MY OWN SCHOLARHIP

For as long as I can remember, I’ve dreamt of setting up my own scholarship. As luck has it, an opportunity presented itself in 2011 december. A cute little girl was to start Grade 0, and without hesitation I grabbed the opportunity and pledged to take this cutie to school. Last week was the last installment of fees that I paid to the small private school she is attending. To say I am proud of myself is putting it mildly...no its putting it ice cold. Huge pat on my back.

How I'm setting up my own scholarship

I’ve been working very hard on my online income to be able to fund similar ventures. Giving is just one of the things I strongly believe in. I don’t think there is much that can compare to giving someone good education. This experiment has helped me gain a much needed dose of confidence in myself. I guess 2013 is a year of double dosage of that because I have already identified a little boy starting Grade 0 next year. I don’t necessarily plan to add a child every year unless my online income doubles by the end of 2013. I don’t even go searching for such opportunities. I only let them present themselves. I also don’t know if I will be able to carry on post matric with my current learners. I will also monitor the parents’ financial situation. When the parents get to a better financial position, they may be able to take over and I replace the child with a new bursary holder.

I pay tuition directly to the school bank account(s). Parents take care of the small bits. I wish this venture grows every year. Educating the children in need is one of the causes closest to my heart. I realise that I have to formalise this kind of venture next year. I feel so WOW already now. It feels like a huge achievement for me. My learners won’t have to repay any of the bursary, but if I were to take them to university, I would have them agree to also take a child though university as a way of giving back.

Since I actually didn’t formalise the formation of my own scholarship, I decided to look at my “to do” list into that formalisation. I don’t want to hire any professional, any attorney or accountant. I’d rather give that money to another child.
I don’t know if I will set a formal foundation or just some interest bearing bank account where part of my online income goes.
I have automatically identified my target group. The age group I start with has no previous academic grades to base my selection on. They are just kids who are short of cash.

Like I already mentioned, I only cover tuition for now. This is the highest chunk of the school fees. I will also help with the random extra mural activity payments.

I don’t really need applicants for now. I enjoy identifying my beneficiaries. And living in South Africa, opportunities to do so are everywhere.

Hope this inspires you to set up a scholarship of your own, or to give towards your own cause of choice. If you were to go the bursary route, who would be your target group? I would love to hear from you; I love comments.

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SAVE ON YOUR ELECTRICITY BILL

So our electricity (in South Africa) may double in 5 years. Everyone is screaming at ESKOM (energy service provider), for this new tariff proposal. The question is whether we will ever see an end to these abnormal tariff hikes. Are the protesters staging at the Eskom buildings going to help? Probably NOT.

Save on your electricity bill - image via

A price hike of more than 500% in just 4 years can’t be healthy for anyone. It’s not great for the private sector and definitely not good for households. By the look of things, my family of four will be parting with R5000 per month to keep our lights on. The argument that our electricity is among the cheapest in the world is also not helping. It looks to me like we have to adjust our lives and learn to live with high/ normal electricity bills. There’s definitely a lot you can do to save on your electricity bill.

I must confess, I have a long way to lower my own electricity bill. Like a typical SA girl, most thinks in my house operate on electricity right now. I heat, clean up, cook, wash, etc. with it. These are the steps that we will be taking to lower our electric bill:
Insulate The House Roof
We are insulating our roof, with the hope that this will keep our house cool in summer and warm in winter. This is long overdue. Our temperatures are relatively mild. We seldom use a heater really. We don’t have a real need for air conditioners. But the top floor of the house tends to have quite high temperatures in summer.

Solar Geyser
We will finally take advantage of the ESKOM rebate and get us a solar geyser (solar water heating) too. Its time we make good use of our African sun. This is what eskom says about the rebate programme:

To actively encourage and promote the widespread implementation of solar water heating, Eskom has rolled out a large-scale solar water heating programme. This programme will assist you when buying an SABS tested solar water heater to replace your conventional geyser.

In addition to the rebate that you will receive upon installation of solar water heating, many insurance companies are now allowing you to put your claim value towards a solar system or are offering solar water heaters as replacement in the event of a burst geyser.

