Monthly Spending and Budget Report-September 2012

To those new in this blog, I track my spending every month. My goal is to spend 50% of my income in order to retire comfortably in my early 40s. September 2012 monthly spending and budget report in one sentence... "High spending and low income month". Last month was not bad with me going through only 34% of my income for the month.

We had a mini holiday/ get away with the kids and a big trip for the two of us. I enjoyed the trip as we hooked up with my parents in the mix. That's always an amazing thing. Anyway, my miserable spending report follows.

My September 2012 monthly spending and budget report:

INCOME	AUG'12	SEP'12	NOTES
Real Estate	46%	40%	Rental income went really bad. One unit had doors replaced. I cant wait to have normal rental next month
Hubby Allowance	49%	53%	I must say he gave me a bail out due to the duplex repairs coupled with the legal fees on the new rental property transaction.
Once Off	1%	2%	Interest free loan I gave to a friend. She is paying monthly.
Online Income	0%	0%	I will get two months worth this month. I didn't. My one cheque delayed for some reasons and I had to just cancel it with the company.
Extra	4%	5%	Interest on my Emergency Fund. Dividends were ZERO again.Plus dividends, YAY!!!

Interest on my Emergency Fund is always a welcome addition. Two companies paid out dividends. The Mr did far better on the dividends.

ITEM	AUG	SEPT	NOTES
Real Estate	13.6%	20%	My one and only mortgage. I decided to pay all the home owners association fees and taxes/rates three months in advance so I dont pay them monthly. I will only pay these end of September/ beginning of October.
RA & Unit Trusts	6.2%	8%	Fixed for my life insurance and the rest of small investments and savings.
Online	0%	9%
Internet/ Phones	0.8%	2%
Consumer	1.8%	19%	This is high due to travel.
Withdrawals&Fees	0.3%	1%	Also due to the holiday and trip.
Giving	11.2%	21%	I have been a bit of a Santa Clause. From here, no Christmas gifts from me. I mean it.
To Invest	66%	20%	20% is not bad at all for such a hectic month. I paid nothing to  my homeloan, but the Mr did. Like every month I topped up my Just Invest (Nedbank) interest. Whatever interest I get, I top up to make it a round R5000 figure. The leftover amount was paid over to lawyers for the transfer/ registration of the rental property I am buying.

I lived on 80% of my income in September (comparing to 34% in August). I had to get a bit from our savings to add into legal fees. My Net Worth grew by R56,400 in September (yes, I decided to keep track of this too now.) This is the growth in various investment vehicles and home equity.

I said I will be paying all my extra income into my homeloan to fast track bond payment. I changed my mind. If things go well, I may use part of my emergency fund to finance the rental property I am buying in a small SA town. I am paying cash for it and have the tenants waiting for the registration already. It seems that the transaction will drag. But that gives me time to build into my emergency fund from October, in order to have my EF at 12 months expenses after paying the new property.

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MISTAKES THAT PEOPLE MAKE WHEN INVESTING IN PROPERTY

So I find myself in one of those formal black tie functions, sitting at the same table as the girl with the heart in the right place but with a rather different way of planning when it comes to her finances. She is so easy to love, with her perfect outfit and great looks. Her confidence does help too. She has a temporary high paying job, which is great. More like a secondment for a few years.

Even though she claims not to have inflated her lifestyle in the few years, it is clear to me that she did. If one goes from living in the low income side of the city to doing cosmetic surgery, owning 2 cars and investing in a home in the richest side is not, then I don’t know what is. I left out the part where the closet looks fresh, with gadgets that go with the times. I learned more about the latest models of phones from her than I have in the past year. So yes, she is living her life, her way.

I always ask myself why a single individual owns 2 cars. We live in a country where a car is a necessity, I get that. But two cars is what I struggle to understand. And we are not talking about entry level kinds of cars here. Coming to the property investment part. The home she bought is not small. She can afford it now, but when the secondment period is over, she will have to cope and I don’t think it will be possible. That’s unless she gets a really great paying job or win lottery, or get married to a wealthy and generous man. That’s a number of “unlesses”. And really decisions like this can burn one out. I have been wrong many a times about people’s business choices, especially when they take risks that feel uncalculated from where I’m standing. I tried to refrain from talking too much against some of her plans. She did not ask for my opinion. But after a short conversation, I couldn't help myself anymore.

She later mentioned that she is investing in a rental unit. At this point I was already in a state of panic. I just threw a statement against it. Something to the effect of her paying the two cars up first. But then, I am a property investor, so whatever my views against property investment for others are, are to be well presented. One may view my well meant statements as jealousy instead of advice that comes from my own mistakes and experiences. I would like to believe that my investments are well planned. I buy because I can afford to, now that I’m wiser. I have not always been like that. I bought properties I couldn't afford, invested where I shouldn't have, etc. I now buy a property that has good tenant and rental income prospects and is well priced. It feels so bad to watch people making avoidable mistakes. In the evening in question, the lady of the moment won the debate. She is not paying up her two cars, but choosing to create the fourth huge debt. You would think this would be difficult with the National Credit Act. Its not apparently. This made me think of some of the common mistakes that people make when investing in property:

• Thinking that one cant go wrong with property investing. Its not true. You can go very wrong and lose everything.
• Not taking the vacancies into account when doing your investment returns calculations. A property will be vacant at some point and an investor will lose money in the process. Tenants move out and in some cases trash valuable property. It happens.
• Not knowing the total monthly costs prior to the purchase. Municipal fees alone can be such a pain.
• Buying a property with a huge negative cash flow. If you don’t have a good down payment, stay away from the real estate investment that needs a lot of monthly contribution from you. It seems impossible to get bargains in big cities at the moment. Saving a bit upfront wont kill.
• Treating property as a passive income and ending up with too much on your plate to cope. Even when one has a manager, like myself, they have an investment management responsibility. Its your property and ultimately your responsibility.
• Failing to realize that maintenance takes a huge chunk of time and money. You just have to be prepared.
• Being ignorant to property laws. You don’t need a legal degree. However knowing the basic tenant rights and landlord obligations at the very least will be wise.
• Not taking Home Owners Association meetings seriously. How can one not care how their investment is taken care of? It makes no sense to me.

