out of certain tasks in the action plan and make them feel less mundane. Think about the freedom you will gain by getting out of indebtedness and let this inspire you to action!

61

Master Your Finances: The art of building wealth

Continually evaluate – Continually evaluate your progress and keep your eye on the outcomes that you desire. Realise that overindebtedness usually does not happen overnight, so you need to give the situation enough time to turn around. If you are working with the right people, it has been proven that it can take up to seven years to get out of debt, regardless of the situation.

Action items Apply the guidelines above to determine whether you could be overindebted and come up with a plan to remedy the situation by following the guidance given above with respect to: 1. recognising there is a problem; 2. taking ownership of the reality; 3. resolving to recover from this situation; 4. partnering strategically with spiritual and emotional anchors; 5. getting educated on the options available; and 6. choosing one option and taking action!

62

Chapter 7 What you earn “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” —Robert Kiyosaki

Defining earnings Income earned refers to increases in financial benefits during a particular period derived from working, holding, and using a particular asset to provide a good or service. The amount of income generated can be likened to the milk produced by a cow; the cow is an asset as defined in the previous section on ‘What you own’, and its fruits are the milk which becomes the income. Income is generally used up in covering on-going financial demands. The idea is to cover all living expenses and whatever financial demands you have from selling the milk without having to sell the cow. Then what is earned not only covers the day-to-day financial demands of life, but enables an individual’s financial wealth to overflow to others and to initiatives they are passionate about. The ability to retain and invest some of what is earned contributes vitally to increasing your net worth. Remember the lesson from the childhood story about the goose that laid the golden eggs? It is important to differentiate between the goose and the eggs. If you look after the goose it will continue to produce the golden eggs that you can live off, but if you kill the goose, 63

Master Your Finances: The art of building wealth

that will be the end of the story as you will enjoy the meat but wave goodbye to the golden eggs and that well of benefits. As we discuss the different sources and types of income, let your creative juices begin to flow at the array of possibilities available to use your time and effort smarter to start breeding your own cows or geese. No one is tied into a particular section of the economy and no one has erected boundaries to inhibit anyone from producing income in their own creative way. Begin to open up your mind to the possibilities that could be and refuse to believe that there is anything stopping you. Enough literature has been written that proves that human beings can achieve the impossible if they set their minds and hearts to it. Everyone has a 24-hour day and yet some people achieve so much, as if they live multiple lives. Why can that not be you? Why can’t you also pick one, two or three areas where you would like to make an impact on your generation and on those to come? Resolve to serve humanity with the gifts that have been bestowed upon you. I truly believe that everyone has a unique purpose in life and as we all take up our own purpose, we become stronger and better as people. With whatever irritates or bothers you, do not complain. Instead be the problem solver.

Your own time, skills and effort “Every day is a bank account, and time is our currency. No one is rich, no one is poor, and we’ve got 24 hours each.” —Christopher Rice

For most employed people, the ability to increase the amount of ‘milk’ or ‘golden eggs’ feels like an impossible task. Many people put their fate in the hands of their employers and are left frustrated as the company can only increase their salary by a percentage each year. And in tough times, in a bid to curb costs, employers are forced to keep salary increases to a minimum. Some people receive an increase which is on par with inflation or lower than inflation; in reality, this means that the buying power of that income is actually reducing over time and the individual is becoming poorer. In order to increase what one earns as an employee, a little creativity and some discipline will be 64

Chapter 7: What you earn

required. It might even require someone to leave their comfort zone and be open to various possibilities.

Increasing the price tag “An investment in knowledge pays the best interest.” —Benjamin Franklin

There is a cap on what employers are prepared to pay for a specific skill, education and experience. You could consider changing careers to one that pays more than your current career. This might require you to start building new skills by studying further, taking some courses or even volunteering to work for free in your spare time to obtain the necessary experience. These options are definitely workable, but will require some discipline and patience. With careers, it’s been said that one might have to take a step back in order to go forward. I know a hairdresser who used to spend almost all her income paying for transport to and from work. She evaluated her situation and realised that people working in office jobs received a much higher salary. One day, while chatting to a client in the salon who was a businessman, she promoted herself to this man who then offered her an administrative job in his business. She would often make us laugh out loud when she explained how she did not know the first thing about computers when she started working for him. The lady who had handed over the job to her had taught her Excel by first teaching her to plug in the power and start the computer, and then accessing an Excel spreadsheet. Each time she made a mistake with the invoices, instead of deleting or undoing something, she would unplug and restart the computer in order to access a new Excel template. As funny as this sounds, this lady went on to enrol with a local college where she studied Bookkeeping, Office Administration and Graphic Design. Within a year she had trebled her salary. She then enrolled for the Association of Certified Chartered Accountants (ACCA) qualification and is close to finishing the last modules to qualify as an ACCA chartered accountant. Over a period of five years, she has more than quadrupled her salary, obtained a few qualifications and launched a part-time business selling clothes and importing food. What it took was a desire to change her situation and then taking steps to achieve her goals. While all this has increased 65

Master Your Finances: The art of building wealth

the income she earns, she has also developed tremendously as an individual by achieving some of her important goals and challenging and stretching herself.

Start with what you have The other possibility is to take stock of your time and start getting involved in profit making, income generating activities during your spare time. By choosing to invest some of your spare time in profit making activities that generate income, you will start to see great things happening and you will realise the potential within yourself. Here one of my sisters serves as an example of how working with what she already had can work in practice. She had a big yard at her house and partnered with someone who had vast experience working for nurseries, but had no capital or space to start a nursery. My sister had neither prior education nor experience on how to run a nursery, but her strategic partnership with someone who did have the experience and knowledge yielded phenomenal results. Now her nursery earns her a good income and she is able to employ four people to assist in the nursery. Apart from the money she makes from selling flowers and plants, her garden is so full of life and just looking at the beautiful plants brings a great sense of purpose and achievement. By utilising what she already had and applying her skills and effort, she was able to transform her own life and the lives of her employees and customers. The ripple effect is also positive on the environment as plants have tremendous benefits for the environment.

Is that all you can do? I watched a documentary by Reverend Ezekiel Guti about how he started his ministry (Forward in Faith Ministries International). He heard the Lord telling him to teach the congregants to work with their talents in order to fund the ministry and defeat poverty. I have since witnessed many testimonials where people managed to improve their income by applying these principles. The truth is that we all have talents and as we dig into what these are and get into action, our

66

Chapter 7: What you earn

circumstances will have to change. This applies to the unemployed as well as the employed. What else could you be doing with your extra time to make a difference? I challenge everyone to find at least six hours each week to apply ourselves consistently to any area of interest by providing the goods or services that solve social problems in our immediate environment. Often we think too hard about what to do, but it can be as basic as providing cooked meals for busy families; providing homework and aftercare services for working parents; transport for children to and from school; stationery for school-going children; clothing; cleaning and laundry services; holiday tours; event planning; catering… the list goes on. There are a million ideas of what people can do in their spare time. You do not have to start big; most ideas start from a seed and grow gradually. Even if you make an extra R1,000, R2,000, R5,000 a month, it is money you did not have before. It may mean the difference between your child going to a better school and obtaining a better education, and an average education. It may mean that your wife no longer has to be formally employed and can look after the children if that is her goal. The truth is that by limiting our efforts to what we are formally employed to do, we are limiting our and other people’s quality of life.

Have the heart of a servant I am not referring to gimmicks to make a quick buck. I am referring to initiatives that actually solve social problems and improve our lives and make others’ lives much better. We can also enjoy the remuneration that comes with it. If you are doing childminding, do it with all your heart to free up other parents to give their best in their own business endeavours. Ultimately, everything is connected and we are more linked than we realise. Therefore, where we work to serve others with our gifts and talents, it completes the full circle and we are enriching ourselves and others. Here is an example of what I mean. Take a female doctor who has a child at home and cannot tend to the child because she needs to work. She gets a helper who takes care of her child as if it were her own. The doctor is at peace and goes to work without worrying about her own child at home. The helper has a relative who

67

Master Your Finances: The art of building wealth

is involved in an accident and she is rushed to the nearest hospital where the female doctor attends to the relative. A decision is needed quickly to perform a procedure but it requires financing, and none of the relatives present can afford to pay the money. The female doctor realises that this is her helper’s relative and she takes on the financial burden. The procedure is performed and saves the relative’s life. What others view as a menial job (childminding), when done wholeheartedly, may save someone’s life. At the same time, there are financial benefits that come with it. Jesus illustrated true leadership to his disciples by washing their feet. The heart of a servant is true leadership! Again I ask, what else could you be doing with an extra six hours per week, to serve someone else and get paid for it?

Others’ time, skills and effort Obviously, there is a limit to your own earning potential based on your own skills, time and effort, and there are finite hours in a day. Provided there is more demand for your skills than you have time for, multiplying your skills will mean finding other people with similar skills who can accept a lower fee for their efforts than your clients are willing to pay. This will enable you to leverage other people’s skills, time and effort. This is how the franchise business has become so successful. The franchisor takes time to develop a business model that works and also puts structures in place to ensure the brand is well positioned. Then franchisees pay for this formula and the publicity that comes with carrying the franchise name. Leveraging the efforts of others has proven to be effective even in businesses where there is divorce of ownership and control. Shareholders delegate the responsibility of running the affairs of a company to its directors; they do not need to be involved in the business. However, the business will still continue to thrive despite the shareholders’ absence in active management.

Do not be greedy, share Remember that 100% of zero is zero and 50% of something is something. We are gifted in different areas. Some are great at putting

68

Chapter 7: What you earn

ideas together and transforming them into workable solutions and others are good implementers. If your strength lies in seeing and building value, do that and then hand over to someone else who can run with things and be willing to share the rewards. Not only are you utilising your efforts where you are more effective, but you are allowing others to fish with you. The more hooks you have in the water, the more fish you can catch as a team. Although you will be entitled to a smaller portion of a bigger pool, in the end it is bigger than what you could ever have accomplished with only your own strength. I recently heard of someone who was employed and had access to financing, but he had no time to operate a taxi service. He purchased a car from an auction at a good price, and then identified an unemployed driver who was interested in starting a taxi business but did not have the means to buy the car and get started. This entrepreneur put the structure in place and engaged the driver for a period of time. His requirement was that the driver would pay him a fixed amount every week for that set period of time and at the end of their contract, the taxi would become the driver’s property. This was excellent motivation for the driver because this was his business and he was paying rent to use the taxi, knowing that after a set period of time, he would be the proud owner of a taxi. This was a win-win situation for both parties as the one made his money from financing the deal and the other became productive and could now provide for his family and live a decent life while working towards owning his own business. The driver moved from being unemployed to being self-employed.

Income from assets As seen in the section on ‘What you own’, assets are retainers of value that enable us to enjoy benefits, mostly in the form of income, by holding and eventually selling them or by using them in production. An asset can be purchased, developed or built by an outlay of resources or by putting in a once-off effort in order to enjoy the benefits over an extended period. Earning income from assets resolves the problem associated with generating earnings by the effort that is being invested by the people involved. We all know that at some point, people rest,

69

Master Your Finances: The art of building wealth

go through health challenges, experience emotional pressures and so forth. These realities of life impact on people’s ability to remain productive, and in addition, put limitations on the amount of income that can be generated in this way. For the purpose of this discussion, assets encompass tangible assets, intangible assets, systems and business entities, regardless of who has the legal title to the asset. As long as an individual can position themselves to apply an asset in production, benefits will flow to the individual.

