Wealth is about DISCIPLINE

My monthly personal budget and spending report

I cannot emphasize the title of this post more. Building WEALTH is about DISCIPLINE and lots of research. You will need 80% of discipline and 20% of income, knowledge and everything else to grow your wealth.

I like interacting with friends and family members struggling with paying up their debts or starting up just after university. You may never find a secret to making it in financial independence in a beginner's investing manual or book or course. It’s the old fashion willpower and discipline. Should you decide to pay yourself first, stick to it whole heartedly. Do it even when it hurts with your eye only on the goal. Pay up that debt and do so quickly. Its never easy to part with money, paying for what you don’t own or appreciate anymore. But its the only way.

It takes me a few months to get a routine in investing or savings going. The excel files that I draw help a lot. I look at various scenarios. Interest rates, amount to invest, monthly transfers to the account, etc. I do projected interest gains for a number of years, imagine that growth and compare with a few saving tools that I consider to be the best safe investing options. I keep my excel files and keep looking how far I am to my goal. My goal is usually getting monthly interest of a certain amount. I am currently using my Nedbank JustInvest 5.15% interest investment account with a goal of getting R1900 in interest. This is because, in the 2012/2013 budget speech, National Treasury increased the annual exemption on interest earned for individuals younger than 65 years from R22 300 to R22 800. This is exactly R1900 per month. In my Nedbank JustInvest case, I will need about R430 000 at 5.15% to get approximately R1900. That’s a lot of money to be left in the money market, I guess.

This discipline applies in growing dividends too. My main goal is to raise my monthly income through dividends, interest and rental properties. My stocks are about dividend income whilst my husband is investing in index funds and never takes his dividends. I buy stocks once in a while. I need to establish a good routine on that too. I must say though, stocks intimidate me. I always invest what I can risk losing in the JSE. I will write about my own version of “basics of stock market investing” later. I am no expert but what I do is working for me. Just do your own research and adjustments. I can’t offer perfect stock investing advice, but what I have done and how I think it met my safe investment needs.

Now that I have changed my mind and am paying off my homeloan, I am applying a lot of discipline to that too. I set a target for myself and I will make it. I divide my leftover money in my account to accelerate my homeloan payment and a little is for my Emergency fund. I feel great when I put money towards my investments and homeloan before I go get yet another watch, bag or shoe. And yes, I still like shopping. I control it and I do it very last. Winning this game of wealth is about discipline. Keep at it with all you have!

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Hiring a Property Manager

my very first investment property

I remember beginning real estate investing with no knowledge of what I was doing at all. The first thing I did was hiring a property manager to take care of my properties. This may have been the wisest decision I took at the time. 

To me, hiring a property manager didn’t mean laying back and getting my income at the end of each month. I felt that I had neither time nor energy to be running after tenants, fixing stoves, dealing with the tenants’ minor issues, etc. I wanted to have someone who makes a living from taking care of tenants. I had a full time job and it sure took a good 70% of my time. Then came promotions, followed with HR managerial tasks, added responsibility and compulsory travel. Apart from the fact that I’m a firm believer in specialization, I had limited time to squeeze in real estate management in that equation. 

Getting a skilled and well experienced manager who specializes in the area is an investment in itself. My property manager was/ is not that efficient though. Nothing is ever urgent to him. You may wonder why I keep him. What comes to my mind is honesty and lack of greed. This industry is full of “skelms”.

Reasons for my property manager’s inefficiency, in my opinion, vary from the long term nature of our relationship. People get to the comfort zone when they have had the same client/job for a long time. We have a long term client-service provider relationship. He has no insecurities. He expects me to hang around forever. I like my manager and I would hate starting with a new greedy property manager. I sometimes email him more than once on one small issue. But I guess, I ‘m more comfortable with that than a new dishonest guy.  

He also charges me 7% of rentals or less instead of the 10% norm. This is also due to the great relationship we have built over the years. I appreciate this discounted commission, but I prefer to pay more for great service. Who knows if paying more will get me better service in my case though. Estate agents are not always trust worthy.

