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Monthly Archives: February 2017

Four easy ways to save money this Christmas

Christmas may be the season of joy and goodwill, but it is also the season of spending. Often our enthusiasm for being festive outpaces our bank balances.

However, there are some simple ways to save some money without taking the enjoyment out of the season. Some of these may even make your Christmas even better.

Here are four simple ideas to curtail your Christmas budget:

  1. Make your own crackers

Who isn’t tired of paying up for expensive crackers with the same gifts, the party hats that make you sweat, and the same lame jokes every year? (What’s Santa’s favourite pizza? One that’s deep pan, crisp and even.)

Making your own crackers might sound like an awful effort, but it can really be quite simple and extremely cost effective. A number of craft shops sell the cracker bodies that just need to be folded into shape, together with the ‘snaps’ that deliver the necessary bang when they are pulled. (You could download the template from the internet and cut some patterned cardboard or wrapping paper yourself, but this would be a lot more time consuming.)

Easy, cheap and always popular fillings, include luxury chocolate balls, mini soaps or lip gloss. Tiny bottles of whisky or liqueur also go down well, depending on the company.

Making Christmas crackers can also be a fun activity for your children to keep them busy for a few hours during the holidays. And that is priceless.

  1. Make your own gifts

Depending on the size of your family, Christmas gift shopping can easily bite a big chunk out of your budget. It could also mean spending hours at crowded malls dodging speeding trolleys and cosmetics salespeople.

A far more relaxing and cost-effective option is to make gifts yourself, and it’s quite possible to do this tastefully. Baking biscuits and making jam are old favourites, but there are other options too.

You can make up your own mini hampers by ordering small hand-crafted pottery dishes online and filling them with personalised treats like artisanal chocolate and home-made confectionery. Wrap these up in cellophane and you have gifts that everyone will love.

  1. Order your drinks online

Christmas almost demands good wine or even some top class South African brandy, and who doesn’t deserve a drink after a long year of hard work? But just popping down to your local off-license and filling a trolley is not always the best idea.

Firstly, you can’t be sure of getting the best prices, and secondly you’re likely to grab more than you really need just because it’s there and you’re in a festive mood.

Ordering drinks online can be a lot cheaper as you can looks for specials at the many local online stores available. You can also be unemotional about how much you actually need when the bottles aren’t staring you in the face.

Some shops also allow you to collect, which means there is no delivery fee. And that’s more money you can keep in your pocket.

  1. Don’t try to feed everyone yourself

If you’re hosting the family Christmas dinner, you will inevitably face the temptation of providing everything. After all, that’s what good hosts do.

There is however nothing wrong with asking everyone to chip in. You may want to do the main dishes yourself, but a salad here and a dessert there will not only save you time in the kitchen, but also get everyone involved in the meal and spread around some of the cost.

Give the gift that keeps on giving

This time of year sees both children and adults preparing their wish-lists for the upcoming festive season. But as many South Africans continue to grapple with rising debt, now is a good time to shift the focus from giving material items to providing future financial well-being.

Giving a child an investment as a gift will not only promote a culture of saving from a young age, but will also show them how you can make money grow.

There’s a powerful story of one customer’s commitment to leave a legacy for his family, and the value of sound financial advice. In November 1968, a customer made an initial deposit of  R400 into the Old Mutual Investors’ Fund and 48 years later, his investment is today worth over R600 000.

More precious than the value of his money, however, was the culture of saving and the legacy that he passed on to his children and grandchildren. On special occasions such as Christmas and birthdays, he invested a set amount of money on his children’s or grandchildren’s behalf. With this investment, his daughter was able to provide for her daughter’s schooling.

If South Africa is to develop a generation of financially savvy adults, it is crucial to not just talk about it, but actually practise good money habits. It is important to teach your children about money, and the festive season – with the spirit of giving – is a good time of the year for parents to set a good example. Teach your children about the importance of giving within your means, as well as showing them the value of relaxing with family and rewinding after a long, hard year, while respecting the value of hard-earned money.

Families should consider starting a financial tradition of their own. Set a reasonable budget for gift giving this festive season, and instead of spending all your money on gifts that are likely to fade, go missing or be forgotten, speak to your financial adviser about starting an investment in the name of your children.