Own assets Rental – This is what others are willing to pay to enable them to utilise your assets. A good starting point is to take stock of the assets in your possession and then find out who would be interested in using that asset at a cost. Here you will have to be creative; take time to understand the opportunities in the assets you already have. Rental income can be earned on fixed property and machinery, while other assets like a second car can also be used to generate income by renting it to someone who perhaps does not have the means to purchase their own vehicle, but requires the use of a vehicle. Uber also provides a good opportunity to apply your car in the production of income. If your property is situated along a busy road, consider selling advertising space by installing a billboard and then putting up a sign that says, “To advertise here, call this number”. Companies will contact you as it is quite costly to find advertising space and they are on the lookout for good locations. You may not have a second property, but that storage room at the back of your property could be freshened up with a coat of paint in order to supplement your income. Instead of downsizing where you own a big residential property, consider tailoring the plan slightly to create a semi-private communal residence. The amount of privacy you want to retain is optional, but you could let part of your existing property to provide a significant income. You could still continue living at the property, but create a separate private portion. This could be achieved

70

Chapter 7: What you earn

by using the Airbnb platform, which links house owners with people looking for accommodation in an efficient way. You do not have to worry about finding customers or advertising, and you pay a small fee when the room is booked through the platform. Productive use – This is where an asset is applied to the generation of income. A good example is using a car to provide school transport for children at a fee to the parents.

Others’ assets Sub-letting – This is the same as renting out your assets as discussed above. The only difference is that you lease the asset from someone else and pay a cheaper price for it and then find someone else who would be willing to rent it from you at a higher price. This way, you do not have the additional costs associated with owning the asset and can still enjoy benefits from the asset. This method is most effective if you can find the person to sub-lease first and then once the contract is concluded, you source the asset from the lessor. In other words, identify someone who needs an asset for temporary use and is willing to pay the rental for it. Charge them more than what you are paying the owner of the asset. You can also apply other assets to income generating initiatives for production as discussed above by using the same concept as subletting.

Income from business ventures You could set up a business venture in order to generate income. There is a lot of information available about setting up your own business. You need to do enough research before starting your business as this entails a significant capital outlay and the risks are high. However, the chances of increasing your wealth are also much higher than when you are simply formally employed.

71

Master Your Finances: The art of building wealth

Income from systems A system is brought together over a period of time to develop an asset that will generate benefits continually. Examples are franchising, writing a book, making films, writing songs, and creating websites. The unique feature about systems is that they involve a certain level of automation which makes them run almost on their own. A huge amount of effort is required upfront to set this up, but little on-going maintenance is required to run these systems and the financial rewards can be astounding. Systems operate largely independently of the owner. Income from systems is mostly in the form of fees and royalties. Most of these assets involve intellectual property, thus it is vital to register any intellectual property so that you can obtain legal title over others making use of your asset. This is an area where most people are not knowledgeable, yet they could possess value that may generate a massive income.

Income from financial investments Typically, financial investments are intangible assets that are purchased in the hope that returns in the form of income and capital growth will be possible in the future. Investments in shares of companies provide dividend income, fixed income type investments generate interest income, and an investment in real estate generates rental income. Generating income from investments is an area where the expertise of qualified advisors and investment specialists should be obtained, however there is a growing trend where individuals are investing in gaining knowledge and qualifications in this area in order to invest wisely.

Winds of fortune “It takes as much energy to wish as it does to plan.” —Eleanor Roosevelt

Some people are lucky enough to receive an unexpected inheritance or win the lottery, yet without the necessary education and knowledge about how money works, most recipients find themselves back in

72

Chapter 7: What you earn

the position they were in prior to winning or inheriting. Many studies and documentaries have been undertaken on lottery winners who go back to poverty within a period of time after winning. I wonder if this explains why we hear of celebrities and sport stars who go bankrupt? While winds of fortune rarely blow in our direction as far as lottery wins and large inheritances go, planning and applying wealth strategies will bring you fortune over time.

Income won’t make you wealthy, assets will It is true that maximising your level of income is a way to build wealth, but on its own, it is inadequate. No matter how much income you earn, if you spend all of it, you have not done anything for your net worth. Increasing the distance between what is earned and what is spent in a positive way will create the means with which to start building assets. The more assets you have, the wealthier you are. So go ahead and identify your ‘milk’ or ‘golden eggs’; don’t eat everything and invest in more cows and hens.

Action items 1. Without leaving your job or whatever you are currently doing, how many hours can you spare a day or a week to do something else with your time and effort to build wealth? Is it 30 minutes a day or six hours a week? 2. What are some of your strengths that you could start applying towards solving a social problem or enhancing others’ way of living and get paid for it? 3. Can you find suitable partners to help you and pay them less than your clients will pay you? 4. Look at the ‘What you own’ section and identify some of the possibilities to develop, build or create assets.

73

Chapter 8 What you spend “Wealth consists not in having great possessions, but in having few wants.” —Epictetus

Defining spending This is a very important factor in building wealth as it determines your burn rate of all your hard-earned money. If you had to stop working for some reason, your level of expenditure would determine how quickly your financial resources would be exhausted. The ideal situation is to have at least six to eight months in cash or assets that can be easily converted to cash (liquid assets). Because the majority of the population earns income from employment (whether self-employed or working for a company), the security of that income has become questionable, with many companies either retrenching staff or going out of business. It follows then that you require a buffer for unforeseen situations where that income may be reduced or disappear. This book recommends creating more than one income stream in order to combat the danger of losing that one source of income. In addition, any excess finances available are best applied to saving for the future to begin to create options. To address the problem of having limited liquid assets in the form of cash or instruments that can easily be sold to obtain cash, you can 75

Master Your Finances: The art of building wealth

either increase your assets, increase your income streams (which has been addressed in previous sections), or reduce your monthly spend. The problem with what is spent in the wealth creation cycle is twofold. Firstly, as discussed above, it limits the amount of time available in order to exhaust cash or liquid reserves, and secondly, the higher the spend, the slower the wealth creation process will be. This is because if income is greater than expenses, profits are made. Applying the profit towards assets results in a higher net worth, and value is created. On the other hand, if expenses are greater than income, losses are made. When losses are made, assets have to be sold to cover the losses or liabilities incurred. The result is that assets are reduced or liabilities are increased, resulting in a lower net worth, and value is destroyed. By now you would have noticed that the theme of this book is about being intentional about our actions. In order for us to be intentional, we have to be aware of our actions so that we promote good habits and eradicate bad ones in our quest for financial freedom and wealth. “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.” —Alvin Toffler

People’s spending habits are by far the biggest culprit in retarding wealth building, not the amount of income they make. People are constantly looking for a better paying job hoping to get richer, but still end up in the same position or worse off than before. While a higher income would assist in building wealth more quickly, it is more important to focus on the application of existing income; it should be applied to wealth generating initiatives instead of financing flashy lifestyles that are not sustainable because they are supported by income that will or may dry up one day. For most people in the working class, each time their income increases after a promotion or a job change their lifestyle expenses also increase, leaving little or no money to invest in wealth creating assets. A high monthly spend is usually a symptom of bad choices that result in the destruction of wealth or retarded progress in wealth creation. Andy Stanley, in his series about decision making, argues that bad 76

Chapter 8: What you spend

choices emanate from a lack of honesty regarding why certain choices are made because the truth may be terrifying, but facing the truth can be liberating to clarify intentions and empower individuals to make wiser decisions they will not regret. Two important questions that require honest answers before spending are: •

Does the expenditure produce the desired outcome of bringing you closer to your goals?

•

Is this the best application of your hard-earned income or what is being sacrificed?

What is spend? Spend refers to any transaction where money is exchanged for something else. It may be for a product or service, whether physical or intangible. It is important to understand that when money flows out of your pocket, it creates a hidden cost of what has just been sacrificed in order to make that outflow. This is called ‘opportunity cost’. For example, you may choose to go drinking with friends when that money could have paid for your child’s school fees. Those few bottles of beer and laughs will result in costs associated with an uneducated child and the myriad of social costs that go with it. So, when spending, consider what opportunity the same money would have created and the costs, present and future, that will result from the choice. Good stewardship involves taking care of how you spend that hardearned money so that you create a sustainable base for future years. Somehow we forget that in life we will get older and not be able to work. We need to protect what we make in our productive years to look after us in later years and also leave a legacy for our children. It is therefore safe to conclude that you must be open to learning new habits, undoing some bad habits, and relearning and reinforcing some existing good habits.

77

Master Your Finances: The art of building wealth

Cut the fat The following steps can be applied to trim the unnecessary fat in our spending that may be leading to adverse results in our wealth creation process.

S Step 1 – Know where your money goes As the saying goes, count the pennies and the pounds will take care of themselves; in management books they say that you cannot control what you do not measure. Money follows the values and interests of the owner. One of my colleagues simply loves shoes and I asked her once how many pairs of shoes she has. She confessed that she had more than a hundred pairs. I asked her the average price of her shoes and she said they were around R800. That is close to R100,000 in shoes - the price of an entry level car or a good second hand model! I respect my colleague and she is one person who always looks the part and has the most amazing shoes. Her natural inclination would be to buy an irresistible pair of shoes when she sees one. Being intentional involves planning beforehand, however, right down to how much you would be prepared to spend on a certain category of goods and sticking to it. In the case of my friend, she could have a category in her budget for shoes instead of simply spontaneously buying shoes everywhere she goes. In order to become aware of where your money is being spent, the first step is to dig into available information to understand the various categories where your money is going. This can be done by extracting bank and credit card statements for the month, and then creating and naming categories to allocate the money you’re spending to. This will help you to make a distinction between needs and expenses that you can go without. Knowing where your money goes will also enable you to understand whether or not you are living within your means or if you have a deficit at the end of each month. Even a small monthly deficit will grow over time and push you further and further into debt. The ideal situation is to have money left over after covering

78

Chapter 8: What you spend

all your expenses each month. Again, if you have a deficit, splitting the expenses between needs and nice to haves will help in making the necessary adjustments. I suggest splitting the amounts spent into various buckets and then working out the weighting of each bucket with respect to the total amount spent on a monthly basis. Representing the results in a chart like the one below assists in giving you a visual picture of where your money is going. There is no right or wrong way to spend your money, but my recommendation, especially for people who earn income mostly from their own efforts, is to keep your living expenses to less than half of what you spend and allocating some money, about 15%, to contribution. Depending on where you are with your debt situation, use the rest of the money to pay off debt or invest for the future.

Living & lifestyle expenses Contribution Debt repayments Investments

Figure 3: Total monthly spend buckets

Living and lifestyle expenses – This comprises the costs to maintain and sustain your current lifestyle; it is the minimum amount that is required to be able to continue with your present lifestyle. This includes payments towards your mortgage/rent, municipality charges, groceries, domestic workers, car, household and life insurance, entertainment, school fees and clothing.

79

Master Your Finances: The art of building wealth

Contribution – These are acts of kindness and mandatory payments to support others and causes that are part of your spiritual and emotional attachment. This includes tithes and offerings, donations, support given to deserving family and friends, and money spent on buying gifts for loved ones. According to Business Insider’s Megan Willet, some of the richest people in the world have decided to give more than 50% of their wealth to charity. At some stage in wealth creation, your living expenses may even be less than 10% of what you earn and the rest can be used for investing and making a difference. Debt repayments – This relates to the interest and capital charges that are paid towards satisfying your debt obligations. Those obligations can be for overdrafts, credit cards, revolving credit plans, personal loans, hire purchases and so forth. This refers to instances where money is owed without an asset or initiative that can be shown for the debt. Refer to the discussion in the sections, ‘What you owe’ and ‘Dealing with over-indebtedness’. Investing activities – This refers to the act of putting money away for the future using any vehicle or asset that is acquired not for personal use, but to build wealth. Investing activities range from money put away in emergency funds, to bond repayments for investment property. In measuring the full amount spent towards the investment property, it is important to include the related costs of holding the property like body corporate fees, insurance and municipal payments. When I first performed this exercise, I noticed that a big chunk of my money was going towards gifts, entertainment and assisting family and friends. I love fine dining and am naturally a generous person. When I see someone in need, I am compelled to assist even if it meant sinking further into debt. Because I was not analysing where my money was going, I was doing this blindly and then wondering why I had credit card debt I could not seem to shake off. After performing this exercise, I became aware that my natural inclinations were putting me under undue financial pressure. The second thing this exercise enabled me to

80

Chapter 8: What you spend

do was to make a conscious decision upfront about how much I would spend in each category. If I needed to exceed the budgeted amount in any category, I reallocated funds from another category. It took a while to get to a stage where I could say no to myself and my bad spending habits, but raising awareness was half the job done.