The properties that he works with are in the lower cost part of the city. I think agents tend to treat tenants according to the area they live in. Reasons being that most also don’t necessarily treat the space they occupy with dignity. They even overcrowd the place if they can get away with that.

Three years ago, I started managing a three of my properties. I realized how hectic property management is. As it is, real estate investing and my online business are more than a full time job. Adding management responsibilities to that was pushing it. In that two and half years I dealt with complaints about noise, then tenant's children playing with stones and breaking windows, then evicting tenants in my townhouse, then vacancies and late rental payments, and the list goes on. These issues put things into perspective for me. I choose to be a property investor and not a property manager. I hate dealing with small issues and I think hiring a manager is worth the few thousands of rands I part with.

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INVESTING EDUCATION FOR KIDS

INVESTING EDUCATION FOR KIDS

I hope the safe investing South Africa blog readers are better parents than most. From a very young age my parents told me to go to school so I can get a good job. My friends were told the same by their parents. It’s a standard rule and parental policy to tell kids to prepare for good paying jobs, I guess. Our parents never thought that jobs are going to be such a scarce commodity, that their kids will struggle on their own and go back to squat at home if they ever leave to start with. Previously unthought-of terminology like unemployed and unemployable graduates mushrooms from all corners of the globe. Makes one wonder if such an intelligent society should be continuing with this crazy idea of raising employees.

How about telling our kids a new relevant story? We are in what seems to be a never ending recession and job opportunities are moving further apart by the minute. The economist in me whispers “its just an economic trough, it’s going to get better” and a realist is shouting “take this more serious than you do”. I don’t want to think of the worst case scenario. Let’s just imagine things stay the way they are for the next 10 to 15 years. My kids will be starting to look for their jobs right at the end. Who will hire them if companies are going bankrupt and closing down at the rate they currently are?

From where I’m standing, we need to grow new entrepreneurs and employers. Times are quite tough. Parents should be singing a new “business development” tune to their children. The coming generation should bring solutions to their challenges. If you are one of those “go to school, get a good job” parents, STOP, seriously STOP it. Nothing wrong with the “go to school” part though. Entrepreneurs need education. Research shows that educated entrepreneurs are more likely to make it compared to their uneducated counterparts.

Besides, our kids are looking at things way different to how we did in our time. Oh my God, did I just say “in my time”? I feel ancient already. My point stands though. We should start talking business with our children from an early age. We should be researching resources on investing for kids, we should engage kids in money related decisions, we should be honest with them about our poor financial state, we should teach them to save from an early age, and they should set personal finance goals. A simple piggy bank will go a long way to teach a child financial responsibility. However, a bank savings account reviewed often is even better. Love them enough to prepare them for the harsh realities of our times.
If you have more than one child, it might be of help encouraging harmony whilst you are still there. Money and family relationships do get tricky.

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Pay yourself First

Pay yourself First

Yes, we've heard the phrase over and over again, "pay yourself first". I have lived by this phrase, then I detoured from it and got back to it several times. For me at least, this is the only way. To make me feel better about "sacrificing" that first sum of my cash, I try to get the relatively safe investing tools like my Nedbank JustInvest account. In my previous post I compared this account with the Money Market accounts in South Africa, if you are interested. This serves as my emergency fund (EF). When you are a small property investor like me, you need an emergency fund account. Actually, when you are a home owner, you need that more than you probably think.

In the past, when I was new in the job market and even newer in property investing, buying every book I can get my hands on with some kind of education in real estate investing, my saving strategy was very simple. All I wanted was to pay off my apartment. I sacrificed more than half of my salary for that and it helped. The way I did this was to get my salary, transfer part of the salary that I wanted to save into my home loan account on the very payday. Off course it has to be on the same day because the interest is charged daily. I just had to save that R50. And then I waited a few days and called my my bank to get a statement because I couldn't link this home loan account to my internet banking. I was almost obsessed with the statement and it helped. I saw how quick the debt was dying and that gave me some sort of adrenaline drive. Even though I've always loved a nice pair of shoes and a handbag, they just had to be on sale to deserve my money. I would see that R500 reducing my debt further. I paid myself first and then whatever that was left, paid me some more. Unfortunately, there was rarely cash left.