Gas Heater
We will behave like other normal people and invest in a gas heater. I hope we wont need to use this much though. No more electric heater for us. That's a huge cut on the winter electric bill.

Energy Efficient Appliances
We will definitely switch to more energy efficient appliances. This is not such a problem as I need a few appliances anyway.

Solar Panels
Add some solar panels on that bare roof. This is where Home Owners Association starts irritating. I might need some written permission. Can they really say NO? I wonder.

Other small changes that can lower my electricity bill include switching off stuff that I usually leave on standby like a DVD player, TV... Same goes with boiling just enough water in the kettle, sticking with the energy saving light bulbs, keeping my appliances clean, etc. It can’t be that difficult. It’s only a mindset shift.

What do you do to save on your electricity bill?

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HOME DOWNSIZING MAKES SENSE

Where I live, many people in their 30s and 40s live in humongous homes with all the extras of luxury living, plus what is commonly known as domestic quarters. Domestic quarters is a studio apartment attached to one's house, to be used by the family's housekeeper. Most modern homes have this kind of a useful facility plus a number of other special use rooms, like gyms, home theatres, etc. Its gorgeous houses in golf estates, except, owners never get to live in them. They think they do, but in reality they dont.

Home downsizing makes sense - image via

 This is how we let our homes not only sit on our money, but gobble it too:
An average couple in their late 30s to 50s will likely be working and commuting a bit far on a daily basis. They probably spend 2 hours on the road, to and from work. They drop their kids at school on the way to work every weekday. The kids will attend what is known as aftercare (after school care), where a teacher owning that kind of business will keep the kids, give them food, and help them with homework. In the early evening the parents pass by aftercare to take the kids home with. The family is probably home by 7pm. They prepare dinner (if they don't have a cook/domestic help that also cooks). In no time they are all in bed, only to go through the same routine the next day. NB: They sleep, wake up, eat, leave, come back, eat and sleep in this house.

This is different on weekends because this couple is doing some shopping, attending to friends' weddings and functions, dropping kids at their friends' birthday parties and trying to make their gorgeous home comfortable and more liveable. There is a lot of money involved in the weekend activities. Between gift shopping, clothing shopping, furniture upgrading, dinning out, meeting friends for coffee and movies, going to car wash, this couple will likely go through 25% of their income in one weekend. They will be very happy doing the home maintenance bit because its helping boost the value of their investment. The home they are convinced they live in. This couple will retire when the time comes, likely in their 60s. Its then that they will be forced to downgrade, to free some of the home equity for their living expenses. This makes them happy because the value of their property has now doubled from the initial price if they are in a perfect timing of the economic cycle. 

This couple worked so hard to blow their income mostly on a house they hardly ever lived in, to only NOT enjoy it when their time to retire comes. I get it, home downsizing makes sense when one's children leave home. It makes sense when one is in the retirement age and cant keep up with the high cost of rates and taxes. But living in a modest, low maintenance and affordable home could be making better sense when this couple is younger and working outside the home. Why spend this much portion of your income at the peak period of your career on such an under utilized and under performing piece of investment? But we do. And we are more likely to upgrade to a bigger and much expensive home with salary increases. The lifestyle inflation is usually higher than the salary increase. But that lifestyle inflation doesn't necessarily have a positive effect on the family happiness. There could even be an inverse relationship between lifestyle inflation and happiness.

We were in our late 20s and early 30s when we moved into a suburb home with a huge garden and an irritating swimming pool. Our home was not expensive because of the area factor, but the maintenance of the space we had was overwhelming.We moved to a smaller townhouse after that house, and a slightly bigger one later. Life was simpler and the swimming pool stress was gone. My love for all things beautiful keeps catching up with me when I visit my friends' luxurious homes. I then remind myself that we made a choice which works perfectly for us. We prefer to have more than one house instead of spending all our cash on just one. That way we have the rest of the houses rented out and giving us some "passive" income. This proved to be the best for us. We can both stay at home and live on our rental income if we so wish. We would have invested that money on the stocks too to get good dividends and some capital gains.