S

Step 2 – Your contribution “You have not lived today until you have done something for someone who can never repay you.” —John Bunyan

There is a saying that goes, “If I am not for myself, who shall be for me? If I am only for myself, what am I?” Other sayings point to treating others as we would have them treat us; that it is more blessed to give than to receive. They teach us that what we give does come back to us, and that it is every person’s responsibility to look outside themselves and meet the needs in the world around them. It is our responsibility to ensure that our planet is a better place, one person at a time, one cause at a time. This could begin with our immediate family and friends, society at large, and even other parts of the world that are in more dire need. When we look to our own needs only without considering others less fortunate than ourselves, we lead empty lives. When we begin to reach out to the needs of others, something happens inside us that enables us, firstly, to be grateful for what we have, and secondly, to see that we receive a lot more from those that we are serving than our material assistance could ever give. Making contributions of our earnings helps us to maintain our relationship with money, and money is then our servant and not the other way round. There is no such thing as not being able to afford to give; everyone has something to give. Some people want to wait until they are rich to start giving, but it has been shown that there is a spiritual law that says the act of giving itself positions us to receive more.

81

Master Your Finances: The art of building wealth

S

Step 3 – Deciding on a standard of living and a timeframe

“Too many people spend money they earned ... to buy things they don’t want ... to impress people that they don’t like.” —Will Rogers

It may sound strange to decide upfront on a standard of living and a timeframe, but I find this is one of the culprits in destroying wealth or slowing down the wealth creation process. You just have to look at the rate at which technology has evolved over the last five years and the different gadgets we suddenly cannot do without, even though we may already own a few other gadgets with exactly the same functions. Some people keep going for the latest model car, resulting in their car repayments escalating, and they never actually reach a stage where they get to drive a paid-up car. There is an argument for new cars with respect to the escalating costs of maintaining an older car, but I remain convinced that maintenance costs will never offset the cost of a new car. “If you compare yourself with others, you may become vain and bitter, for always, there will be greater and lesser persons than yourself.” —Max Ehrmann

Therefore, it is important to stop comparing yourself with others. Taking into account your personal circumstances, decide upfront which house, car, schools, and holidays to aim for, for a period of time. This period could be five to ten years. Understand how much is being paid towards each expense and use excess funds to fast track loan and bond repayments and start investing. It is important to note that whatever assets are being used for consumption or to support your desired lifestyle for that period of time, these assets do not really count as far as building wealth is concerned. You build wealth from assets that are not part of personal use. Furthermore, take note of the replacement periods of consumption assets like cars and so on. The income should at least match your living expenses or be higher than them. If your living expenses exceed your income, I strongly recommend adjusting your living standards or being creative around some of these expenses.

82

Chapter 8: What you spend

S

Step 4 – Trimming unnecessary fat

Trimming unnecessary costs is important not only to ensure that your expenses are covered by your income, but to free any capital tied up in standing expenditure that could be better applied to building wealth. Do research to ensure that you get the best deal on all living expenses, taking into account the time and effort needed to obtain the better deals. Look out for specials and sometimes buy good second hand goods as opposed to looking for brand new goods all the time. Give your insurance company a call at the beginning of the year when the car values have dropped for a new quote on your insurance. This could save a significant amount of money when calculated over a period of time. Being creative around entertainment could result in significant savings over time. Home cook-offs can be an alternative to eating out, where different parties participate and then judge the food, and it may even be a great source of laughter. Another example could be imitating the reality show, Come dine with me, where loved ones get to connect and share a good meal, which may even have health benefits over and above the financial saving. As an alternative to spending a lot of money on toys, parents could start a toy club where toys are exchanged for a period of time. Children’s attention span when it comes to toys is very short and they keep wanting more and more. This way, they will get to see and play with different toys without parents having to spend money on them. As an alternative to paying expensive school and college tuition fees, there are companies out there looking to invest in educating young people, sometimes with a promise to secure future employment. This option funds the child’s tuition fees and also assures the child of employment when they finish school or college. The important thing is to look out for such opportunities and ask around for information relating to bursaries and scholarships.

S

Step 5 – Eliminating bad debt

As discussed in a previous section, if what you owe has not been applied to purchasing an asset or a transaction that has equity, in most instances this equates to bad debt and requires an aggressive plan to 83

Master Your Finances: The art of building wealth

eliminate it. That is the case with most unsecured debt. If you do have this kind of debt, I would strongly recommend paying it off as soon as possible. Years ago when I was in this situation because I did not have the right information on using money, and had also made some unwise choices using my credit cards, I came across a newspaper article. The article proposed listing all the debts and then paying off the smallest one first and once that was paid off, applying the cash flow to the next debt and repeating the process until all the debts are paid off. I also found that not accepting the credit offered by companies is better than trying to pay off debt once it has been created.

S

Step 6 – Protecting your wealth

Acquiring wealth is one thing, but having assets and income opens up the possibility of losing these assets and income to theft, damage or some or other loss. It is important to ascertain what may go wrong to cause the assets or income to be lost, stolen, damaged or destroyed. Examples include theft, accidents, disability and so on. All of these possibilities may cause the value in your asset or income to be lost or significantly reduced. Once you understand what may go wrong to cause the loss in value, there are three options to manage or prevent the loss from happening. Firstly, you can decide to do nothing about it because the chances of the loss occurring are minimal. For example, the chances of snow damage in South Africa are very low, therefore you can decide to do nothing about the fact that snow damage may affect the assets. On the other hand, the chances of losing a car to theft in South Africa are high and deciding to do nothing about car theft may result in the loss of your asset, thereby damaging your net worth. Before deciding to do something to protect yourself against the possibility of your car being stolen, you may consider the impact that losing the car to theft may have on your net worth. For example, the theft of a 1990 model car will not have the same impact as the theft of a 2014 model car. The value at stake is much less in the one instance than in the other. All these considerations are important. There is a cost involved in protecting your wealth by using insurance, however this is a necessary pain that can bring the peace of mind that comes from knowing that your assets and net worth are protected. 84

Chapter 8: What you spend

S

Step 7 – Investing “The habit of saving is itself an education; it fosters every virtue,

teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.” —T.T. Munger

I have heard people saying that you cannot start investing until you have paid off your debts. This statement is technically correct, however I believe that investing is a discipline that needs to be practised whether there are debts to be paid off or not. Even if it is a small amount, developing the habit of saving itself is a refuge from selfsabotaging behaviour. I encourage you to allocate some money to paying off debt, but to begin investing too. To conclude with respect to spending, it is important to understand the various categories where money can be spent, namely living expenses, contribution, debt repayment and investing. Since we will always have living expenses, it is important to put a ceiling on the lifestyle that you would like to maintain. Then you need to stick to it for a period of time until your wealth has grown in assets to afford the higher standard of living you desire. Contribution says that we recognise that it is a privilege to earn what we earn, therefore we give thanks and begin to overflow our financial wealth to others. Debt repayments debilitate wealth growth; instead we should be leveraging the opportunities that debt brings. Previous sections have discussed this point in detail. Ultimately, as in agriculture, the effect of investing can be viewed as maize seeds planted which results in a bigger maize crop harvest. Therefore, invest money and you will get more money.

And remember … “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” —Charles Dickens

85

Master Your Finances: The art of building wealth

 Questions to ask yourself to understand where your money is currently going:

1. Are you spending all your money to fund your lifestyle? 2. Do you have a clear programme to void your debt, starting with bad debt? 3. What percentage are you currently investing? 4. What percentage of your income are you currently spending on others or initiatives that are important to you? 5. How does your spending pie–chart look? Are you happy with the current picture? Remember, if you are consuming all your income, you are not creating wealth from that income.

86

Chapter 9 Pulling it all together “Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” —Dave Ramsey

Master your personal finances If we can agree that money is a tool that enables the owner to experience life, then similarly, a lack thereof may result in a limitation on life experiences. People choose experiences to satisfy underlying needs and wants. These needs and wants can be classified into four categories that align to the make-up of human beings. Without getting into too much debate, it is generally accepted that human beings have mental, emotional and spiritual sides over and above their physical bodies. These various aspects have unique needs and wants. Understanding this fact will go a long way towards helping you master your personal finances. The beauty of life is the freedom of choice that is available to each individual, hence these choices will differ from one person to another. However, when a person does not understand what need or want they are trying to satisfy, this becomes a wasteful exercise that destroys wealth in search of the unknown. It creates bondage and slavery to the acquisition of money, only to spend it on things that do not seem to satisfy. This is because every type of need or want has a unique satisfier, and because most things are not free, there 87

Master Your Finances: The art of building wealth

is a cost attached. This cost places demands on financial resources and those resources must have a source. Our beautiful planet provides for some of these needs, while the government and various organisations provide other common basic needs. Where these end, the individual, together with close friends and relatives, becomes the supplier of those needs. An interesting interdependence is created where the various parties utilise the resources to satisfy needs for return in the form of taxes, profit or salary. And so the cycle continues. The diagram below may be used as illustration of this cycle.

Fulfillers

Financial demands

• Environment and nature • Infrastructure • Goods and services • Relationships

• Living and lifestyle expenses and assets • Contribution • Debt repayments • Investments

Needs and wants • Physical • Emotional • Mental • Spiritual

Financial supply • Government or community • Own work • Own working assets • Family and friends • Other organisations or people

Figure 4: Personal Finances Wheel

Needs and wants Because we live in a consumer driven society, it is sometimes difficult to know the difference between a requirement for survival or need and what is simply extra or a want. Exploring basic needs is necessary to facilitate the introspection that each individual may undertake in the 88

Chapter 9: Pulling it all together

journey of defining the needs and wants they aim to satisfy. According to Community Action Network (CAN), basic needs are defined as those fundamental requirements that serve as the foundation for survival, including shelter, food, and clothing. CAN further states that access to these basic needs of life is necessary for the development of a strong community and a necessary precursor to individual self-sufficiency. Anna Coote from the New Economic Forum (NEF) shows the universal characteristics of need satisfiers, which have been contrasted below with the famous hierarchy of needs by Maslow. The interesting thing is that according to Maslow, basic needs are not only food, shelter and clothing, but extend to safety, security and social and belonging needs. The important trap that we ought to be aware of relates to an observation that Maslow made; people are constantly driven by the next and higher need once a lower need has been satisfied. If you are hungry, the only motivator is the need for food. Once fed, the realisation of nakedness will suddenly surface and so it carries on and on. This cycle may create a treadmill and if it continues unchecked, will lead one on a fatigue trajectory with little sense of well-being. At some point, especially when it comes to physiological needs, contentment and gratitude will be the source of peace.

89

Master Your Finances: The art of building wealth

Parallel between the first three pillars of Maslow’s hierarchy of needs and NEF’s universal characteristics of need satisfiers Adequate nutritional food and water Adequate protective housing Non-hazardous work environment Non-hazardous physical environment Appropriate healthcare Security in childhood Significant primary relationships Physical security

Self Actualisation Morality, Acceptance, Experience purpose, meaning and inner potential Self-Esteem Needs Confidence, achievements, respect of others, connections, need for individuality Love and Belongingness Needs Friendship, family, intimacy, connections

Safety and Security Needs Health, employment, property, family, stability

Economic security Safe birth control and child bearing

Physiological Needs Air, food, water, shelter, clothing, sleep

Basic education

Figure 5: Maslow’s hierarchy of needs and NEF’s universal characteristics of need satisfiers

In a nutshell, needs and wants are specific to an individual’s journey and no one can define these for another person. It is important, however, to be aware of the results of having and satisfying those needs, as there is a direct relationship between one’s needs and what is required to fulfil those needs, and as discussed above, the impact thereof on personal finances.