These are only a few of the mistakes that people make when investing in property.
If the lady above were me by the way, I would get rid of one car, trade the big house in for two smaller townhouses with one being a rental unit. How about you? What would you do, in her position?

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WHY I WORK TOWARDS EARLY RETIREMENT

Statistics show that, only a small percentage of us are working hard to retire earlier than the norm. At the same time, most people wish to work past their retirement age due to financial constraints. A huge chunk of those who have no desire to retire are forced to retire early for one reason or another, anyway. It seems, whether we like it or not we have to make our choice. Its either we put our finances in order soonest, or play the gambling game with the wish that we will be able to secure the cubicle space through our 70s. OUCH!!!

I was once young and ignorant too. I was happy to live in the NOW, with no worries about tomorrow. I can only thank God for waking up to the harsh realities of life in my 20s. A reality that I might be out of a job sooner than I expect, I might lose my income, I might have to prioritise my children over a 9 to 5 job, I might want to travel during my prime years, and the list goes on. This is why I work towards early retirement and think you should too. Your retirement may come sooner than planned for reasons listed below.

Ill Health and Disability
Some people see themselves out of the workplace due to an illness or a disability. You probably have a disability insurance and health insurance. This may not be enough for you and your family to live on. I would rather have that topped up with a good retirement fund and passive income that covers all my current expenses. An emergency fund is not optional, its a necessity. I keep mine at a full year of expenses. It could stretch over two years of a frugal lifestyle. Whats even neater is that it gives me some interest at the same time.

Parenting and Care Giving
Most people outsource parts of parenting, that’s perfectly fine. But if, like me in my previous job, the time you have with your kids is only to say, “wake up, go bath quickly, you’ll have your breakfast in the car...” Then have a brief conversation in the car on the way back from school and work only to get home to prepare dinner and eat just before bed. No time for any other activity. This used to be my truth, and a current truth for most of my friends. We have to provide for our kids. The cost of living is very high, I get that. In most households, both parents have to work. But that doesn’t mean we shouldn’t be making provision for early retirement.

The worst case would be when you have to retire to parent a sick family member or child. We don’t want to think about that but it happens to people around us. A spouse, child or parent may need you on an almost full time basis, even if it’s just for a few years. Are you having any provision for a similar unfortunate case?

Being Laid off or Retrenched
These were such common terms at the peak of recession. Companies were struggling to keep all their employees on pay roll. Most people were laid off, out of their will. It was a painful situation for those without any other source of income. Others welcomed the time off because they were financially ready for such emergencies. Its time you make sure you fall in the latter group.

Company Bankruptcy
Your employer could be going through financial problems that you are not aware of. We now know that job security doesn’t really exist. Are you ready for a sudden shut down of your company?

Let’s now explore a better scenario. You manage to stick it through to your 60s, only to realise that your pension payout is not as promised. We live in times of uncertainty. Employers are not always able to fulfill their pension payout promises. It’s happening to a lot of retirees. We should all wake up to the reality that we may be jobless sooner than planned. What are your plans for retirement provision?

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WHY I KEEP STORE CARDS

Yes you read correctly, I do. I keep store cards for Edgars and Truworths to be precise. The most patient stores I know. Hubby had a Woolworths card that, like the two we kept, was hardly ever used. Because we hardly ever used the Woolworths card, it was cancelled. I'm so shocked that we still have the two cards. I assumed its the norm to cancel cards when a consumer has not reported to the till for a year or more. Truworths doesn't.

Anyway, you may be wondering why, after trashing debt, and talking about all that paying yourself first yada-yada, do I still carry store cards. No its not hypocrisy. This is the summarized version of my answer:

To Postpone Parting with Money a.k.a. Time Value of Money
Most people assume that I enjoy parting with my hard earned cash, since I do stuff like fast tracking my mortgage payment and preferring to pay cash for my wheels. It's not true. I love holding on to my cash for as long as its possibly making financial sense. I keep my money only when I am not paying any interest on whatever amount I owe. I love the idea of paying smaller installments over 6 months for an item. Like with my son's video camera which was for sale at R2000+ from CNA. I paid it over 4 months. This means that I have a manageable budget without high peaks of expenditure. Whilst I can afford the full amount, I'd rather put the first R1500 I have towards my homeloan than on my interest free Edgars account. I make sure I pay ZERO interest, so I see no point in paying upfront for my purchases when I don't have to.

To me, my store cards, which are really under-used, offer free money. I ALWAYS use the 6 months interest free option. I buy my kids clothes twice a year. At the end of summer, I buy summer clothes for the following year in the end of season sale. That way I get up to 50% off. It doesn't bother me that they use the clothes only close to a year later. I even bought my daughter a classic coat for a 10 year old… she is seven. The coat was about 70% off and looks amazing. When I buy my kids clothes, I pay it up a few months before I buy the next season clothes. I usually pay R200 or less for kid’s clothes monthly due to that. A reminder… I pay exactly the amount I spent, interest free.

No Cash Policy
I don't have a credit card and I hate withdrawing cash. So I swipe my store cards every time. I also use my debit card though. Don't get me wrong, I have nothing against credit cards. I even like it when people use credit cards properly to get even wealthier. But a credit card never worked for me. I end up paying the annual fees for no reason at all.

Gifting
I love buying gifts, and I almost always use my store cards to buy them. That way, if I budget to use the money I will earn in the future to buy a gift that is on sale at that moment, I use my card and pay minimum 6 months installment until I get the money I expected to pay it off. Last Tuesday my brother was graduating and I took him to both Edgars and Truworths men for some work gear. It was not a cheap purchase, but I know that I will be paying it over 6 months, without interest. It makes me feel like I saved for the purchase upfront.

Rewards
I am a sucker for the reward system and all those points. This could be a reason why I keep store cards like Edgars. They have some and I am happy to earn the points. To be honest, I don't even know how to redeem them, but I know they will come in handy when time comes for me to use them. A friend of mine is so good with her ebucks. She bought her dishwasher and plasma screen TV with ebucks. I really have to learn to do that. The best I manage to redeem is R120 or so from Clicks. I have lots of Nedbank Greenbacks. I just don't know what to get with them. I think I will have the unit trusts. I dont like the charity option. I prefer to give money to charity by myself. Then there is the Mr's ebucks which I think are far easier to redeem and use.