Fast forward, I paid up my flat in just less than 4 years. Yipeeeee!!! I remember the last few months seeing a balance below R20,000 and being overjoyed. The feeling of victory that I am soon an owner of a paid up property kept me wanting to pay more and more. Fast forwarding to a few years ago, a few properties paid up, more shoes, more bags, a better car, a bigger house, a family, woolies food, health shops, spa treatments, need I say more. Living a little is an understatement. I lived a lot. I stopped living by the very principle that took me where I was....pay yourself first. I paid me last or almost never. What helped was that I always had multiple homeloan accounts to pay, which served as my  only way of paying myself. I even think thats the reason I always had a homeloan that I resisted to pay up. This is until the hubby convinced me to pay up our second homeloan last year. What a sigh of relief I had after that. I then went back to my old ways of staying with my debt until last month. I decided to pay off my only homeloan, which will take some doing. Its a sizeable amount and needs hard work in the savings front.I feel I am back in the adrenaline drive days and its exciting.

I am now back to paying myself first through my EF and paying off my homeloan. I consider paying off my homeloan some sort of a safe investing tool. I know it is not fool proof but it could be safer than investing in index funds and even safer than buying individual shares. Don't get me wrong, I buy shares knowing that its a higher risk form of investment, I try to read and listen to any sound stock investing advice. But I am a typical beginner, still harnessing books, blogs and online resources on basics of stock market investing. I have a feeling that I'm done with property investing though. I am looking at investing in REITs (Real Estate Investment Trust) and retail bonds. All I can  say is, don't take my word for it. I may be buying a townhouse soon. I am so unreliable.

Off course, if you have debt, paying it will be a form of you paying yourself first. Keep at it and celebrate with every R1000 that goes down. Its very rewarding being debt free.

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MONEY MARKET INVESTING

Crucial information on money market investing for South Africans:

A good friend of mine emailed me today. She wanted advice on saving money for short and long term projects. An emergency fund kind of savings account. She is a home owner and drives, meaning she has to be prepared for bursting geysers and car problems amongst other emergencies. I gave her what I think is my version of the beginners guide to investing.

Money Market Investing

This is the guide I gave my sister who is still in the university. I do wish I started investing money while in college. It never happened but my baby sister started. already. Whilst our bigger plan involved money market investing, we looked at the best interest savings accounts first. Remember she is a student and therefore doesn't have the R5000 which is the lowest minimum money market account opening balance. I found Capitec Bank savings account to be the best tool to start saving. I know, this is a relatively new bank, it doesn't have many ATM machines, etc. Actually the fewer ATM machines should be the best news for a starter investor.

South African Money Market Comparison
If you have R5000 to start with you have only 2 banks to look at. Standard bank with up to 4% per annum in interest. It looks good except, it has banking subscription charges. We hate those, don't we. But great news, no monthly fees.

Another option for R5000 initial investment is my very favourite, Nedbank JustInvest account. I have first hand experience of this account. You earn up to 5.25% interest and the best news is that, its is a 24 hour notice account. That makes it almost liquid. You are unlikely to need your money in less than 24 hours, right? It also has no monthly charges, only the subscription. You don't get any Greenbacks as rewards when you use your account. I love this account.

For R10,000 you can get the FNB Money Market. I feel that this account is expensive. Apart from the fact that it has monthly charges, it also earns you only up to 3.9%. It also earns you their most popular ebucks rewards. I am not so fond of this account. And I like FNB when it comes to their flexibility, the ebucks and the PayPal. But I wouldn't choose this account.

The Nedbank Money Market account is opened with R20,000 and earns a mere 3.8% maximum. You get penalty monthly charge if you keep less than R20k. You earn greenbacks when you use your check account. I dont see a reason why someone would choose this money market investing account instead of their JustInvest account mentioned above.