Fulfillers Mental and physical needs are largely satisfied by something in nature, the environment, infrastructure, and goods and services. Emotional and spiritual needs are satisfied by relationships with God and people.

90

Chapter 9: Pulling it all together

While it is not always practical, the challenge before consuming anything is to ask which need is being satisfied with which fulfiller. It seems like a silly question to ask, but how many times have you bought something because you thought you really wanted it, only for it to stay in the cupboard for months without being touched? If the need is emotional or spiritual, running after a bigger house or car will be met with an emptiness that, if it goes unchecked, will compel the drive for another bigger house or car, and so forth. The suggestion here is to explore the real underlying need in order to spend your limited financial resources on what will bring satisfaction.

Financial demands Fulfillers come at a cost, placing demands on financial resources. In the sections, ‘What you spend’ and ‘What you own’, you learnt that a certain level of discipline must be exercised to distinguish between living expenses and assets, and the rest. Instead of just going out and acquiring bigger and better fulfillers, if you take time to establish the level of spend that will satisfy your lifestyle and keep it for long periods of time while building equity, eventually that equity and income from assets will be sufficient to cover the requirements. Firstly, being aware of your choices, and secondly, making them intentionally, assists you in mastering your finances. It is important to note that financial demands slow down wealth creation or destroy wealth. If possible, these ought to be kept to a minimum.

Financial supply Mother Nature is generous enough to supply the most basic conditions of life - the environment, oxygen, water and food, among others. Government organisations and communities provide the infrastructure and other basic needs that are best provided collectively. After that, it is the individual’s responsibility to provide for their financial needs. For the young and aged, family and friends will generally step in to support and help them financially. Where individuals are underprivileged, whether they are economically active or not, typically the responsibility

91

Master Your Finances: The art of building wealth

falls on someone, from the government to organisations and even individuals, to assist them financially. Depending on geographical location the suppliers vary dramatically; in some places needs are fulfilled by the government, and in other locations individuals meet their own needs. Examples are electricity, health and education, which may be free depending on the jurisdiction you live in. Looking at options to maximise the supply side, as discussed in the ‘What you earn’ section, is a vital ingredient in building wealth.

Dispelling the misconceptions about work “Opportunity is missed by most people because it is dressed in overalls and looks like work.” —Thomas Edison

Work is defined as “activity involving mental or physical effort performed in order to achieve a result” (Google Dictionary). This implies that anything requiring effort is work. Today’s system grades different types of work categories and the skills and competencies required to fulfil them, and puts a price on them. There is not always a correlation between the level of effort required and the monetary compensation offered. The monetary compensation is what usually drives the choice when it comes to what kind of work to be involved in, and this provides the currency for the fulfillers of needs and wants. Apart from income generation, I believe work is part of the very essence of human beings as it gives a lot more than money, by giving people meaning, purpose and significance. A person may not meet their self-esteem and selfactualisation needs without expending physical and/or mental effort to serve others, whether or not there is a financial incentive. So work in itself meets certain needs, which mostly fall into the mental, emotional and spiritual categories. This is backed up by studies that show that retired professionals often fall into depression and end up dying quicker instead of enjoying the benefits of retirement that they toiled for. Corporates have even introduced programmes to assist staff nearing retirement to begin the preparation process of what to do with their time after retirement and also to consider their financial affairs. These facts reveal something about our nature as human beings; we derive more than a pay cheque from working. 92

Chapter 9: Pulling it all together

Furthermore, the notion of making money without working is in itself fundamentally flawed. Whether you have a full-time or part-time job, own a business, are a consultant or an investor, a certain amount of effort will be required to grow, improve, maintain or prevent your wealth from declining. There are certain differences in terms of the amount of time required by the different vehicles, however. With a job, the time commitment is set roughly at 9 to 5 every working day, with three to four weeks leave per annum. Some consultants and business owners work inconsistent hours as they enjoy some flexibility, however they can also work considerably longer hours than their employed counterparts. For investors, while the notion of passive income is widely advertised, they do not just put in resources and leave them there while enjoying returns. Investors do employ some time and effort in tending their investments, even if this is the minimum effort. Of course, investors enjoy the most flexibility of all the categories. The point I am making is that we can park the hope of getting to a stage of not working, firstly because it is not practical, and secondly, because as human beings we need to work. Where, how, with whom, for whom and how long we work are all factors that can drive our choice of the type of work we choose to do. In addition, there are always the forces of risk and reward at play based on our choice of work.

Work fits into all parts of the wheel It is a misconception to think of work as hard, draining, challenging and a struggle. When work is aligned with one’s purpose or calling, even the toughest labour intensive jobs can be inspiring or energising, otherwise work can become a curse. My brother, for whom I have much respect, is a boilermaker. The job is labour intensive, but requires skill and precise workmanship. When he starts talking about drawings or a piece of metal he was moulding to form an object, he speaks with so much passion. Even though I am a layman and do not have any knowledge about his field, I am quite fascinated to see what his job does for him; it is more than the pay cheque. Work in itself is inevitable, and it is the only

93

Master Your Finances: The art of building wealth

element that fits every need classification and entirely in the Personal Finances Wheel. As work is considered to be an activity involving mental and/or physical effort that is done in order to achieve a result, we will test this against every part of the cycle. Needs and wants are categorised as physical, mental, emotional and spiritual. Our bodies require exercise involving physical effort in order to be healthy. Every bit of advice on personal health has physical exercise as a requirement. Physical exercise and mental exercise have added benefits for mental health or well-being. We derive self-esteem from work, among other things, to fulfil these emotional needs. Brett Johnson, in his book, Convergence (1996), explains that convergence “happens when individuals discover their unique blend of Career, Community, Creativity and Call”. I believe that work is the vehicle that leads to convergence. The sooner work is viewed as a blessing and an opportunity to showcase our uniqueness, the more at peace we will all be and get on with it. Work is therefore a need, a want and a fulfiller, which demands and supplies financial resources and has a place in every aspect of the Personal Finances Wheel. The quality and quantity of work reveals something about the doer. The challenge for everyone is whether they would stand next to the work they have delivered with pride and be happy to be associated with their work. Every type of work should have one or some of the following objectives: •

To develop or invent something new.

•

To grow and improve something existing.

•

To prevent decline or failure.

Choosing work and the pros and cons of each option “The only place where success comes before work is in the dictionary.” —Vidal Sassoon

Looking at the analogy of studying and writing exams, while hard work is required to pass the exam, hard work on its own does not always result in passing. It also does not follow that the longer an 94

Chapter 9: Pulling it all together

individual studies, the better their results will be. That is where the concept of working hard and working smart comes in. It is about making every effort count to obtain the desired result. If there is a way of studying while using time effectively and efficiently, follow that. It takes preparation before every class, paying attention in class, and a concerted effort in revision and exam practice. It is about having the necessary tools in the form of books and stationery, and the guiding hand of a mentor (teacher). Even when one is well prepared there are still surprises that may hinder success, however the student would have done everything in their power to succeed. And just as could happen in an exam, the reward can range from 1% to 100%, with different grades in-between. So, whether we embrace work as a gift and a blessing or choose to view it as a necessary evil or means to an end, work is still the vehicle that provides financial rewards. There are various options with their own merits and demerits, and it is up to the individual to select what best suits them. I have come across people who have never done any of the things listed below, but make use of other people’s money to live their lives. I have also met people who have faithfully adhered to the 40-year plan, entrepreneurship and so on, including a blend of the various options. Here are options for the individual to select from or at least be aware of.

The 40-year plan The 40-year plan is the traditional method of working where a person attains a level of education and skill and joins an employer or changes between different employers for the duration of their productive years as an employee. The employer and employee contribute to a pension fund, which will pay the employee an income from the time of retirement, which is anytime from the age of 55, until their death. Some of these pension funds provide for death and disability benefits should the employee die before retirement age or become incapacitated and unable to work.

95

Master Your Finances: The art of building wealth

In theory, this plan covers all bases, however it has been criticised largely out of frustration by many when the promise of job security is not upheld. In addition to this, international statistics indicate that most retirees retire at a level of income that is much lower than what was earned immediately before retirement. Further criticisms are that if one decides to stop working without being incapacitated, the salary income also stops; there is a lack of time flexibility; and subservience to a superior is demanded. The advantages of this method are that an individual can focus on applying their strengths without worrying about aspects of running different facets of the business and earning an income from that. Despite questions around job security, the set income allows for planning and stability, which are a safe haven for particular personality types. But by limiting the level of risk, a ceiling is also placed on the level of reward possible from this option.

The future world of work New thinkers around the way work is arranged believe that the 40year plan is outdated, and predict that a new business model is fast approaching where people will not be hired into permanent jobs, but will be assigned on various projects without existing hierarchical structures. Most of these appointments will be on a contractual basis and people will likely hold a number of contracts or portfolios with various companies. As a matter of fact, “51% of employers in 2017 intend on hiring temporary staff to maintain flexibility in their staff compliment” (Braun, 2017). As life expectancy continues to increase as a result of improved health technologies, people will live longer and healthier lives. Forty-year savings will not be sufficient to cover people for retirement, so you need to be acquiring skills that will enable you to work longer and continue to generate an income. Ideally, as you grow older, you would like to slow down the pace.

Entrepreneur or business owner In attempting to move away from the 40-year plan, some people will choose to exercise their entrepreneurial muscle and start a business

96

Chapter 9: Pulling it all together

or use their skills to freelance as a consultant. Some just know from the outset that the idea of reporting to someone is not meant for them, and have the risk appetite to venture into something that has the potential to provide significant rewards with the uncertainty of its success. In comparison, this option gives a sense of control, although significant amounts of time have to be employed beyond the 9 to 5 timeframe. This option also introduces some flexibility in terms of not having to account for time to someone else. The person choosing this option has to develop an array of skills to be successful or partner with others who are strong in the areas where they have shortcomings. Selling becomes quite critical over and above the area of expertise in order to secure continuing business. A new contender, the client, seems to step into the boss’s shoes. While most business owners or consultants are perceived to have control and autonomy, the client actually calls the shots until the business is big enough to enable the owner to walk away from undesirable clients. Where the business succeeds, the financial rewards can be considerably higher than in the 40-year plan, however this carries some risk, stress and administration. Business owners have to think about future financial needs when the business no longer delivers, or, if the owner is the magic, when the owner can no longer be productive. The counter argument to this point is the fact that entrepreneurs always see opportunities and therefore they will always generate income in one way or another. The business owner has to think about some of the insurances and security an employer would usually provide, and has to put in place sufficient succession plans if the business is to continue even past their productive years. If the business is not set up to operate independently of its owner, the person is self-employed and has simply replaced the boss with their own business. The drive to divorce the work from the worker so that financial rewards are earned with or without the doer working have led to the creation of the last category of work, namely the systems.