Those are some of the reasons why I keep store cards. Off course, I don't want any debt and I refuse to get any more store cards. If you are a shopaholic, stay away from any kind of credit card. I can resist a “you may now buy for R12,000” that I see in my till slip. That statement means nothing to me other than serving as my "Joke of the day".
Do you also keep store cards? I would love to hear why.
REMEMBER: To contribute and be featured in my blog or ask questions from me, feel free to send me an email.

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WEALTH CREATION GETS MUCH EASIER

It's tough starting on a journey to create and build wealth when you have debt and lots of financial commitments. Even I get that. But with time, wealth creation gets much easier. That's the reason the first million rands is the most difficult to save/ invest/ grow. I will try to simplify what have been the reasons in my own journey:

Compound Interest
You probably know about the power of compound interest but for the benefit of someone who doesn't, I will still explain it here.
If you save R1000 at 10% per annum interest rate, it earns between R8.20 and R8.40 on the first month, depending on the number of days for that month. That R8.40 is added to the R1000 and earns a few cents extra the following month. In month 12 you earn about R9.30 from the same R1000 and it will have turned to more than R1100. You have done nothing to your R1000 remember, yet it managed to get itself an earning of R104 in that year. The most important factor is that, your interest earns interest too. My example amount may be too low to create excitement, I know.

Lets assume you save R1000 per month to make this more interesting. Off course your first month will earn the R8.20 in interest. Your 12th month will earn R106. See where I’m going with this right? And your invested R1000*12 (or R12000) ends up being R12,668. Earning itself R668 in 12 months.

Even more interesting would be if you had that R12000 upfront, the power of compound interest would work even harder in growing your money. You start off with R101 interest for the first month and end with R111. Not to mention that at the end your R12000 becomes R13254 over 12 months, earning you a whooping R1254. Everyone should be saving something. Why most people don't, beats me.

Now think about a scenario where our R12000 had an extra zero (R120 000), we would be talking an extra R12 548 in interest for the year. If it was more than a million rands, like R1 200 000, we are talking R125 475 in interest before tax for the year. More than R10,000 per month at 10%. Even if you can only spare R200 per month, it grows and faster with time.

Money Working for You
When you start investing your money, you work hard at saving every cent you can save. It's a struggle that needs tons of will power, personal finance self help material and great company. You even work hard at convincing your family to be supportive and more frugal. Over time, your money starts working harder than you do. See the examples above. You may end up retiring earlier, if you so wish and living on interest and dividends that your money is earning for you. Isn’t that what life is all about. A choice to do what you love doing. And working being for the love of working and not for money.

Money Growing Faster is Motivating

My Emergency Fund is with Nedbank Just Invest account. It earns some 4.65% interest per annum, thanks to low interest rates. Anyway, I grow my Emergency Fund with R5000 per month. It earns about R1200+ per month and I top that up with about R3800 to make it a round R5000 figure. I love working with multiples of five.
Anyway, the amount of money I add to top my EF up is getting smaller over time. That's because my interest itself is growing. That is a huge motivation. I look forward to topping it up, which makes it fun rather than a sacrifice.

Another example would be my mortgage. Initially, my interest was almost as high as my installment. An installment was like a drop in an ocean. When I started paying more and more to my home loan, the debt was going down faster, the interest was getting lower and the adrenaline drive was keeping me on track. I update my own spreadsheet every time I transfer extra into the bond. My spreadsheet looks better every month. Its motivating.

Experience
When I started my wealth building journey, I really didn't have a plan. I knew that I wanted to have money, and no debt. I had no idea how to do this right. There were no personal finance blogs for me to stalk. I made tons of mistakes. With my experience, I now take better decisions; I set goals; I keep track of all I own. I am more matured and wise when it comes to financial planning. I fully agree with this post's title: wealth creation gets much easier over time. Keep moving.

Remember to email me if you want to talk to me.

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WOMEN AND THEIR MONEY

It is such a shame that a negative relationship between women and their money is so persistent. Especially in the light of the fact that money issues impact more on women than they do on men. The following are only a few of the reasons why women should take their finances more seriously than men do.

Women Live Longer
The last time I checked, women's life expectancy was longer than that of men. Yet most women have their men take care of the financial management and planning in their homes. They will give silly reasons like the complexity of financial issues. This is a sad truth for one of my friends, whose salary goes directly to the husband’s cheque account where its managed by said husband. Shocking, I know. Her husband seems to be a great family man. But, should he, God forbid, die, my friend would be left with a huge dilemma. She has no idea how to handle her own finances. It is kind of short sighted for married women not to learn to be independent when it comes to their own money and financial decisions. Especially given the fact that they are most likely to outlive their spouses or partners.

Shorter Work Life
Then comes the fact that women are likely to have breaks throughout their work life. Women who are of a child bearing age may have to take maternity leave, meaning some break in their earnings in some cases. Some women have to take years off to raise their kids to a school going age. Others choose to stay at home permanently, to take care of their families. Men are beginning to make this sacrifice too, thankfully. But it is still optional for men, as they don’t get pregnant nor nurse their babies. Women need to wake up and sort their financial lives whilst they are still having some earnings in their names. They should be saving a higher portion of their salaries to provide for the time when they are out of work.

Divorce
I know a girl who never knew that they had financial problems until she spotted their home up on auction in a newspaper. They both had jobs, but her husband had decided to stop paying the mortgage. Totally unbelievable. Whilst this is an extreme case, most women I converse with ignore the household financial statements and bank communication. In the case of a divorce, women have to start taking control of their lives and in most cases their children too. It's a very hard way to learn. They should be in touch with their money all their lives. Women should learn to know and manage the household money issues. There is no excuse for ignorance at all. Time to fix the relationship between women and their money is NOW.