When children become old enough to understand more about money management, parents should involve them in the process. Teach them the principle of compound interest and explain why putting money away today means they will have more money tomorrow. Help them set a budget for the money they’ll receive over the festive season, encouraging them to spend a smaller percentage today, and investing the rest for the future.

Here are various ways you can give a gift that keeps on giving long after the hype of the festive period has subsided:

  1. Start saving for your children’s education: A hotly debated topic this year, the cost of education is something that needs to be saved towards and planned for. Opening an account and allocating money to it each month can help you fund your children’s future education.
  1. Life-starter fund: Every parent dreams of having the power to provide their children with the necessities in life, but in reality, this isn’t always possible. Setting up an investment and adding to it each year, even just a small contribution of R500, will enable you to provide your children with a lump sum that they can use as a deposit for their first car or deposit on a house.
  1. Set up a tax-free savings account for your children: A tax-free savings account can enable you to save towards your children’s long-term dreams and financial goals, but is also flexible enough to be accessed at any time should it be required. Also, by investing in a tax-free savings account, you won’t get taxed on the growth earned from the investment.

It is never too late to start saving, but the sooner the better, so don’t delay and start today by speaking to a financial adviser. Saving and investing make wishes come true.

Simple ways to give 2017 a financial kick in the pants

  • Prepare an itemised list of all your expenses and divide the expenses into Group A, being fixed expenses, such as car repayments, other debts and payments you are contractually bound to pay monthly. Other discretionary expenses you are able to reduce or even cancel without suffering any negative legal or financial consequences such as entertainment, clothing, cable TV should be included in a Group B.Select certain Group B expenses you wish to reduce or stop [that gym subscription?), do so and allocate extra payments to shorten the outstanding payment periods (and reduce the interest payable) of Group A expenses or start a small rainy day account for those unexpected financial surprises. Which expenses should be reduced and in what order of priority will depend upon circumstances such as interest rates, tax deductibility, outstanding payment periods and so on. Always a good idea to consult a professional to assist you in making the correct decision.
  • Make an appointment with your financial planner to verify whether your life, disability, dread disease and accident benefits are adequate or surplus to your needs and whether recent product developments have resulted in more cost efficient and/or comprehensive cover being available at the same or at a cheaper cost to you. Planners are, today, required to provide you with comprehensive comparative information to provide you with the peace of mind that you are making a decision that is in your best interest.
  • Create a filing system (whether it be a lever arch file or a folder on your desktop for emailed documentation) for all your financial records such bank or credit card statements, accounts and invoices. This will save an enormous amount of time when a payment is in dispute. If you have other important legal documents, why not also save these using a similar format?
  • Request your short term broker to review your insurance to ensure that your house, car and other property is sufficiently insured against damage or loss.
  • You will have, in all probability, already made a decision as to your medical aid plan for 2017. Speak to the medical aid consultant about so-called Gap cover to meet any possible shortfalls you may experience in the event of a medical emergency. These plans are relatively inexpensive and worth consideration.
  • Harass your banker for a better deal around your banking options. Is it really worth all those bank charges to have a Rolls Royce cheque account and credit card if you are not making use of all the benefits they offer? Consider a down grade of the banking package, at the risk of losing benefits you don’t use anyway but in so doing your bank charges may very well be substantially reduced.
  • Contact a credit bureau and request your free creditworthiness check, even the basic information provided by these reports can be an eye-opener. If there are there any adverse debt payment findings present on your profile, take steps to correct these by speaking to an attorney or the creditor responsible for the adverse record. Be particularly aware of possible instances of identity theft where your personal information and even identity number has been fraudulently used to obtain financing or credit facilities without your knowledge.
  • Assess your available credit facilities and, if necessary reduce the facility(ies) to a reasonable limit. For instance, having a credit facility to buy clothing for R50 000 may be flattering on your monthly statement but if you only regularly use R5 000 of the available amount the surplus R45 000 availability will negatively impact on the amount of any further credit you may apply for when wanting to purchase, say, a car or even a house!
  • Strategise your next vacation, it’s anticipated cost and save regularly in a separate investment such as a Money Market or Income fund type investment to fund the holiday. Your financial planner will be able to advise you as to appropriate investment options taking into account your personal circumstances, duration of the investment period, relevant amounts, costs and any risk that may be involved.
  • Consult with your tax advisor to identify any tax savings strategiesavailable to you. At the very least confirm that you are investing an adequate tax deductible amount in retirement annuity investments. A visit to your HR department to ascertain whether you can make an additional contribution to your pension or provident fund may also provide a tax efficient investment option.Take the information from your HR Department and your last tax assessment to your financial advisor and ask him to make proposals concerning your retirement annuity investment and/or any possible topping up of your pension or provident fund investment. Be very careful to assess the cash flow impact of any decision you make to increase contributions.
  • Re-assess your investment strategy with your investment advisor to make use of available tax-free saving investments. The maximum yearly contribution of R30 000 a year over a long period of time will provide substantial income tax and capital gains tax benefits that impact on your investment returns.
  • Are all the clauses in your last will and testament still appropriate and relevant? Is your previously jolly and fun-loving but now cranky brother-in-law still the right person to be the guardian of your minor children when you pass away? Have you recently divorced? If your financial circumstances are complex rather consult with an estate planning specialist, he or she will help you overcome pitfalls that you may not even know exist.