97

Master Your Finances: The art of building wealth

Asset proprietors Asset proprietors are those who have understood that someone or some resource or entity or system has to work in order to generate financial resources. As a general rule, time investment is a requirement in order to obtain a financial benefit from work. For argument’s sake, if someone can earn R100 per hour worked, if she only relies on her own strength, the only amount of money she will ever earn will be limited to the number of hours she can work, putting a ceiling on the amount of income she can ever expect to earn. There is a limit to the number of hours one person can give. Similarly, one can focus on increasing the rate per hour by improving quality or focusing on a unique skill, yet the forces of demand and supply will still regulate how high the hourly rate can be. If the hours invested in work can be multiplied somehow, the level of income will increase. The problem is that there is a limit to the number of hours at an individual’s disposal, and if the individual requires flexibility with their time, the number of personal work hours would have to be reduced or replaced by employing someone else, a system, an asset or an entity to perform work in such a manner that the benefits will accrue to the individual. Asset proprietors have also figured out that whether you are in the 40-year plan or go the entrepreneurial route, you will never be free if the ability to earn income is tied to your individual effort. True wealth creation depends on the magnitude of the number of assets that are working for you, and their useful economic life should exceed your natural life to enable you to leave a legacy to your children and their children. Conrad Hilton of the Hilton Hotels is an example of a true asset proprietor, as his investment exceeded his natural life, leaving a legacy to his grandchildren.

The answer lies in the balance Unless you are an asset proprietor, it is reckless to stick to only one work method. Most employers have built ‘outside interests’ into their 98

Chapter 9: Pulling it all together

employment contracts, and usually the only requirement is that you do not venture into interests that are in competition with your employer and disclose your outside interests. So, whether you are an employee or entrepreneur, apply the suggestions in this book to create assets that increase your equity and income generating ability.

Action items 1. List five of your most expensive acquisitions and write next to each one the need or want you were trying to fulfil when you bought it. Where the wrong item was bought to fulfil a need or want, consider disposing of all such acquisitions and finding the right fulfiller. 2. Write down your ideal work. What would you rather spend your time doing as compared to what you are currently doing? Begin to see resources in your current work that may be equipping you for your desired work. This was described by someone as: a.

something you are good at;

b. something the world needs; and c.

something you get paid for it.

3. Use the knowledge to refine your purpose. Once you have clarity regarding what your purpose is, start with small steps to align what you are currently doing with your purpose until you are able to make a full transition to live your purpose and get paid for it.

99

Chapter 10 Having a map and a mirror “Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do.” —Mark Twain

It is a journey Personal Finances Mastery is a journey that lasts from birth until death; it is not a competition as our starting points are not the same. I view the outcome of Personal Finances Mastery as a relay where one generation passes the baton on to the next. The starting point for each individual is different and therefore no ‘one size fits all’ approach can be applied successfully. It calls for stewardship on the part of the individual to ensure that when the baton is passed on to the next generation, wealth has indeed increased and the values that resulted in the growth are then passed on to the next generation. Personal Finances Mastery is also linked to quality of life, the number of people who have been positively impacted by your positive financial choices, and the impact you have had on people, starting with your loved ones and including everyone you have influenced in your interactions and the environment. What value would there be if you managed to grow the wealth you inherited from your parents but have injured and broken those around you in the process, or when the Earth has nothing good to say about how you have treated it? When your actions and values have perpetuated moral and ethical decay? There is a 101

Master Your Finances: The art of building wealth

deep need within each individual to contribute positively and have a purpose for their life. By mastering personal finances, how they work and what causes an increase or decrease, individuals can manage their financial lives to enable them to live a life of true significance which can be passed on to future generations.

The map When someone embarks on a long journey they make sure they have a map to show where they are going. On the financial journey, the map will determine the path that you will take in each category of wealth creation and building, i.e. what you own, what you owe, what you earn and what you spend. An abundance of suggestions and guidelines have been discussed in this book, but it is up to you to personalise this information and take what will work in drawing up the map for your financial journey. The exercises at the end of each section have been designed to begin the journey of addressing and implementing some of the strategies. Further, I suggest that you make a list of five possible ideas under each category and rank them twice. First, rank them according to ease of implementation judged by the amount of time it would take to implement and the availability of resources to implement the idea. Secondly, rank them by the level of impact successful implementation would make to your net worth. By combining the two, select the easiest and most impactful ideas and implement those first. That should do wonders for your net worth.

Time and effort investment Do not attempt to do everything at the same time; Rome was not built in a day. Take two or three initiatives at a time and focus on those until you have wrapped your head and lifestyle around them before taking on the next one. Most people will already have prior engagements at the time of reading this book. Do not abandon anything you are currently doing until you have set up an alternative that provides benefits that exceed the financial benefits you are receiving from the current source of income. Or consider the alternative as an additional

102

Chapter 10: Having a map and a mirror

income stream and keep doing what you have been doing to earn money to date. Many quick tactics have been suggested in the various sections and can be implemented with ease to significantly impact your financial situation. Others require a longer period in order to enjoy the benefits. Understand the difference and apply the relevant time and effort investment without pre-judging the results.

Spend enough time planning Before you attempt to start implementing any ideas in this book, take sufficient time to plan. Planning means understanding where you are right now and where you would like to go, and the reason. I believe in documenting all this information, as it becomes important at a later stage when the fear and anxiety associated with the current state have worn off. Behavioural scientists agree that human beings are motivated by positive and negative circumstances. The positive circumstances associated with financial freedom will drive individuals to endeavour to take the relevant action required to implement some of the ideas suggested in this book. I believe, however, that greater motivation to move into action may be driven by the need to escape negative current or future circumstances. Once the fear and anxiety wear off, the motivation may drop and the individual could start questioning or abandoning their initiatives. Seeing the bigger picture, with the current situation and desirable objectives written down, will remind the individual of the reasons why the journey was undertaken. The SMART actions to move from the current reality to the desirable reality should also be documented in such detail that it is crystal clear what needs to be done and to determine whether a particular action has been fulfilled. For example, if the goal is to get a new job, a series of specific actions need to be documented, such as call five of my ex-colleagues by 10 January, register on LinkedIn and complete at least 75% of the profile by 20 January, contact at least five employment agencies in the relevant field by 28 January, review at least three job boards, and send at least 10 applications per week. Coming up with as many actions as possible

103

Master Your Finances: The art of building wealth

will increase the chances of success. Making the goals SMART makes it easier to measure progress and re-evaluate them in future.

Move into action “Play like it all depends on you, and pray like it all depends on God.” —T.B. Joshua

Einstein correctly pointed out that the height of insanity is doing the same thing over and over again and expecting different results. If your current and past practices have not yielded the results that you wanted, it is definitely time to change course. If you have taken sufficient time to map out your journey as suggested above, the only thing that is left is to move into action and start achieving the goals that you have set for yourself. It cannot be just a mechanical task; you need to bring your mind and heart into your plan. In order to do this, the plan must speak to your highest vision and values. It is not enough to have this map documented; you need to have milestones and target dates for completion and mechanisms to hold yourself accountable. For each milestone, ask yourself how you will ensure that it is done. If you have a crystal clear map with SMART goals, half the job is done. The following suggestions will assist you to execute your plan successfully. Prioritise – When prioritising, focus on the actions that require minimal effort yet yield impactful results. Do these first. 80:20 principle – Avoid being too much of a perfectionist; 80% is good enough, and fix the rest as you go along. Excellence does not mean everything must be 100%, and perfectionism is an enemy of accomplishment. Early starts – There are 24 hours in a day, so start a bit earlier and make the time productive. Personal time – Take time for yourself daily, praying, reading Scripture and practising gratitude.

104

Chapter 10: Having a map and a mirror

Stop complaining or negative talk – Complaining, murmuring and bad mouthing others only draws away energy and retards progress. Don’t do it alone – Ensure you surround yourself with people who can provide technical, mental, emotional and spiritual support, and keep you accountable along the way. Do not be too stingy to pay for the services of professionals, as mistakes are costly. My younger sister has an eye for beauty and she can get good buys at reasonable prices. After a recent shopping trip, I had spent the most money but she had the best buys and had spent the least amount of money. I resolved to let her do the shopping on my behalf in future and rather pay her a consultation fee, because I would still save that way and come out with much better results than attempting to do it myself. Keep your goals front of mind – Regularly visit your vision board showing what you want and why for each area of your life, as this increases belief and thus your chances of achieving your goals. Your dreams obtain the power to become reality when what you want to achieve becomes integrated into your feelings and beliefs. You will eventually manifest what you constantly see; if you can envision it and believe it, you can make it happen and realise your goals and dreams. Somehow everything that is required gets magnetised to you to help you achieve that which you want. Know and understand the serenity prayer – “God grant me the grace to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference” (Niebuhr, 1942). Take the pressure off yourself; it is the nature of life that there are always things within and without our control. Do the best you can and if you can help it, circumstances will change. If you cannot, remember what will be, will be. Living with a sense of calm and peace is the reward that life ought to give. Ultimately it’s not just about the end or destination; it is about enjoying the journey as well. Knowing the Serenity Prayer moves us to do whatever is in our power with the peace of mind and understanding that there are things outside our control.

105

Master Your Finances: The art of building wealth

Serendipity and providence – As we set out on the path to mastering our finances, we release our defences to providence and serendipity, knowing that these two play a part along the way. The result will be the magic that sees us developing and finding the gold within ourselves. Just do it and track your progress! – When I was studying, our lecturers always said, “apply the ABC method if you want to pass”, meaning Apply Bottom to Chair. Ultimately, you will just have to do what you must do to get the results. Are your dreams important enough? Are the people around you important enough? Remember that we all have a finite number of days on this Earth. Can we make them count and contribute positively? Each day past is one day less, so ask yourself if this is really how you want to spend your life. Tracking your progress and then stopping to celebrate each milestone provides the fuel to continue and renders the process meaningful. Remember, a journey of a thousand miles begins with one step. As we take each step, we are moving closer and closer to the destination of financial wealth and freedom.

Look in the mirror Periodically stop and look at yourself in the mirror. Are you looking more and more like the picture you set for yourself? Revisit your map and compare it with your current reality. Measure your progress by comparing your current reality with your starting point. Are you moving towards your goals? Which areas are you progressing in and in which areas have you failed to progress? Assess if the goals you set are still relevant; replace the irrelevant ones with new goals as circumstances change, and repeat this process until you reach your goals. Sometimes circumstances change, requiring you to flex your plan. This requires you to be adaptable and responsive to the current reality. Change is a constant in life and there is more peace and progress in embracing change than resisting it. When we embrace and adjust to change, that is true success. Sometimes we may need to revisit the map and ask if the path we are on still makes sense given the current 106

Chapter 10: Having a map and a mirror

realities. If not, we need to change course. I once heard about the changes that happened in the ice industry. A long time ago, ice used to be harvested in the very cold areas. While the old ice farmers were still working on improvements in the harvesting of ice, new competitors arrived in the form of refrigerators. A lot, if not all, of the ice harvesters went out of business. Looking into the mirror also involves the ‘pillow test’, which entails looking into an internal mirror. Are my goals aligned to my values and am I able to sleep at night? With all the boxes ticked, continue to take action, measure, assess and repeat. Before you know it, you will start ticking off your goals as you achieve them one by one.

Intricacies of financial planning According to the Financial Planning Institute of Southern Africa, “financial planning is the process of meeting your life goals through the proper management of your finances”. A whole industry with various specialist areas has emerged over time, with different experts taking on specific market niches. It will be impossible to be an expert in all areas pertaining to finances, however we cannot abdicate responsibility to the people we engage to provide the various services. Keep interested in your finances. Understand what services you are paying for and how much; focus on paying for value and not necessarily always choosing the lowest price. Constantly evaluate if the various service providers are delivering on their promises; get these promises in writing and hold them accountable. Do your research and ensure the required registrations and qualifications are in place, and see that the person providing the service is competent and has been accredited to offer the particular service. Educate yourself to be able to ask the right questions and approve the right advice. Know the different bodies in the industry that protect consumers like the various ombudsmen and regulators.