Single Parenting
Most single parents are mothers, FACT.
Women are more likely to be the ones who win a custody battle in the case of a divorce, FACT.
Women are primary carers of the children in the household, FACT.
Most men don’t provide any financial support to the mothers of their children, whom they don’t live with, FACT.
A few men who are forced to provide financial support by law often give too little money for single moms to go by, FACT.
Most single parents focus on their children’s future and neglect providing for their own retirement, FACT.
Enough said.

Main Providers
Even when women are in good relationships, they remain main nurturers and providers for their households. They are the ones who know how the pantry looks, the state of everyone’s closets, etc. Their budgets are bigger than those of their spouses in most cases. They spend more on others in the family than men do.

Lower Salary Levels
Finally, it is 2012 and yet women still earn lower income than men. A number of social issues lead to this. Fortunately for us, growing wealth is not about the income level. It's about discipline and consistency. Take control of your finances. Better late than never!

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CHOOSING A FINANCIAL ADVISOR

The BAD way I went about choosing a financial advisor goes:
I was 30, in my managerial "sort of" position, feeling too important like I was a great achiever. I didn't really like my job at the time. I had my first rental apartment with a home loan on it and our home on the second bond. Our house had a nice huge one bedroom cottage at the back. We never even thought of renting the cottage out before my sister asked to move into it after getting married. They rented the cottage for a nice extra income. So we ended up with 2 rental properties.

I hated debt even then. I focused all my energies on paying up the two mortgages. The Mr was paying one mortgage and the one car we owned, whilst I focused on the rental property. Our lives were OK, actually more than just fine. No consumer debt and a great lifestyle. We had no emergency fund, but a few unit trusts and two Retirement Annuities. We were content. The rental income was amazing to have and came in handy for some lifestyle inflation. We lived just the way we wanted. My cosmetics cost more than some other people’s grocery bills at the time. I could “afford” it. But I knew that I could do better and I decided to get a financial advisor from those kinds of financial advisor organisations/ network groups.

When I called the guy, a small girl took my call. I was a bit annoyed. The guy then takes the phone, apologises, mentions that it's his daughter; he works from home. He immediately switches from his dad hat to his professional one and takes my details, etc. In my head I think, what kind of financial planner doesn’t have an office to go to? Is this guy successful enough to give me financial advice? Am I about to make a mistake here?

He comes to my office on the appointment date. He is definitely young, younger than me and doesn't look as uptight as I expected a planner to be. He chose to accept the afternoon as time for this consultation so that he goes to photograph the sunset in one of our heritage sites close by after. He is enrolled with a photography school and his wife is a stay at home mom. He himself works from home, hence the toddler-phone experience a few days prior. Trust me to get all this information from my financial advisor and nothing about his credentials, experience, etc. I was so happy (envious) with his life and thought, “this guy is so HIRED”. He went on and on on how he is making money by living in a construction site. He is a property flipper. Well, sweet, I thought.

The guy analysed my finances and in a few days sent me my report. 9 years later, I still have the hard copy report I got from him. I didn’t like his report at all, but the sophistication of having had a financial planner made me feel so middle class (or higher), for real. What I got from this exercise was that, “LIFE CAN BE SO MUCH MORE EXCITING”. The guy looks happy, likes what he does for a living, he seems wealthy enough, even throws in some photography lessons and has his 3 year old daughter play receptionist. This is life for sure...I kept thinking. My kids were both below the age of three, one in day care and one with the nanny at home. I felt guilty like most mothers, but felt that its like that with everyone, until I met the financial advising guy.

What I didn’t like from the portfolio proposal was that, it was full of policies I needed to buy to fill the gaps in my portfolio. I knew for sure that this guy also sells policies from one particular SA insurance company. I didn't like that he didn't declare his interests. He might not have been objective. But talking to the guy changed my life for the better. I needed the wake up call. This guy’s lifestyle gave me just that. He was building wealth, spending time with his family and enjoying every minute of it in his 20s. I tried to dismiss that it was possible to live like that before 30 by assuming that he inherited some of his wealth. That made me feel good for a while, but I had to shake that off and start working on my own financial issues. By the way, all what you read above is the best way NOT to get a financial advisor, but below is a better way TO.

Choosing a Financial Advisor

1. Always remember that the financial advisor may be having a lot of hidden agenda. He also has to live, RIGHT. If he sells some financial products, he may just be marketing those. But really, there are great financial advisers who give genuine advice whilst they also recommend products and get commission from them. Keep in mind that you are your best financial planner with your best interest at the end.
2. Be sure to get someone experienced and trustworthy by asking the right questions. People with professional affiliations are a better bet. Also get some references from the person and actually call them. Ask him to declare if he sells some products and what his/her fee actually covers. You really need to be assertive. It’s your life and you are the one responsible for it.
3. Get some personal finance knowledge prior to getting a financial advisor. Investigate where you need help in planning your future. Being blank about your own life is too dangerous. Read books, even blogs help. Look at how others do their stuff and see what can work for you. Bloggers do keep it real. It’s inspiring to see how people got out of their debt and carry on to build wealth. 
4. Know your risk tolerance level. Not everything a planner suggests is right for you. We all differ and a good advisor will know how far you can go with your investments. 
5. Finally, follow your gut and when things don’t feel right, they usually are not right. Analyse the help you get, and if the advisor recommends certain products, check the amount of commission that the product gives to the advisor. It might still be a great product, but it helps to know that the planner is not only driven by the commissions he gets. You may even get the financial product comparisons online.

If I were to choose a financial planner, I would try to get one who charges a flat fee. I believe in choosing the financial adviser who does not sell any products (hope those still exist). But fortunately for me, I am convinced I don’t need any serious money advice for now. A little casual comment from readers and personal finance bloggers will do.
How about you? Do you have a financial planner?

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THE MUNICIPALITY IS STEALING FROM ME

Only the other day I wrote about the possible effects of rising petrol and diesel prices on household income and expense. I was giving it a week or two for the food prices to follow suite. It turns out my property investor self is feeling the pinch even earlier. One of the units is in the complex where they outsource the municipal services. Its the most efficient service ever, I must add. This morning I woke up to the contracted company's communiqué through our complex managing agent. Here goes:

"Dear Customer
Yearly Price Increase

Please note that due to increase in labour, Municipal dumping cost and the drastic increase of fuel, our monthly service fee will be increased with 20% from 1st October 2012.