Don't you think home downsizing makes sense for most young people?

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WHAT A HIGH NET WORTH CAN BUY

Where do I even begin on what a high net worth can buy you? I can perhaps sum it up in one word - FREEDOM. That's what your net worth ultimately adds up to. A negative net worth simply means that you are doomed (pun intended). But if time is on your side, you can easily turn that around. Easily meaning "taking tough decisions" in this case. The two things you need are a plan and discipline. And they are both at your disposal for FREE.

What a high net worth can buy - image via

Continuing on my conversation with my cousin from the financial independence post I added yesterday. We are closer than siblings with my cousin and we want the best for each other. She loves her executive job and naturally wishes I can be "up there" with her too. So she asks, trying hard not to sound pushy "So are you looking for a new job, or going back to your old job?" (To those who are not aware, I may be going back to work next year after a long break). I know what my cousin means... She is begging me to look for a "better" job. And my response "No, I will go back to the same job, same level. I am not even looking for a promotion. I dont want added responsibility. I want time for myself without worrying about meetings, management issues, paperwork. I want to write more and spend time with my kids. I want to have my weekends and evenings." Its the truth. I would even change jobs for a lower salary, part time gig, freelance writing or even for blogging.

My cousin could be thinking I lack ambition. She loves her hectic lifestyle. At least I think she does. She is always sneaking my calls in between meetings and flights. She is OK with that and wishes the same for me. And I am so different. Whilst I love leisure travel, I cant stand as much business travel anymore. It seems to always be at awkward times, to awkward places. I also tend to lose track of my thinking in long meetings. I draw on my note pad more than I take important notes. From there follows an analysis of attendants and their tastes in clothes, make up, etc. A productive meeting should last for less than an hour for someone with such a short concentration span. But with executive jobs its 2 hour meetings at a time. Are they that slow really? I would rather work harder on my side income than grow my salary. This is the reason I keep track of my net worth, spending and income every month.

This morning, whilst blog hopping I came across an article on retirement by TIME (Moneyland). This is what they think is appropriate savings level by age:

• At age 35, you should have saved an amount equal to your annual salary.
• At age 45, you should have saved three times your annual salary.
• At 55, you should have five times your salary.
• When you retire at age 67, you should have eight times your annual pay.

I get that this is just a guide, but simple enough for us to relate to. I am in my late 30s and our savings/investments are closer to the 67 years (retirement age) than most couples in their 50s. And I calculated using the gross income of the Mr doubled. In a likely case that I really go back to work. What makes this even more interesting is that, most people spend 100% of their income, and our target is saving 50% of our net income. We manage just fine living on 50%. And even more interesting is that, our side income (rental property, interest & dividends, blogging) is close to replacing my last salary. Meaning that, by growing our side income and having two salaries we could just do fine with 33% of our income whilst we save the rest. Why on earth would I need a job that will keep me away from my family for longer? Why would I need a job PERIOD? It would be different if I loved working outside of my home. I would then happily spend 2 hours in traffic everyday, pushing my passion with a smile. I loved my job but not the traffic bit.

Anyone can buy that freedom. Start living far below your means, paying up debt, saving as much as you can, growing your net worth and passive income and discover what a high net worth can buy you. Not having to work for money but having your money work for you. You don't need a huge home, better car, new closet. You need financial independence more than you probably think. A job is not a bad thing, but having to have one forever is what is problematic.

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WHAT FINANCIAL INDEPENDENCE MEANS

Doing what I want when I want to, going on a holiday without getting approval from anyone or living in more than one town in a year, waking up at the time I want to, following my passions and off course writing and blogging as I please. These and a lot more statements sum up what financial independence means to me. It’s what I work to achieve every day. Its also what I preach in this blog. My chat with my very close cousin brought this whole financial freedom vibe to me.