107

Master Your Finances: The art of building wealth

This book focuses on laying a foundation for personal finances. There are other matters speaking to various subjects. When it comes to tax, are your tax affairs set up strategically to ensure that you meet your obligations and take full advantage of the various tax incentives? Paying tax faithfully contributes to ensuring that infrastructure standards are maintained and improved, and we pass on a good heritage to future generations. If you are employed, it is your responsibility to ensure you have put enough funds aside for retirement. Educate yourself about what benefits are available to you in your retirement fund, as most modern retirement funds only pay you what you have accumulated in your fund while you take the market risk. Ask your financial advisor for a projection of what you will receive when you retire. Owning all your possessions in your own name has repercussions for your heirs if the correct legalities are not in place. Consult the services of qualified executors and trustees to understand your options in setting up your estate to ensure a seamless transition for your heirs. As a basic measure, make sure you have a will drafted and that your estate will have sufficient funds to ensure minimal disruptions in the livelihood of your dependents in the event of your death. Prepare a file with all your important documents, share certificates, title deeds, policy documents and investment accounts, and ensure that the contact details at each institution are clear. Confirm that the various procedures upon death or incapacity are understood. Think about a curator and an executor should you be incapacitated or deceased. We have touched on insurance in the sections on ‘What you earn’ and ‘What you own’. Ensure that sufficient insurance cover is in place to protect your income, assets and other third party claims, such as professional indemnity.

108

Chapter 10: Having a map and a mirror

Conclusion A number of ideas were shared in this book, which can be summarised into the following four pillars: 1. Aligning work with purpose – hopefully you get to work in line with your passion/purpose/calling, as this can be energising and fulfilling. 2. Understanding the mechanics of personal finance – we have explored a number of the concepts in this book. 3. Promoting behaviours that build wealth rather than destroy it. 4. Mastering your finances is about getting into action. Knowing what to do but not doing it will not benefit anyone. “A journey of a thousand miles must begin with a single step.” —Lao Tzu

Take yours now!

109

Master Your Finances: The art of building wealth

Resources the author recommends Master Your Finances Master Your Finances’ mission is to make financial education accessible to every individual by helping people to manage their finances and grow their wealth in a meaningful manner. I do this by providing insightful and practical resources to partner with individuals on their financial education journey. Specifically, i focus on these four aspects of your wealth creation journey: •

Helping you to align work to your purpose.

•

Empowering you by simplifying the perceived complexities around finances.

•

Creating awareness around natural or conditioned behaviours and how these impact your financial life.

•

Empowering you to craft strategies aligned with your personal journey for practical implementation to achieve desired results.

Visit us on www.masteryourfinances.net for more resources and training programmes. Alternatively, send an e-mail to info@ masteryourfinances.net.

110

Resources the author recommends

Mark Campbell’s Personal Visioning Programme Align your work to your purpose with Mark Campbell’s Personal Visioning Programme. If you can relate to the following, then this programme is for you: •

Who am I? Why am I here?

•

I have no passion for my job; it is just a means of earning a living.

•

There is something missing in my life but I don’t know what it is.

•

I thought I would outgrow peer pressure, but I haven’t.

•

There is no balance in my life.

•

I need time out to take stock.

Many people battle in silence with these issues. The sad reality is that we often pay heed to these and related issues later on in life or when we feel trapped by the hand that fate has dealt us. When should we start to consider these things? I believe that the Personal Visioning process will help you to deal with these issues or at least begin a journey to discovery and self-awareness that will assist you to align yourself with purpose. Mark Campbell started his working career as a high school teacher and then spent more than 17 years in the corporate Human Resources arena. Following the experience of a Personal Visioning and the subsequent journey of self-discovery, he left the corporate world to follow his passion - helping people find purpose and meaning in their lives, ideally through their work. 111

Master Your Finances: The art of building wealth

He has spent the last eight years as a consultant in the field of organisational and people development for the manufacturing, financial services and education sectors. In addition to the lessons learned from being married to Lyn for more than 28 years and helping two children to become responsible adults, Mark has an Honours Degree in History and a Masters in Organisational and Management Systems. He is also certified as a Business Coach. To contact Mark for more information, send an e-mail to [email protected] or call him on +27 836792299.

112

References Bible Gateway. (n.d.). Proverbs 22: 7. English Standard Version Bible. Available from: https://www.biblegateway.com/passage/?search=Proverbs+22%3A7&version=ESV. [Accessed on 31 July 2017]. Bible Hub. (n.d.). Ecclesiastes 10:19 (NIV). Available from: http://biblehub.com/ ecclesiastes/10-19.htm [Accessed on 12 March 2015]. Brainy Quote. (n.d.). Theodore Roosevelt. Available from: https://www.brainyquote.com/ quotes/authors/t/theodore_roosevelt.html [Accessed on 12 March 2015]. Brainy Quotes. (n.d.). Lao Tzu. Available from: http://www.brainyquote.com/quotes/ quotes/l/laotzu137141.html [Accessed on 12 March 2015]. Braun, K. 2017. Temporary Hiring Trends in 2017 and Beyond. CareerBuilder. Available from: https://resources.careerbuilder.com/news-research/temporary-hiring-trends-in-2017and-beyond [Accessed on 30 August 2017]. Brown, J. 2015. The Importance of H2O: Are You Drinking Enough Water? Available from: http://www.advancedwellbeing.com/breaking-news/ [Accessed on 1 February 2015]. Community Action Network. 1999. What are Basic Needs? Available from: http://canatx.org/basicneeds/backup/documents/1999Assessment/ basicneeds99whatarebasicneeds.html [Accessed on 15 December 2014]. Coote, A. 2014. Basic human needs - what are they really? Available from: http://www. neweconomics.org/blog/entry/basic-human-needs-what-are-they-really [Accessed on 14 December 2014]. Covey, S. 1989. 7 Habits of Highly Effective People. Available from: http://habitrpg.wikia. com/wiki/The_7_Habits_of_Highly_Effective_People [Accessed on 1 February 2015]. Cussen, M. 2014. Top 5 Reasons Why People Go Bankrupt. Available from: http://www. investopedia.com/financial-edge/0310/top-5-reasons-people-go-bankrupt.aspx [Accessed on 1 February 2015]. Deloitte. 2014. Financial Instruments: Presentation. Available from: http://www.iasplus. com/en/standards/ias/ias32 [Accessed on 1 February 2015]. Ehrmann, M. 1927. Desiderata. Available from: https://en.wikipedia.org/wiki/Desiderata [Accessed 2 August 2017]. Epictetus, Good Reads. 2015. Epictetus Quotes. Available from: http://www.goodreads. com/author/quotes/13852.Epictetus [Accessed on 12 March 2015]. Federal Reserve Release. 2015. Finance Companies 1 November 2014. Available from: http:// www.federalreserve.gov/releases/g20/current/ [Accessed on 1 February 2015]. Financial Planning Institute of Southern Africa. (n.d.). Student Brochure. Available from: https://www.fpi.co.za/documents/StudentBrochure.pdf [Accessed on 31 July 2017]. Financial Services Board. (n.d.) My life my money. Available from: https://www. mylifemymoney.co.za/Wealth/Pages/Insurance.aspx [Accessed 21 September 2013].

113

Master Your Finances: The art of building wealth Forbes. 2014. Top 100 Money Quotes of all time. Available from: http://www.forbes.com/ fdc/welcome_mjx.shtml [Accessed on 12 March 2015]. Good Reads. 2015. Alvin Toffler Quotes. Available from: http://www.goodreads.com/ author/quotes/3030.Alvin_Toffler [Accessed 12 March 2015]. Good Reads. 2015. Charles Dickens Quotes. Available from: http://www.goodreads.com/ quotes/90487-annual-income-twenty-pounds-annual-expenditure-nineteen-sixresult-happiness [Accessed 12 March 2015]. Good Reads. 2015. John Bunyan Quotes. Available from: http://www.goodreads.com/ author/quotes/16244.John_Bunyan [Accessed 12 March 2015]. Good Reads. 2017. Dave Ramsey Quotes. Available from https://www.goodreads.com/ quotes/7752892-financial-peace-isn-t-the-acquisition-of-stuff-it-s-learning-to [Accessed 2 August 2017]. Good Reads. 2015. Quotes by Vidal Sassoon. Available from: http://www.goodreads. com/quotes/16380-the-only-place-where-success-comes-before-work-is-in [Accessed 12 March 2015]. Good Reads. 2015. Thornton T Munger quotes. Available from: http://thinkexist.com/ quotation/the_habit_of_saving_is_itself_an_education-it/264900.html [Accessed 12 March 2015]. Good Reads. 2015. Will Rogers Quotes. Available from: http://www.goodreads.com/ quotes/238077-too-many-people-spend-money-they-haven-t-earned-to-buy [Accessed 12 March 2015]. Kiyosaki, R. (n.d.) Inspirational quote, do not let fear hold you back. Available from: https://za.pinterest.com/pin/279082508132862365/ [Accessed 2 August 2017] Johnson, B. 1996. Convergence. Indonesia: Indaba Publishing Lawyer South Africa. 2017. Common Causes of Divorce in South Africa. Available from https://www.lawyersouthafrica.co.za/common-causes-of-divorce-in-south-africa/ [Accessed 21 April 2017]. Maslow, A. (n.d.). Hierarchy of Needs Diagram. 1954. Available from https://www.google. co.za/search?q=Maslow%E2%80%99s+Hierarchy+of+Needs+Diagram&tbm=isch&tbo=u&source=univ&sa=X&ved=0ahUKEwiQ26SqmLTVAhXsBcAKHQT_BRwQsAQINQ&biw=1366&bih=651#imgrc=1ao9TlEALmeWgM:&spf=1501527190632 [Accessed 31 July 2017]. Melody, S. 2009. We Have 30 Basic Human Rights: Do You Know Them? Available from: http://www.samaritanmag.com/we-have-30-basic-human-rights-do-you-knowthem [Accessed 29 September 2014]. Money and Mental Health. 2013. Tips for managing money. Available from: http://www. mind.org.uk/information-support/tips-for-everyday-living/money-and-mentalhealth/tips-for-managing-money/ [Accessed 29 September 2014]. Moneysmart. 2013. Your Guide to Property Finance in South Africa: Get it Here. Available from: https://moneysmart.co.za/community/2013/02/your-guide-to-propertyfinance-in-south-africa-get-it-here/ [Accessed 1 February 2015].

114

National Heart Blood and Lung Institute. 2012. Why Is Sleep Important? Available from: http://www.nhlbi.nih.gov/health/health-topics/topics/sdd/why [Accessed 1 February 2015]. Nemko, M. 2013. Bah passion, It’s possible that following your passion will lead to poverty. Available from: http://money.usnews.com/money/blogs/outside-voicescareers/2013/11/04/a-no-nonsense-take-on-following-your-passion [Accessed 29 September 2014]. Niebuhr, R. 1942. The Origin of our Serenity Prayer. Available from http://www.aahistory. com/prayer.html [Accessed 2 August 2017]. Pavlina, S. 2012. How to earn passive income from Intellectual Property. Available from: http://www.stevepavlina.com/blog/2012/05/how-to-earn-passive-income-fromintellectual-property/ [Accessed 2 October 2013]. Peal, N. V. (n.d.). Norman Vincent Peale Quotes Available from http://www.great-quotes. com/quotes/author/Norman+Vincent/Peale [Accessed 2 August 2017]. Robert, G. 1958. Publish a book and grow rich Bootcamp Workbook. Ontario: Gerry Robert Enterprises Inc. Rohn, J. (n.d.). Jim Rohn quotes. Available from: https://www.goodreads.com/author/ quotes/657773.Jim_Rohn [Accessed 2 August 2017]. Serendipity Principles. (n.d.). Theodore Roosevelt. Available from: http:// serendipityprinciples.com/tag/theodore-roosevelt/ [Accessed 12 March 2016]. Stanford Graduate School of Business. 2004. Vinod Khosla: Microlending to End Poverty. Available from: http://www.gsb.stanford.edu/insights/vinod-khosla-microlendingend-poverty [Accessed 1 February 2015]. Stanley, A. 2014. Better decisions, fewer regrets. Available from: http://yourmove.is/ about/ [Accessed 1 February 2015]. Stanley, T. J., & Danko, W. D. (1996). The millionaire next door: Surprising Secrets of America’s Wealthy. New York: Pocket Book. Available from https://link.springer. com/ chapter/10.1007/978-3-319-28887-1_29. [Accessed 30 July 2017]. Statistic South Africa. 2012. Income and Expenditure of Households 2010/2011 Statistical release P0100. Available from http://www.statssa.gov.za/publications/P0100/ P01002011.pdf [Accessed 18 March 2017]. Statistics South Africa. 2016. Indebted South Africans Showing resilience? Available from http://www.statssa.gov.za/?p=6437 [Accessed 18 March 2017]. Sunday World. 2014. Blacklisted? Credit history amnesty is available. Available from: http://www.sundayworld.co.za/news/2014/04/01/blacklisted-credit-historyamnesty-is-available [Accessed 1 February 2015]. Swart, N. 1996. Personal Financial Management. South Africa: Juta & Co Ltd The Money Advice Service. (n.d.) Debt and borrowing. Available from: https://www. moneyadviceservice.org.uk/en/categories/debt-and-borrowing [Accessed 29 September 2014]. Life Changing Adventures. 2017. Where to draw the line? Available from: https:// adrianekline.wordpress.com / [Accessed 30 July 2017].