You are currently paying R43.56 (excluding VAT) per dustbin, and will be paying R52.27 (excluding VAT) per dustbin as from the 1st October 2012.

Be assured that our prices are always market related. (Municipal increase in 2011 was 17% and our's 10%. In 2012 Municipal increase was 25% and our's 20%).

Municipal Dumping costs: 39% increase
Diesel: 15%
Lone: 10% increase
New Municipal bylaw to Global Waste: 200% increase
Please contact us for any questions at XXXXX

Thank you"

Notice how the government, though the municipality is stealing from me. My initial thought was OMG, I don't want to be this company, R52!!! I then quickly did my sum. The company takes minutes to go through close to 100 dustbins in our complex. That's close to R5 227. Only a few minutes because a few units may be vacant, our neighbours use their unit as a holiday home and every week one occupant may be away for one reason or another. When I lived in this unit, I saw the guys going through the whole complex in an amazing speed. Lets assume that they do 10 complexes per truck per day...that sounds optimistic, I know. Thats about R52 270. And then make it 5 days per week ...R261 350 per week. That translates to R1 045 400 per month and finally R12 544 800 per year, per truck. I know, I'm crazy. I do this all the time. In case you needed some convincing to get in that kind of business. Although one needs a truck and lots of hands, then some computer to send emails similar to the one above, LOL. This business is still not my cup of tea though.

Back to the dent in my income. It may look like a tiny increase at a glance. However every Rand adds up. I already received the levy increase for another unit yesterday. Definitely due to fuel price increase. The tricky part is that, you don't necessarily increase the tenants' rental with every increase in costs. You take some of the fall "like a man", re-adjust your life and move on. You look at the market trends to see if its feasible to build the increase costs into the next increase. Its sometimes not. Rental prices rise and fall with the economic trends. Its not as easy as people assume it to be. At least not anymore.

Its actually tougher when one owes too much on their mortgages. Interest rates are at their 40 year lowest, but that can change. If you are an investor and feel the relief from the low interest rates, it could be time you visit your bank to fix your rates or re-finance at a lower interest rates.

On another note, my current transaction in progress is looking OK. The lawyers/ conveyancer contacted me. I will keep you on the loop. I also wanted to tell you about my experience with the personal advisor consultation I had years back. My first and only time I hired one. I never followed the advise but it helped me think differently about my finances. That's my next post. Come back.

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OUTSOURCING IN REAL ESTATE

In my last job we had some training. The room was full of economists, maybe international relations specialists, legal brains, and other learned intellectuals. The presenter gave us some branded pens with a small bulb which gives a nice light when clicked. The boardroom lights were dimmed leading to our pens lighting even brighter. All men, and I mean ALL MEN in the room started dismantling their pens to get to the source of the light. They seemed to have lost all interest in the presentation. Yet all of us ladies were being supportive to the presenter, looking at the slides and nodding a bit to assure her that we were listening.

Outsourcing in Real Estate

Thanks to this bunch of men, that day I got a better understanding of my husband. Every time he wants to do some technical DIY home repairs without required skills, I let him. I never try to talk sense to him anymore because I know he will never be happy until he tries. And in some cases he succeeds, but mostly we spend on DIY supplies, then fail, then spend on outsourcing. At the end of it all, I maintain my nice wife status, smile and say "I'm so proud of you for trying honey".

The latest of our DIY then outsourcing dance happened last weekend. A few months ago a toilet mechanism of the second bathroom in our holiday home failed. (Apart from the repairs I wrote about yesterday). We decided to have the whole bathroom renovated and fixed all at once because we had planned on the renovation anyway. We actually tried to get builders to work on it without any luck. We got builders but they failed to supply quotes. Its tricky when you repair a home you don't live in. We never had enough time to beg the builders, contact new contractors, etc. So the bathroom was just not used for months. This weekend whilst visiting the place, we got a breakthrough. Our friend, who is constructing his own home agreed to have his plumber come fix our toilet for a few hours. Its at this point that it dawned on the Mr that he hasnt tried to fix the toilet first. There we were herding for Builder's Warehouse to get the toilet mechanism supplies. We got it and he failed at it, but we remained proud "we" tried.

The plumber came the next day only to tell us we bought wrong supplies. Another trip to the hardware and in less than an hour our toilet was as good as new. The morale of the story: somethings are better left at the capable hands of experts. When you are in doubt OUTSOURCE or CONTRACT the service.

As a property investor or homeowner you have to know how valuable your time is. You may be wearing yourself too thin doing what someone else can do for you in far less time. I love renovating but I do it without ruining my manicure. I’d rather be here writing this blog post than collecting my rentals. Hence I hire the property manager. I also hire freelancers here and there to help me out of sticky situations. I am trying to make use of more resources to free some of my valuable time. Many small investors like myself overwork themselves to a heart attack. Some don't think its wise outsourcing in real estate when you are starting out.

My Take on Outsourcing in Real Estate and what I personally Outsource:

• Property management (but I help with marketing because I love doing that.)
• Work on my bigger website
• Graphic designing
• Property refurbishing (I hire a project manager to get contractors). It took me too long to realise that I cannot deal with builders. I keep trying but it never works.