what financial independence means - image

My friend, older than me is a lawyer and a great woman. She has done very well climbing the corporate ladder whilst raising her child by herself. She loves cars as much as I do. The difference is that, I admire them and never imagine paying the installment (I never had a car installment in my life). My friend drives them, and works hard to do so. So, last week we catch up on WhatsApp. She was traveling on a business trip. Our chat swayed towards the topic of retirement. She mentioned the amount she thinks she has for her fast approaching retirement, but she has never been a details person, and doesn’t know the exact figure. She then asked if I think it’s enough. And my response: NO ITS NOT ENOUGH!!! Which probably shook her a bit. Apart from the fact that I think the figure is low, her lifestyle could be working against her. R1Million, R3Million, R5Million or any other figure would do just fine for one person but not the other. It depends on someone’s lifestyle choices.

In my case, whilst I love a big open space, airy home with a gym, games room, and all other unnecessary extras, we choose not to have all of that. We decided to go modest and live right where we are. We prioritised what we consider safe and embraced estate living in our smaller than we wish house. We don’t even have fancy “his and hers” office spaces, no separate laundry room, no pantry. I want a walk in closet so desperately but we are doing just fine without it. Don’t get me wrong though, its not bad to have all the stuff I mentioned. The point is that, I do not have to have EVERYTHING I like and want. I may eventually get a house slightly bigger that the one we currently have. But that is not a priority at the moment. When we hit our target net worth, we may decide to put our current house on the market for rental and buy us a bigger place. Even then, it would not be necessary. The bigger the space, the higher the costs for maintenance, mortgage, rates and taxes, furniture and appliances.

I would love to drive my dream car. It’s not cheap, not economic, and its definitely not worth my financial freedom. Even choosing not to buy the car is a sign of freedom. The choice not to ever have a car installment. If having my dream car now would interfere with my financial plan, its postponed. I choose earlier financial freedom to a fancier car or a bigger house. Sounds very easy, but in reality it’s not. Affording a luxury is when you can have it without interfering with your retirement provision. It is not about having access to cash to fund the luxury.

Whilst I am no fan of dining out, I love great food. I love my fresh organic produce. And I want it prepared in the safety of my own home. Does that sound bad? Food is meant to fuel our bodies. The healthier the better. I don’t need to be in a fancy formal wear restaurant to get the best food. It could be because of my food issues, but I'm very glad to eat in everyday. When I do go to dine out, I get miserable, and never get the food that my body needs. I am on a special diet, which I think helps.

Now back to my good friend. I didn’t blurb all this to her but I hinted about my love for all this fancy stuff and priorities. I mentioned the car for cash idea and she confessed to being depressed after the chat. Am I happy that she is depressed? NO. Am I happy I talked to her about this stuff? YEP. She says she will be working harder on her retirement finances. We are now all happy!

I would love to know what financial independence means to you, how important it is and what you are prepared to sacrifice to get to your freedom.

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DIVIDEND INVESTING

I invested the whole of yesterday into learning about dividend investing and the terminology. By the end of the day I felt like I know what I'm doing. As a way of background to this post; remember my previous post on my car fund. Its happening this month. And like I mentioned in that particular post, I planned to take an index fund route (Satrix Divi). Then the Mr, who himself uses Satrix, discouraged me. He thinks I should rather continue picking stocks.

I decided to have a 12 hour strategic session with myself, getting valuable education from online sources. If you haven't already picked this up from my blog, I am a bit OCPD. Maybe too OCPD. OCPD is Obsessive-Compulsive Personality Disorder, a condition in which a person is preoccupied with rules, orderliness, and control. I get obsessed with understanding issues and tend to over research to a point of confusion. Being in the dark can easily qualify to being my worst fear. This is how I ended up with qualifications in real estate instead of going ahead and buying and renting homes to tenants like every other small investor does. I decided to go to school in order to do it the "right" way. Halfway through my masters, I realised, there is no "right" way. How disappointing. At the end, here I am continuing with exactly what I was doing.

The one time I hired a financial planner, I was so into financial planning. I would have gone to get some qualification in it, if I were not already stuck in the studies related to my job at the time. And the time I was pregnant, wishing my gynaecologist can just let me operate this kinda computer monitors that show the baby scans. He didn't even think about it obviously. The idea was so stuck in my head that I wished to go do medicine. Unfortunately or fortunately for me, I had a baby on the way and no energy to go study full time for close to a decade. That saved me.