115

Master Your Finances: The art of building wealth Edison, T. (n.d.). Famous quotations from Thomas Edison. Available from: http://www. thomasedison.org/index.php/education/edison-quotes/ [Accessed 12 March 2015]. Twain, M. (n.d.), Mark Twain Quotes, Available from https://www.values.com/ inspirational-quotes/4171-twenty-years-from-now-you-w- [Accessed 2 Augyst 2017]. UNICEF. 2000. The Progress of Nations 2000. Available from: http://www.unicef.org/ pon00/ [Accessed 14 December 2014]. University of Washington Women’s Health. 2008. Leading a Healthy Life: Six Steps to Living Long and Staying Healthy. Available from: http://depts.washington.edu/ uwcoe/healthtopics/healthylife.html [Accessed 1 February 2015]. Villanyi, V. (ed.). 2010. Air Pollution. ISBN 978-953-307-143-5. Available from: http:// www.intechopen.com/books/air-pollution/importance-of-components-andsources-for-health-effects-of-particulate-air-pollution [Accessed 1 February 2015]. Wikiquote. (n.d.). Talk: Johann Wolfgang von Goethe. Available from: http:// en.wikiquote.org/wiki/Talk:Johann_Wolfgang_von_Goethe [Accessed 12 March 2015]. Willet, M. 2013. Tycoons Who Won’t Leave Their Fortunes to Their Kids. Available from: http://www.businessinsider.com/tycoons-not-leaving-money-to-their-kids-20138?op=1 [Accessed 1 February 2015]. World Intellectual Property Organization. (n.d.). What is IP? Available from: http:// www. wipo.int/about-ip/en/index.html [Accessed 19 September 2013].

116

Index A ACCA (Association of Certified Chartered Accountants), 65 action items, 17, 28, 40, 52, 62, 73, 99 action plan, 24, 61 advanced wellbeing, 5 Aggressive Milestone Method, 27 aggressive plan, 83 Airbnb, 37, 70 Annual Gross Income, 27 Annual Pre-Tax Income, 27–28 application, 36, 43, 46, 60, 76, 103 asset-backed loan, 46 home loan, 46 apply bottom, 106 approach wealth building assets, 33 asset proprietors, 98 assets, 3–4, 20, 22–30, 32–41, 44–46, 48–52, 55, 63, 69–73, 75–76, 80, 82–85, 88, 91, 98–99 consumption, 82 creating, 76 defaulting debtor’s, 55 depreciating, 33 excluded inherited, 3 generating, 26, 35 greatest wealth building, 35 paid-up, 33 personal, 45 rental, 70 source, 32 start building, 73 types, 38 Association of Certified Chartered Accountants (ACCA), 65 B bad credit record, 4 bad debt, 25, 43–44, 49, 52–53, 55–56, 83–84, 86 bad investment initiative, 47 balance sheet, 49 bank account, 64 banked profits, 25 bankruptcy, 3, 19, 59–60 grant, 60

banks, 22–23, 39–40, 46 extracting, 78 basic education, 90 behavioural scientists, 103 bodies, 2, 80, 94, 107 consumer protection, 38 bond repayments, 80, 82 bonds, 29, 36, 39, 44 borrower, 56, 60 budget, 4, 50, 78 budgeted amount, 81 building, 21, 26, 35–37, 102 retarding wealth, 76 building wealth, 3, 7, 10, 15–17, 20, 23, 25–26, 30, 35, 39, 75–76, 82–83, 92 business, 4, 7, 29, 33, 37, 40, 43, 45–47, 51–52, 58, 65, 68–69, 71, 93, 96–97 business debt, 52 business liabilities, 45 business model, 68 new, 96 business structures, 46 business transactions, 45 business ventures, 47, 51, 71 running, 46 C calculation worksheet, 22–23 capital, 25, 33, 36, 40, 44, 55, 66, 83 Capital Appreciating Assets, 32 capital charges, 80 capital growth, 33, 72 career choices, 5–6 cash, 21–22, 29–30, 45, 49, 58, 75 exhaust, 76 holding, 49 cash flow, 52, 84 cash reserves, 49 holding sufficient, 52 catastrophic consequences, 16 change, 4, 10–11, 14, 33, 57, 65–66, 104–107 embracing, 106 projected, 50 chartered accountant, 65 cheques, 19, 92–93

117

Master Your Finances: The art of building wealth choices, 1–4, 7, 9, 16, 19–20, 23, 30, 48–49, 53, 55, 57, 60, 76–77, 87, 91–93 unwise, 84 circumstances extreme, 39 financial, 11 individual, 60 negative, 103 personal, 20, 82 positive, 103 unfortunate, 60 coach, 26 qualified, 6 collateral, 39, 55, 60 community, 3–4, 11, 21, 43, 88, 91, 94 healthy, 53 strong, 89 Community Action Network, 88 companies, 38, 50–51, 64, 68, 70, 72, 75, 83–84, 96 competencies, 92 Conservative Milestone Method, 27 contract, 3–4, 52, 60, 69, 71, 96 contractual basis, 96 costs, 25, 27, 31–32, 34–35, 39–41, 44, 46–47, 50, 56, 70–71, 77, 79–80, 82–84, 87, 91 anticipated, 50 associated, 34 cleaning, 34 escalating, 82 hidden, 77 higher, 39 maintenance, 82 opportunity, 77 social, 77 transfer, 46 credit, 21–22, 39, 46, 48, 53, 55, 60, 84 credit behaviour, 4 credit bureaux, 60 credit cards, 39, 80, 84 credit extensions, 39 creditors, 23, 54–55, 60 credit plans, 80 currency, 49, 64, 92 D dealing with over-indebtedness, 80 death, 4, 7, 48, 50, 95, 101, 108

118

debit orders, 12 debt, 19, 22–24, 27–28, 43–50, 52–57, 59–62, 78–80, 84–86 credit card, 80 good, 44, 52, 56 household, 53 personal, 45, 52 personal bad, 52 understanding, 43, 52 unfruitful, 48–49 unproductive, 52 unsecured, 84 wealth building, 45–46, 52 wealth creation, 45 debt agreements, 48 debt counselling, 59–60 debt links, 44 debt obligations, 49, 54, 61, 80 debtor, 54, 60 debt prison, 48 debt recovery, 60 debt repayments, 43, 56, 80, 85, 88 debt review, 60 debt situation, 79 debt traps, 49–52 decent lifestyles, 30 decisions, 1–2, 10–12, 16, 33, 38, 44, 55, 57, 60, 67, 76 foolish, 11 informed, 49 wiser, 77 defaulting debtors, 55 deficit, 78–79 monthly, 78 defining debt, 43 defining net, 19 demand financing, 49 demands, 30, 32, 49, 60, 68, 87, 91, 94, 98 cashflow, 25 excess, 49 deposits, 29 fixed, 12 depreciation, 33 disability, 50, 84 disability benefits, 95 disaster, 47 financial, 58 discipline, 4, 48, 64–65, 85, 91 required, 31 disposable income ratio, 53

diversification principle, 12, 37 dreams, 6, 12, 54–55, 105–106 financial, 12 unfulfilled, 6 E earning, 9, 32, 43, 68, 81, 96 generating, 69 working adult, 21 earning income, 69 economic security, 90 economic self-sufficiency, 43 economy, 52–53, 64 education, 3, 10, 65, 67, 72, 85, 92, 95 average, 67 formal, 36 informal, 36 prior, 66 effects of over-indebtedness, 54 effort investment, 102–103 emotional anchors, 14, 62 emotional attachment, 80 emotional decision, 2 emotional pressures, 69 emotional response, 11 employee, 64, 66, 95, 99 employers, 16, 36, 51, 60, 64–65, 95, 97–99 employment, 60, 75, 83, 90 obtaining, 60 entrepreneur, 69, 96–97, 99 entrepreneurship, 95 environment, 7, 66–67, 88, 90–91, 101 physical, 90 equity, 45, 47, 49, 60, 83, 91, 99 estates, 3, 108 combined, 3 joint, 3 excess bills, 5 expenditure, 58, 75, 77 annual, 85 expenses, 47, 49–51, 56, 76, 78–79, 82–83 basic, 4 F Faith Ministries International, 66 fate, 10, 16, 64 financial, 9

fatigue trajectory, 89 fees, 70–72 child’s tuition, 83 college tuition, 83 consultation, 105 corporate, 80 monthly, 38 finance experts, 30 financial advisor, 38, 108 accredited, 38 licenced, 41 qualified, 25 reputable, 38 financial affairs, 4, 92 financial benefits, 49, 56, 63, 68, 98, 102 higher, 32 financial choices, 4 positive, 101 financial decisions, 4, 50 financial demands, 25, 37, 63, 88, 91 financial difficulties, 59 financial distress, 4 Financial Freedom Income Method, 26 Financial Freedom Net Worth figure, 26 financial implications, 7 negative, 6 financial incentive, 92 financial independence, 16 financial institutions, 38 financial peace, 87 financial plan, 10 financial planning, 107 Financial Planning Institute of Southern Africa, 107 financial practice, good, 39 financial problems, 3, 54 financial requirements, 50 unexpected, 51 financial reserves, 48 financial resources, 3, 6, 30, 75, 87, 91, 94, 98 limited, 91 financial saving, 83 Financial Services Board, 38 financial situation, 4, 16, 20–21, 24, 31, 58–59, 103 combined, 4 financial wealth, 19–21, 63, 85, 106 financing, 39–40, 45, 47, 50, 67, 69 mixing, 45 financing flashy lifestyles, 76

119

Master Your Finances: The art of building wealth fixed amount, 69 fixed property, 70 flexibility, 93, 97–98 fortune, 53, 72–73 franchise business, 68 franchisees, 68 franchise name, 68 franchising, 71 freedom, 24, 57, 61, 87, 106 financial, 9–11, 25, 76, 103 funding, 39–40, 46, 52 fund lifestyle assets, 45 funds, 37, 39, 47, 49–50, 66, 86, 108 emergency, 49, 80 excess, 82 modern retirement, 108 pension, 95 reallocated, 81 required, 39 sufficient, 108 traded, 36 G get rich quick scheme, 20 goals, 4, 9–11, 15, 24, 55, 61, 65, 67, 77, 103–107 financial, 16, 44 individual, 22 intended, 20 long-term, 23 solid, 9 golden rule, 40 good debt contracts, 49 good habits, 76 existing, 77 government, 16, 88, 92 government organisations, 91 groups of assets, 35–36 growth, 20, 51, 101 debt repayments debilitate wealth, 85 expected, 27 growth rate, 26 H habits, 9, 14–15, 85 bad, 77 bad spending, 81 health, 5, 15, 90, 92 financial, 7