 My decision is sticking with the core business (investing) and stuff I love doing. If I don't enjoy doing something, and I'm not convinced I'll need that skill ever again, I just get someone who does it for a living. When done well, contracting can save money and time. Some of the real estate investors outsource pretty much everything, from negotiations to the resale of the property.
Like Tom Peters rightly puts it: 'Contract out everything except your soul'

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BUYING A RENTAL PROPERTY

I am buying a rental property

Yes, I am buying a rental property AGAIN, despite saying I am done with property buying. There are a few reasons that made me go back on my word. Let me list them in their order of importance:

1. Someone I love was in need of a place to rent and not in a position to buy what she thought was a bargain house in the town where she works. She told me about the property as a "by the way" kind of a conversation, but I was too fascinated. I decided to buy it without even thinking harder and sleeping on the decision. I never give myself time to sleep on decisions... I should learn to do that. How sweet is a property deal that comes with a tenant?
2.  The property itself reminds me of the old SA style houses with large verandas/stoep. The houses I loved as a child and still love today. I fell inlove with it. Remember I only saw its exterior from the cellphone photo and had the erf size and number of rooms. 
3. The house is in one of South Africa's very small towns. These towns are often overlooked and have rental shortages at times. This one small town is exactly like that. You may find that many people who work in these small towns have homes of their own elsewhere, like my tenant. It also offers me with the location diversification factor.
4. The Rate of Returns looked OK. Not great, not bad, just fine. Left as it is, it will yield just above 10% returns in year 1. That is definitely not bad. I am also convinced, after some comparable research that this property is worth more than the asking price.
5. The Measure of Risk: This is a freestanding house, no home owners association and bad debt to deal with; there is a strong level of occupancy history; its also cheap enough for me to take the risk.
6. The erf is big enough for an extension and additions to the existing structure. I plan to add one multi-unit structure to make this a multiple family rental property. Its a norm in this small town. (Dealing with the municipality to do this must be a nightmare).
7. Location, Location, Location - is great, next to a really good former Model C school.

I always make lists like that in my head before committing to buying a rental property. There is a few negatives though. The rental escalation will be very low. This investment will take half of my emergency fund and have me 33% less than my target EF. I can live with that. This is a cash deal, thank God. I have no energy to deal with the banks at the moment. Another big negative is that the seller is a daughter selling the property on behalf of the deceased mother's estate. That's always a long process, especially if someone, like a sibling challenges that.  The last deal of a similar nature died a slow and painful death.

This is what I had to submit to lawyers/ conveyancers this morning:

• Proof of payment for the estimated property registration/transfer legal fees. I added a note that this money should please be invested on my behalf in the interest bearing account. I cant take it for granted that lawyers will do that.
• Proof that I do have the cash which covers the purchase price of the property.
• Proof of my SARS reference number. I was never asked for this proof before. Only the reference number itself.
• Proof of my residential address for FICA purposes.
• My banking details
• My and the Mr's Identity Doc copies
• Marriage certificate because I have one of those

As you can imagine, I am tired of scans, faxes, emails, and the rest of this fancy equipment. The waiting game now begins. I already accepted that the process may take longer than the norm. I just hope not too long.

Is it normal to be this excited every time one is buying a rental property, or its just my craziness?
image via

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LOWEST RENTAL INCOME

What a month September proves to be. My lowest rental income month. I am so not thrilled but I try to keep my rental property in as comfortable a state as I love my own home to be. My adorable tenant is my very young brother in law in his first job. He shares the 3 bedroom duplex with his two room mates. Its a great feeling to know he is there to see to it that his brother's investment is taken care of. Knowing that he will do just that, I reduced the rental and will not be taking it up anytime soon. I know and wish he buys his own place as soon as he can. That will sure hurt but he has to grow up and invest in an asset too.
I also had a chat with him a few months ago about demanding stuff to be done to make the place comfortable and not letting things slide because he lives in his brother's place. Indeed he took the chat to heart and in the process had me a great property and an empty bank account...Love you still lil' brother.

apartment fixing invoice and lowest rental income

That's the invoice I got from my property manager, not from the service provider. As you probably know that I choose to have a property manager and I like it that way. See how its dated July and the work done this month. Handymen and builders' style. But he seems to be doing a great job for my manager. He fixes and replaces stuff in all the properties he manages.

• I just learned that changing door locks in between tenants is critical. With all the crime, we want to protect our tenants as much as we can. Another cost to avoid by having low tenancy turnover, if you are a landlord. So we had the security gate welded and repaired for R350. There are electricity costs hidden somewhere there. I don't even know how much electricity that takes. I am very happy with the lock replacement. One of the realities of investing in property in South Africa is the high costs of residential property security.
• Two of the three bedrooms now have brand new doors. This is the very first time that I replace doors. I really never buy vandalised properties. I was in a bit of a shock to see that I need to replace the doors. Even the closet doors and the cute geyser cupboard door. What were the former tenants doing with the doors in this house? I so get why people don't do residential rental property.

There it is my friends. My life is more interesting and costly this month compared to August. But I'm more than glad to be alive. I will just have to spend less, if that is even possible with so much craziness of this month. We just came back from a holiday, which proved to be way too expensive than I expected. My brother has some graduation craze going on, and that means COSTS AND MORE COSTS. Come month end to view how I managed to survive the expensive month with the lowest rental income this year. This is the reason most people do this property investment business part time. A salary always gives great security. Ag, no need crying, I know I will live, I always do.

I would love to hear from other landlords. How do you survive high repair costs and the high cost of security in our country?

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FAMILY DEBT FREE CLUB

I was actually a weird child, a nerdy teen and I spent more time in the computer laboratory at university than I did anywhere else. And I was not even a Computer Science student. I found the internet (in its early stages) too fascinating. Lets unpack my weird childhood.

family debt free club

When you are a weird child with fewer friends than your peers do, you tend to be too analytic. You spend a lot of time by yourself. Naturally, I spent that time either writing and scribbling on pieces of paper, or analysing some other written stuff. I enjoyed calculating hire purchase costs on those few paged catalogues for furniture stores like Ellerines, Town Talk, etc. My child mind couldnt believe how stupid adults were to pay almost double for an item on hire purchase instead of paying cash and saving. A lounge suite would cost R2999 cash for instance, and a whooping R5500 on hire purchase, over 12 or 24 months. This was me at ages 7-10,  calculating and thinking of the bad choices that adults and even my own parents were making. It was so strange that most adults only concentrated on how much they will pay monthly, instead of the bigger picture.

I am not surprised that I hated debt from the very onset. I never received any personal finance education, buy I had analysed those papers a tad too much. They were all full of ink from my multiplication and sums. And I wished to be the retailer selling on hire purchase and not a consumer. People pay a high price for being impatient.