My point is that, even if I were to get a broker, I would still have to understand every decision he takes. Its like a disease. I have friends who hire property managers and forget about their investments for years. Not me. I question every decision, analyse all my properties, follow the trends and the laws related to my investments. I cant help myself. I asked my property manager if he looked at the latest amendments in the Sectional Title Act, once, and... you guessed right, he was not even aware of it. And he is a full time property manager with the majority of her units being under various Home Owners Associations. I don't get that.

Anyway, for yesterday, I had my sleeves folded up, digging for what I initially didn't know until I had the initial terms out of the way:

P/E = price earnings ratio
EPS = earnings per share
Div PS = dividends per share
Dividend Payout Ratio
Dividend Yield

Like most personal finance bloggers, my overall goal is to grow my passive income for our long term goal of early retirement and short term being buying my next car. These two goals shape my whole strategy towards dividend investing. After getting the understanding of the basic terminology I went ahead:

1. I searched for the high dividend yield stocks in the JSE. And yes, I already knew how that is calculated, even though I didn't need the skill. 
2. I had about 40 -50 stocks initially in my spreadsheet. I started to trim them according to my sectors of interest. As a South African, I am very keen on Telecommunications and Financials. And because I love shopping, consumer services got in the basket and some energy won't hurt too.
3. When all was nicely trimmed, I then needed to know which stock to start with. Dividend Yield was definitely not enough to trim some more. I started adding the PE Ratio as a deciding factor.
4. I later looked at the Dividend Payout Ratio. I read time and time again that a high payout ratio is not that cool. But I kinda went with it as I'm looking at huge companies anyway. And by this time I had convinced myself that all the companies left in the spreadsheet are great. All I wanted was an informed decision on the first stock without ending on the Eeny-Meeny-Miny-Moe roller coaster.
5. What I forgot is that, I only have R5000 per month to invest for my car fund experiment, which kinda dampens my spirits. I approached the family to take some funds from the our Emergency Fund as my energy boost. And they said YES. Bless them.

This all means that, by the end of October, I will be starting on this very important dividend investing project with a manageable amount of money. I cant wait. Any one on a similar journey already?

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SETTING A CAR FUND

Back in July I mentioned my plan to set a car fund here. I was to choose between that and buying a car through the traditional high interest car loan. The thought has never left my head since. The most tricky part was on the choice of saving/ investment tool. It was either the money market, similar to the Just Invest account that I use for the emergency fund, or stocks through an index fund.

I then went ahead to compare the Mr's index funds using the spreadsheet (I love excel). Remember how I go on and on about the Dividends as a great form of passive income. So Satrix DIVI was an obvious winner. It has done well in the past year. Its done well both on capital growth and dividend pay out compared to Satrix 40. That's all I compared.

Setting a car fund using Satrix DIVI

See the comparison above. Its not as dramatic in a 3 year graph. But, like I mentioned, the high dividend payout is my main motivation. I will stick with the DIVI for the car fund. Its the R5000 per month until I cant take the car shopping abstinence anymore. I hope I can hold on for 5 years. If I don't, its no big deal, I guess. Just saying.

Lets now take a closer look at the share basket in this index fund:
Financials 38.7%
Industrials 18.27%
Telecoms 12.67%
Materials 9.67%
Consumer Services 15.67%
And Others

Whats not to like. I went ahead to check the individual shares in those categories. I liked them. And the 20% growth for the past year also helps. I will report on this monthly as well. Hope its a fun and profitable 5 year ride. Browse the individual shares in the basket below.