Private versus public pay practices

Remuneration practices have far-reaching consequences, not only for individuals and companies but for the economy as a whole.

Employees’ personal finances for the most part, depend on their salaries. These salaries allow them to procure goods and services which stimulate the economy and ultimately form the life blood of the economy. These salaries, however, cannot simply be raised indefinitely in a bid to stimulate the economy (through increased demand), as the cost associated with these increased salaries will cause the cost of goods and services to rise (inflation). As a result, individuals would still only be able to purchase the same basket of goods as they did before, despite the increased salaries.

Employee remuneration is more often than not, the largest percentage of a company’s total expenditure. As a result, firms are highly concerned with their pay practices as they impact on their financial bottom line.

The pay practices of public (municipalities and State-owned enterprises (SoE)) and private sector firms differ significantly, particularly at the lower levels. According to 21st Century’s salary database, Table 1 shows the pay practices of the public and private sector at each occupational level.

Executives have been left out of the analysis as the remuneration structure of private sector executives is heavily influenced by long-term incentives. The compa ratio of the public entities is expressed as a percentage of the private sector salaries e.g. at the A band the SoE salary is 192% of the private sector salary and the municipal salaries are 231% of the private sector salaries.

The median pay by grade at each grade has been calculated for each sector and has been expressed as a percentage of the private sector’s median total guaranteed package. The lowest occupational level (A Band) has the largest diversion in pay practices between the public and private sector.

At first glance, it may appear that the SoEs and municipalities pay these employees too much, but it must be borne in mind that the private sector’s low-pay level at this occupational level plays a significant role as well. The data would suggest that whereas the public sector seeks to pay low-level employees a liveable wage, the private sector which is profit seeking, ties pay to productivity more closely. A large contributor to this difference is that across all occupational levels, public sector employees receive larger benefits as a percentage of their basic salary (cash component of total guaranteed package).

The relatively high levels of pay enjoyed by public sector employees at the lower levels, results in there being significantly less inequality within the public sector compared with the private sector.

The Gini Coefficient and the 10 – 10 ratio are measures of income inequality. The Gini Coefficient ranges between zero and one, with zero representing absolute equality and one representing absolute inequality. The 10 – 10 ratio expresses the sum of the salaries of the highest paid 10% of employees as a ratio of the sum of the salaries earned by the lowest-earning 10% of employees. The larger this ratio, the more inequality exists.

A large contributor to this is the low level of pay paid by the private sector at the lowest occupational level. The private sector’s profit motive and linking of pay to productivity plays a substantial role in guiding its pay practices, together with the supply of labour at each occupational level. South Africa has an abundance of unemployed, low-skilled individuals and, as a result, these firms do not need to pay premiums to attract employees at the lower occupational levels. Although this makes sense from an economic (supply and demand) point of view, the consequence of this is that it causes increased levels of income inequality in the economy and can result in a group of ‘working poor’ at the lowest occupational level.

In contrast to the private sector, the public sector is not only profit-motivated and, as a result, does not adhere to the same pay principles as the private sector. The public sector focuses on service delivery and the welfare of its citizens. This focus on welfare extends to its employees as well and is evident in the higher levels of pay (including benefits) earned at the lowest occupational levels. Although this is a noble ideal (paying liveable wages), the tax payer is the one who ultimately provides the means to pay these salaries and, as a result, these salaries need to be reviewed regularly to ensure that they do not become excessive.