You may think that my siblings, with my DNA and the same love for all things maths are as nerdy and debt free. NO, they are not, its so disappointing. I started a family debt free club where me and my siblings report to each other on our progress on paying our debt and creating wealth. It went well for months, with some wishy-washy reports here and there. We all loved the motivation we get from each other. Everyone pushed to be their best in the first months. I started throwing a prize here and there as a form of motivation. As time goes, the debt fighting burnout began to strike. I could feel that no one wants to report on anything during the Christmas season, and no one did. People dont postpone their holiday plans because of debt, I guess. My conclusion was that, the club has failed but everyone was into keeping it alive. Last month I decided to throw a challenge for all of us to see our progress:

"...I want each person to take stock of ALL his/her debt. Dot all the details down with the interest rate paid on each. If its credit card or clothing store account, check your last statements for interest rate details please. I might have a nice solution. One person will win an amazing prize..."

I then proceeded and listed my homeloan as my debt with its interest rate and my target dates as an example. This was to test if people are really interested to learn and to actually do something about their debts. The closing date for the contest passed and no one bothered to write anything. I had told the Mr and my sister who is still at school about the prize. Today, with a heavy heart, I announced that no one won the prize. A heavy heart because I realise that, people will not change their ways if they are not ready and determined. Its also a heavy heart because I am fighting a losing battle. It saddens me but its true that, if the horse does not want the water, it will never drink. Here is the email that I sent:

"...Anyway, I told only lil'sis and the Mr about the prize for last month contest. We obviously have no winner. No one reported on their debt. I wish someone did and got the prize. I would have paid the debt of the winner in a debt consolidation manner. In return, the winner would pay me at a much lower interest rate than his/her lowest rate. This means that the winner's overall debt payment would be reduced. I would actually use this person to show how practical this journey is. This is my last post on the siblings club. One thing I learnt guys is that, you will never fight a war without studying/ analysing your enemy. Everyone, even in competitive sports, studies their opponent to win the game. Its a fact of life. To fight debt, you have to know whom and how much you owe very well. How much you owe, when are you planning to finish, set targets, set small goals and rewards, etc. Otherwise you never know if you are winning..."

That was a bitter end of the family debt free club. I'm not giving advice that I don't practice by the way. Like I mentioned at the beginning of this post, I am a bit of a nerd. I track everything and every cent I spend, no joke. Its a lot of tracking because I am not a frugal kind of a person. The tracking keeps my head clear. Its not always fun to see how much I spend but tracking it makes me save more the following month. My thinking is that, if you are fighting debt but not tracking your spending nor drawing a budget, you may not be able to know what you are doing. Did it ever happen to you that you go through thousands of rands without pin pointing what you did with them. Like a thief is coming to pinch it in hundreds of rands at a time. Its crazy and even a bit stupid not to know how much debt you have and how much it eats on your wealth every month. Not knowing how much your food bill averages and changes on a month-to-month basis.

This is a numbers game. Every small detail matters. Its actually not paying attention to the detail that put most people to the situations they are in. If you owe any debt, draw your table and write it all down and declare war to it. Its all so doable and almost easy.

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SOON TO EXPIRE FOOD

I am writing this on holiday. I know, I need a life, right. I was thinking about this subject lately and thought I can just sneak a post before leaving my bed. I want to know if you frown at the soon to expire food items like I do I used to. Whilst I don't think I would ever buy any food item that has gone past its sell by date, I surprised myself on Thursday, when I went to a marked down food table right at the entrance of Checkers supermarket. I was there to get dinner for five. Most food items at the table had their sell by date marked for the same day. I reckoned, since it was the same day dinner, I can just snatch just enough items for the day. I had salads that were marked down by more than 50%. I paid 25% for some items like beetroot salad and carrot cake for my dessert. Off course I paid 100% for my lamb stew. I managed to pay R150 instead of a possible R300 for our dinner, the next day breakfast and a few longer lasting stuff like “soon to expire” raw potatoes (70% off) and lemon. I never thought I could save so much on food.

soon to expire food

I can do this because I do my grocery shopping weekly instead of monthly. I believe weekly or even more frequent grocery shopping saves me more money compared to less frequent shopping. I spent more on groceries when I did one month shopping plus a few bags weekly. Bulk buying itself gets us discounts. However, you tend to use the last food items when they are less fresh or even have to throw them away. People also tend to waste food that's bought in bulk. That happens in my house. The fuller the pantry is, the bigger the pots. It must e a psychological effect. People don't eat left-over food because there is a lot more food anyway. Even laundry detergent and especially handy andy gets wasted when bought in bulks, for some strange reasons. I realise that I can snatch some of these items when they are left with 2 or 3 days to expire and just have my next 3 day meals planned around them. That can be about 30-50% savings in my grocery bill. The trick is in buying small quantities that can be easily used up.

With food prices rising at an alarming rate, I don’t see a reason why we still frown at these “close to expiration” bargain foods. Like I mentioned in the previous post on petrol prices going up, we are definitely due for another food price increase. This could put a strain on the grocery budgets of South Africans at all income levels. It looks like forgoing freshness will be a new trend. Most South Africans will live on soon-to-expire or just-expired food items. As for me, I will keep my eye on the food sale table. I can do this almost daily, since I walk for 10 minutes to my nearest supermarket. If I were to drive, that would be a completely futile exercise. It could be even more costly to drive often than buying the freshest food.

Do you buy the just-expired or soon to expire food? I would love to know.
image via

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Rising Petrol Prices

Do we fully understand what the rising petrol prices mean? It means we are doomed!!! Most of us forget that prices of everything are directly affected by the rise in fuel prices. Lets forget about luxuries and think basics...FOOD. For experimentation purposes, if you go grocery shopping today, keep your till slip to compare to your grocery shopping in a week or two. The same food basket will cost you more because it was supposedly transported by the 8.4% higher priced petrol.

Coping with Rising Petrol Prices in South Africa

Yes, the petrol price rises by a whooping 8.4% today. Apart from other reasons like rising oil prices and the weaker rand, the wage increases for pump attendants at filling stations seem to be one cause. An additional 8.4% translates to R11.97 a litre of petrol inland whilst the diesel price's 6.7% rise means R10.95 for a litre.

Is anyone as angry as I am that the public transportation in South Africa is in the state it is in. Car ownership has become one of the basic needs for South Africans. We often interpret that statement as "a luxury car is a basic need". In case you are wondering, we still have a lot we can do to save ourselves from the high cost of living.