Share Basket Constituents for Satrix DIVI - October 2012

Share Name	Industry	Weight
ABSA Group Ltd	Financials	3.67%
African Bank Inv Ltd	Financials	3.52%
Allied Elec Corp Pref	Industrials	3.38%
Allied Technologies Ltd	Telecommunications	4.95%
AVI Ltd	Consumer goods	2.36%
Coronation Fund Mngrs Ld	Financials	4.47%
Exxaro Resources Ltd	Basic Materials	2.61%
Firstrand Ltd	Financials	2.57%
Investec Ltd	Financials	3.16%
Investec plc	Financials	2.96%
JD Group Ltd	Consumer services	3.61%
JSE Ltd	Financials	2.51%
Kumba Iron Ore Ltd	Basic Materials	4.71%
Lewis Group Ltd	Consumer services	4.46%
Liberty Holdings Ltd	Financials	3.58%
MMI Holdings Limited	Financials	3.67%
Mondi Ltd	Basic Materials	2.33%
MTN Group Ltd	Telecommunications	3.48%
Nampak Ltd	Industrials	3.44%
Nedbank Group Ltd	Financials	2.88%
PPC Limited	Industrials	3.24%
Remgro Ltd	Industrials	4.54%
Reunert Ltd	Industrials	3.64%
Sanlam Limited	Financials	2.70%
Sasol Limited	Oil and Gas	2.81%
Standard Bank Group Ltd	Financials	3.02%
The Foschini Group Limit	Consumer services	2.85%
The Spar Group Ltd	Consumer services	2.19%
Vodacom Group Ltd	Telecommunications	4.16%
Woolworths Holdings Ltd	Consumer services	2.52%

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BUYING PROPERTY FROM A DECEASED ESTATE

When I heard that the house I am buying belonged to the deceased estate (mother of the seller), I panicked a bit. It became a bad reminder of the deceased estate mess I found myself in in the past. I was buying a property belonging to someone who lost a husband then. It didn’t go well and at the end the deal fell through. It was so frustrating having to learn the whole procedure from the winding up of an estate to necessary documentation, when all I wanted was to invest in a rental unit and start getting returns. I received emails after emails on the wait by lawyers for letters of Executorship from the Master’s Offices and similar legal jargon. After a month, the estate had not been winded (or is it wound) up as yet which translates to delays in the whole transfer process. And when the lady at the conveyancer’s offices mentioned that “it may take several months to get the transfer done” I knew it’s time to call it quits.

I didn’t have several months of keeping my savings for an uncertain deal. And that was the end. That is happening again. The only difference is that, I now have the time or several months for the current deal. As I mentioned, I will use half of my emergency fund to finance it. That will mean some R80,000 shortage in my EF sfter te transaction. I must add that my emergency fund is currently far above our target. If the delay means that I can raise the R80,000 whilst the lawyers are doing their dance, so be it. As long as I have locked the price and am not affected by the rising market prices.

You may be surprised (most likely not) that I actually asked the estate agent about the possibility of a delay in this transaction due to the winding up of the estate. He assured me that, I quote “the transaction shouldn’t take more than the normal six weeks”. I didn’t believe him off course, but I didn’t want to let that stop me from investing in what I saw as a worthwhile experiment. I went ahead and made an offer. Then a month later, a lawyer emails me:

“As you are aware this transfer involves the sale from a deceased estate. There are accordingly a number of formalities that we have to attend to which include obtaining the necessary certificate from the Magistrate in xxxx which is where the late Mrs…. died and where her estate was reported. Accordingly we do not expect to be able to register transfer before the end of November at the earliest.”

Now that’s more believable. November is even a bit too ambitious. I would say January 2013. And that doesn’t bother me. I’d say its enough time for me to be ready to renovate the existing structure and further develop the land. I have never been this extravagant with my time to sellers and lawyers and estate agents. If this deal fails for some reason like deceased kids not seeing eye to eye, or any other reason, I would just cut my loses and move away. Most important to state here is that I havent paid any deposit towards this transaction. I paid the legal fees, which is a negligible amount and specified that the lawyers should invest it in an interest bearing account on my behalf. Buying property from a deceased estate can be too tricky. Whatever you part with should be what you can afford to risk losing.
I haven’t invested my emotions into this, can you guess.

I would love to hear similar stories. Remember to also email me whenever you want to. You may also guest post if you have a personal finance story we can all learn from.

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