ABSA wants R25,000 minimum opening balance. They generously give you 5% pa for that. This makes it the highest interest money market account. But Just Invest still wins if you have R100,000 or more to invest. But before you take that decision, lets rewind back to Capitec.

Capitec savings and savings plan accounts earn you 5% interest for any amount below R10,000. I mean even R500 will earn you some interest. This is the account my baby sis uses to kick start her savings. This is the way I will teach my kids to also start investing money while in college or high school. I don't see why not. That concludes my SA beginners guide to investing through banks. Our banks do have higher interest rates compared to other countries.

We have heard about the concept of "paying yourself first" and its high time we use it. I learnt to transfer money from my cheque account to my emergency fund before I get carried away with my randomn expenditure. The bonus that I get from that is the interest I earn at the end of the month. I cant see a better way to work with your money.

If you want the stock route you may think about investing your money online through the banks or directly with the JSE. Banks like FNB allow you to open an account to do share trading at a small fee.

Keep moving forward. Start today, NO, start now.

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Monthly Spending and Budget Report-May 2012

My very first monthly spending and budget report for 2012. Its so embarrassing that I never reported on this for four months. The result of that was me losing my focus and off course I'm back to my straight and narrow. In the news this past three months, we made an offer on an amazing commercial property and the deal fell apart. Then we decided to upgrade on our home, and changed our minds. Here we are now, happy with our smaller, cheaper to maintain home. Our son wanted a swimming pool badly but he'll live.

My May 2012 monthly spending and budget report:

INCOME	% OF TOTAL	NOTES
Real Estate	59%	I am hoping to reduce this by increasing other streams of income.
Hubby Allowance	31%	He is so cute.
Once off	9%	Money my sister used for her emergency.
Online	0%	I keep a hold on my online income until its reasonable. In June I am getting the online income for a few months. I will only record then.
Dividends	0%	2012 will be spent growing this and other interest.

My online income is growing at a healthy rate. I'm also pleased that when my sister had an emergency, I was able to be a lender of an interest free loan. She gave it back in a month. Its great having a family. You get these interest free loans. She was very grateful, making this loan so very worthwhile.

ITEM	%OF INCOME	NOTES
Real Estate	18.9%	1 mortgage & taxes/rates.
RA & Unit Trusts	6.6%	Fixed
Loan to Business	0%
Internet/ Phones	1.5%	I manage to keep this very low.
Consumer	9.9%	Groceries, personal care and all that jazz.
Withdrawals&Fees	0.4%	This was a cash month. I withdrew cash twice.
Giving	12.4%	Back down.
To Invest	50.4%	So proud of me! And indeed I started my emergency fund which will soon be spilling over to my CD which we are laddering. From the unfortunate deal that didn't work well.

I worked on an exciting plan of laddering a CD portfolio. I had some money which would be part of the down payment to the commercial property. I changed my mind on laddering this and dividing it into five pieces. My thinking is having it in my special savings account which will also serve as our emergency fund.  I got a great 5.15% interest. However, if this goes to retail bonds, I can get up to 9% for a 5 year investment. I am just growing this  amount so I can take anything between R100,000 and R200,000 by the end 2013 to retail bonds for 5 years, then another one in 2013, and another in 2014. This will leave me with 5 pieces for a period of 5 years each. The question is, will I be able to save that much in a year, going forward. I just have to commit to it.

I had a vacant property for 2 months. This the first for me in 10 years. Its a very horrible experience. However, I hated the problems with the previous tenant even more. We signed an agreement for her to pay me what she owes in affordable payments over 6 months. I'm not holding my breath to receive all of it but I'm very glad the whole tenant-landlord relationship is over. I gave that unit to a real estate managing company. I've had enough with it. Its time I realize I am a real estate investor and not a property manager.

Keep cool those in warm countries and warm to those in cold countries. I will try the weekly blogging thingy. I wish myself luck with that.

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