120

mental, 94 personal, 94 health benefits, 83 health challenges, 69 health technologies, improved, 96 heritage, 21 good, 108 hierarchical structures, existing, 96 hierarchy, 30, 89 Highly Effective People, 14 home and luxuries, 31 home loans, 27, 39 household debt-to-disposable-income ratio, 53 I income, 4–5, 24–26, 30, 32–33, 35–37, 47–48, 50–51, 55–56, 60–61, 63–66, 69–73, 75–76, 82–84, 86, 95–99 annual, 26, 85 dividend, 72 existing, 76 family’s, 11 generating, 41, 72 hard-earned, 77 high combined, 4 higher, 76 interest, 72 monthly, 26 producing, 64 production of, 34, 36, 70 regular, 35 rental, 33, 70, 72 set, 96 significant, 70 sufficient, 39 income generation, 71, 92 Income Producing Assets, 32 income sources, 33 income streams, 75, 103 indebtedness, 61 surrounding heavy, 55 indebtedness robs, 54 inflation, 12, 64 infrastructure standards, 108 inheritance, 26 unexpected, 72-73 insolvencies, 30 instalments, 32

insurance, 34, 38–40, 48, 50, 52, 80, 83–84, 97, 108 sufficient, 108 insurance companies, 39, 50, 83 insurance coverage, 50 insurance premium, 39 interdependence, 88 interdependent factors, 14 interest charge, 39 interest expense, 40 interest rate highest, 48 lower, 39 interests best, 65 lowest, 46 investment accounts, 108 investment property, 80 investments, 10, 12, 22, 37–38, 65, 72, 88, 93, 98 financial, 72 fixed income type, 72 lifestyle expenses Contribution Debt repayments, 79 investment specialists, 72 investors, 93 IP (intellectual property), 36, 40, 72 J job security, 96 journey, 9–10, 13, 17, 20, 22–23, 57–58, 88, 101–106, 109 agonising, 1 financial, 102 individual’s, 90 lifelong, 36 K knowledge, 3, 10, 41, 47, 65–66, 72, 93, 99 limited, 47 relevant, 47 L Lawyers and registered debt counsellors, 59 legal action, 55–56 instituted, 60

legalities, correct, 108 lenders, 46, 48, 56, 59 level of income, 4, 26–27, 30, 73, 96, 98 liabilities, 3, 24–25, 30, 55, 76 total, 23 life insurance, 79 lifestyle, 25–26, 30–31, 37, 79, 82, 85–86, 91, 102 current, 79 exact, 31 healthy, 5 lifestyle assets, 29–30, 32, 37 lifestyle demands, 31 lifestyle expenses, 76, 79, 88 liquid assets, 75 limited, 75 liquid reserves, 76 living and lifestyle assets, 30 living costs, 25 living expenses, 19, 63, 79–80, 82–83, 85, 91 living standards, 82 loan agreement, 46 loan amount, 46, 49, 60 loan balance, 46, 50 loan period, 50 loans, 27, 40, 43–44, 46–48, 50–52, 54, 59–60 consolidation, 59–60 fast track, 82 micro, 43 personal, 39, 80 long-term investment strategy, 37 M monetary compensation, 92 money, 1–3, 5–6, 9, 12, 19, 43–44, 46–48, 59, 63, 66–67, 69, 76–87, 92–93, 103, 105 anticipated, 50 hard-earned, 75, 77 people’s, 95 money flows, 77 money problems, 5 Moneysmart, 46 mortgage/rent, 79 N National Credit Regulator, 60

121

Master Your Finances: The art of building wealth natural disasters, 38 NEF (New Economic Forum), 89–90 negative emotions, 55 negative net, 27–28 New Economic Forum (NEF), 89–90 Non-hazardous work environment, 90 O obligations, 25, 51–52, 54–55, 80, 108 financial, 54 outlay, 30, 69 financial, 44 significant capital, 71 outside interests, 98 overflow, 63, 85 over-indebtedness, 24, 45, 48, 52–55, 59–60, 62 P passive income, 93 generating, 36, 40 paying tax, 108 payments, 39, 46, 55, 79 mandatory, 80 monthly, 46 regular, 50 penalties, 51 minimal, 49 people’s spending habits, 76 Personal Finances Mastery, 101 Personal Finances Wheel, 88, 94 person’s wealth strategy, 33 planning cash flow, 50 possessions, 3, 31, 46, 70, 75, 108 required, 31 poverty, 5, 19, 43, 72 defeat, 66 pressure, 5, 105 undue financial, 80 preventative measure, 51 privileges, 21, 31, 85 professional indemnity, 108 profits, 34, 45, 47, 51, 66, 76, 88 huge, 49 monthly, 47 ploughing, 51 progress, 11, 20–21, 61–62, 105–106 financial, 4 retarded, 76

122

property, 3–4, 11, 29, 33–34, 46, 70, 80, 90 existing, 70 second, 70 proposal, entrepreneurial, 43 Q qualified accountant, 46 qualified advisors, 72 qualified executors, 108 R rate, 27, 33, 50–51, 82, 98 current, 47 higher, 27 recovery, 2, 57 financial, 57 registered business entities, 52 registered debt counsellors, 59 registered debt practitioner, 60 relationships, 3–4, 15, 30, 54, 56, 61, 81, 88, 90 destroyed, 54 direct, 90 right, 58 remuneration, 67 rent, 35, 37, 71 paying, 69 rental, 11, 35–36, 71 rental properties, 44 rent excess rooms, 37 repay, 44, 48, 54, 56, 81 repayment, 48, 60–61 repayment amount, 48, 59 repayment instalments, 34 repayment period, 46 repayments escalating, 82 repayment terms, 60 new, 59 replacement periods, 82 request proof, 59 requirements, 30, 50, 69, 88, 91, 94, 98–99 anticipated, 49 fundamental, 89 residential development, 33 residential properties, 11, 70 resources, 2, 7, 29, 31, 40, 49, 58, 69, 87–88, 93, 98–99, 102

responsibility, 51, 56–57, 68, 81, 91, 108 abdicate, 107 financial, 54 individual’s, 91 person’s, 81 retirement, 92, 95–96, 108 retirement age, 9, 95 retirement fund, 108 retrenchment package, 59 reward, 68, 93, 95–96, 105 financial, 72, 95, 97 handsome, 31 significant, 97 risk management, 12 risks, 37–39, 45–46, 51–52, 55, 71, 93, 96–97 market, 108

T

S

U

salary, 64–65, 88 decent, 21 higher, 65 salary income, 96 secured lending, 39 security, 4, 14, 55, 75, 89–90, 97 financial, 3, 6, 16 healthcare, 90 self-actualisation, 30, 90, 92 self-sabotaging behaviour, 85 self-sufficiency, individual, 89 semi-private communal residence, 70 serendipity, 106 set goals, 4, 31 settlement terms, 59 shareholders, 68 shareholders delegate, 68 shares, 12, 29, 36–37, 45, 72 SMART goals, 104 South African Reserve Bank’s Quarterly Bulletin, 53 spending, 77–78, 83, 85–86 spiritual anchor, 58 spiritual support, 105 Statistics South Africa, 53 stress, 3, 54, 60, 97 emotional, 56 mental, 54 succession plans, sufficient, 97

unsecured lending, 39

Target Net Worth, 25–28 calculating, 26 tax affairs, 51, 108 tax implications, 4 tax incentives, 108 Tax Income, 26 tax practitioners, 51 tax return, 51 employee’s, 51 terms, 12, 15, 25, 33, 48, 52, 58–59, 93, 97 amended, 59 statistical, 13 title deeds, 108 total assets, 22

V vehicle financing, 39 victims, 12, 16, 57 vision board, 15–17, 20, 23, 31, 61, 105 W Washington Women’s Health, 5 wealth, 10, 12, 15–17, 19–21, 23–25, 34–35, 37, 44–46, 55–56, 73, 75–76, 80, 82, 84–85, 101 creating, 32, 86 lucrative, 40 personal, 46 preserving, 52 wealth building assets, 29–30, 32–35, 37–38, 44 wealth building purposes, 52 wealth creation, 19, 29, 34, 39, 45, 57, 76, 80, 91, 98, 102 wealth creation cycle, 76 wealth creation mix, 32 wealth creation plan, 44 wealth creation process, 40, 76, 78, 82 wealth portfolio, 33 wealth relationship, 45 wealth strategies, 32 applying, 73

123

Master Your Finances: The art of building wealth wealthy, 73 what you earn, 61, 92, 108 what you owe, 80 what you own, 51, 63, 69, 73, 91, 108 what you spend, 91 wisdom, 12, 14, 57, 105 workers, domestic, 79 World Intellectual Property Organisation, 36 [Created with TExtract / www.Texyz.com]

124

Note to the reader Dear reader, I end with powerful citations that need no further elaboration. “Until one is committed, there is hesitancy, the chance to draw back – Concerning all acts of initiative (and creation), there is one elementary truth that ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one’s favor all manner of unforeseen incidents and meetings and material assistance, which no man could have dreamed would have come his way. Whatever you can do, or dream you can do, begin it. Boldness has genius, power, and magic in it. Begin it now.” —Van Goethe “Far better to dare mighty things, to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows not victory nor defeat.” —Theodore Roosevelt

Go ahead and master your finances. Caroline Marwisa January 2017

125

MASTER YOUR FINANCES The art of building wealth Master Your Finances – the art of building wealth will transform your financial life by demystifying the complexities around wealth creation. It will also open up new possibilities and provide practical ways for you to start your own successful financial journey. The book will unravel the mechanics behind finances and help you to become more aware of your own behaviour, and how it impacts your financial net worth. Master Your Finances – the art of building wealth provides actionable steps that will empower you to take charge of your own finances and design and implement a strategy to get the financial results you desire!

 “This book reveals the basic insights on managing your finances and wealth. These insights, if applied appropriately can lead to financial freedom. Everyone including academics, professionals and entrepreneurs will find the content of the book to be of value.” —Rolland Eboru; Author, Managing Executive and Board Member at South African Export Council, Cape Town, South Africa “Easy to read and practical, this book speaks to day to day issues that impact many people. An eye opener to personal financial issues that must be assessed and corrected to ensure wealth building and escape the trap of over indebtedness. Caroline Marwisa illustrates the issues that result in people being over indebted and how to overcome this and build wealth. This book is a must for those who want to turn their financial situations around and those who want to continue to grow their wealth base. The systematic principles and action plans in this book make this an excellent resource for your personal and business library.” —Samarah Mushohwe; Audit Manager at the Auditor General, Johannesburg, South Africa “Master Your Finances will show you how to live life to the full! It is simple, easy-to-read, provides actionable steps and completely demystifies personal finance.” —Bongani Mageba; Managing Executive, Stanlib, Johannesburg, South Africa Caroline Marwisa is a qualified Chartered Accountant and has over thirteen years’ financial services work experience with the top financial institutions (Standard Bank and Barclays) in South Africa. Further, her exposure includes Standard Bank London, Stanbic Bank Zimbabwe, Stanlib Ltd, Absa Ltd and Absa Wealth, Investment Management and Insurance. She has worked in banking, asset management, investments, insurance and wealth management as a professional in finance, auditing, leadership and learning and operations. Caroline has served as a key individual, trustee and principal officer of retirement funds for over five years. It is her passion to inspire others to find their purpose and lead lives of significance without being limited by the availability of financial resources.