How I Cope with the Rising Petrol Prices

Off course I hardly ever drive. Its not an advise for everyone though. I am blessed to be working from home and online, maybe for now. My car battery dies all the time unless the hubby drives it around a few minutes per week. I walk to go do my small grocery shopping.

I am not buying a new car any time soon, make that in a few years. That means that I don't have any car installments to pay in the few years. I am keeping my fingers crossed that I don't snap and go buy the car of my dreams within that period. I am so enjoying not worrying about the car installment. It must be the most painful thing to worry about, when one has a lot of other financial commitments to take care of. Especially if those commitments are DEBTS.

If hubby buys a new car, because buying his French car was one of our worst mistake, we will go for something modest and do so for cash. That means we have to have a car fund going, and sadly we don't. We will open a second emergency fund (Money Market account) set up in hubby's name for that purpose. We obviously cant use my existing money market to avoid taxation on interest. Remember that the exempt portion of interest earned is now R22 800 a year. I feel we are being discouraged from saving.

I don't have any credit card and I never had a petrol card. I know about the benefits, the reward programs, the convenience, blah-blah-blah. I don't have time nor energy to look at all that. I will have to look at that in future. To see if the annual fees are low enough for me to overlook.

We are sadly not buying a new house either. This has nothing to do with rising petrol prices however. We just decided to take advantage of the opportunity that presented itself. I am investing in another rental property in a small town. I know I have all the rental property that I planned to have, but I couldn't resist the temptation. I am all so excited about it but will give details later.

My monthly budget is still a work in progress. There are luxuries that I cant let go of yet. I work very hard and some luxuries make this journey to be worth every sacrifice.
What are you doing to cope with the rising petrol prices?

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MORTGAGE PAY UP UPDATE

This just cant wait. I decided to have a monthly mortgage pay up update. Yeah, its the most exciting issue here at SafeInvestSA at the moment. Remember how I was against paying up my mortgage only a few months ago? Things change hey. And now I am fast tracking my home loan payment like its getting out of fashion. Not to mention how excited I am whilst doing that and about the prospects of being debt free for real.

mortgage pay up update - Sept'12

See the graph with my portfolio targets to your right. My home-loan has 56% equity in it. Only this morning it was at 52% before we decided to go ahead and sacrifice a small lump sum to help us get where we want to be. Its all worth it. This one is for my peace of mind. Its not about what makes financial sense. I know I did real estate investment education, I know all about the power of leverage, but I am going against the grain with eyes wide open. I decided to be debt free, and that's mostly a psychological decision.

What this means is that my stocks, bonds or whatever else will be stuck at 20% goal achievement for a little while. It also means that hubby is off my case about this one debt. He is a happy man.

I even wanted to throw most of my emergency fund into the mortgage to take our home equity to 75% (how sweet that sounds). However, not having an emergency fund is not an option for us at this point or at any other point for that matter. Having said that, I don't see the need for the extra 31% in our emergency fund. I am only comforted by the fact that it earns a little interest there.

Moving forward, I will post a mortgage pay up update every month. I will commit to my crazy target date of July 2014. Every extra cent that comes our way is going to the home-loan. When I pay myself every month, I will be transferring that to the mortgage directly. I feel very much at peace with that decision. See you in the October mortgage pay up update. I will hopefully be entering the 60s in the home equity by then. It feels good to be doing this. If you like reading about personal finance, go ahead and like our facebook page or follow us on twitter.

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Monthly Spending and Budget Report-August 2012

To sum up my monthly spending and budget report for August 2012 in one sentence... "Its been a great month with high earnings and low spending". You may remember that last month was the highest spend month with security bars fixed and the likes. .

There are no highlights for August. I just had a boring month as most may know, building wealth involves the same routine month after month, lonely at times but overall, its way to exciting to know you live at own terms. I wrote about my feelings mostly.

My August 2012 monthly spending and budget report:

INCOME	JUL'12	AUG'12	NOTES
Real Estate	63%	46%	The extra I got from hubby kind of toned this down. I really need to boost my other investments to catch up with my rental income.
Hubby Allowance	32%	49%	This month hubby gave me cash gift so I can spoil myself. I still am thinking of what I'll buy. Thinking along the lines of a gadget. Some tablet, I think.
Once Off	0%	1%	Interest free loan I gave to a friend. She is paying monthly.
Online	0%	0%	I will get two months worth this month.
Extra	4%	4%	Interest on my Emergency Fund. Dividends were ZERO again.

Interest on my Emergency Fund is always a welcome addition. Dividends were ZERO again.

ITEM	%OF INCOME	NOTES	NOTES
Real Estate	25.1%	13.6%	My one and only mortgage. I decided to pay all the home owners association fees and taxes/rates three months in advance so I dont pay them monthly. I will only pay these end of September/ beginning of October.
RA & Unit Trusts	7%	6.2%	Fixed for my life insurance and the rest of small investments and savings.
Online	0%	0%
Internet/ Phones	1.6%	0.8%
Consumer	1.6%	1.8%	Most shopping was done by hubby.
Withdrawals&Fees	0.3%	0.3%	Great
Giving	44.2%	11.2%	Back to normal. This is usually between 11% and 15%. Last month was crazy with loans to friends and more gifts. It got to almost half my income.
To Invest	20.2%	66%	WOW!!! My focus is paying up  my homeloan. I also top up my Just Invest (Nedbank) to grow by R5000 per month. Whatever interest I get, I top up to make it a round R5000 figure. This serves as my emergency fund account.

My leftover cash was 66%. I lived on 34% of my income in August. That's amazing. As usual I topped up my emergency fund by R3800, paid some in my home loan account. Remember in July I ended with a negative balance sheet statement with a - R2800 balance for the month? This month I ended up with lots to smile about.

I said I will be paying all my extra income into my homeloan to fast track bond payment. I changed my mind. If things go well, I may use part of my emergency fund to finance the rental property I am buying in a small SA town. I am paying cash for it and have the tenants waiting for the registration already. Its promising to be a brilliant deal.

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