I CHANGED MY BAD FINANCIAL HABITS

Changing bad habits is a constant battle for all of us. It does not matter how not life altering the habit may seem. From eating in instead of dining out to raiding your closet for the next wedding instead of paying a designer for a new outfit. It takes a lot of discipline and intentional effort. I changed my bad financial habits and still continue to relapse and rework on them again and again. We need to understand that this is a ceaseless battle.

I changed my bad financial habits

I am fortunate in that, my own habits do not encompass carrying huge debt quantities. It is mostly shopping for stuff I do not need. Carrying consumer debt should be frightening for all of us. It is strange that when people are in that high debt situation, they tend to behave like frogs that are being boiled from low water temperatures. They simple adjust to their situations, and then start borrowing even more. The longer one is in debt, the deeper they tend to dig the grave.

Let me start by confessing, to demonstrate how easy this happens to most of us. A few months ago, I finally got myself a credit card. Phew! Was I ever so eager to get into debt? The thing is, I started an exciting, high capital and slow growth business. I was rushing the business to be self-sustaining ahead of its time. I'm not a patient type. It emerged that it is not happening anytime soon. I had to get a credit card to assist the business. I do not believe in bankrupting myself to assist the business but the situation called for it.

Well…I swiped the credit card for the business transactions and ahem, mine. In no time, the card was maxed out. I started having the business pay the debt, but it was very difficult. Instead of me working harder on doing this, I just got used to carrying this debt. I got comfort in the fact that I was not paying any interest because I was paying the credit card balance up monthly and transferring my money back again. The credit card debt was becoming part of me, until I realised that I was getting captured (as South Africans would say) and paid it up. The business may reimburse me someday.

A lot of people carry huge sums of credit card debt like it is a perfect way of life. Some have intentions to get out of debt but regress back to it. This is just one of the habits that keep us trapped regardless of our intentions. Then comes January, we repent and promise to get ourselves cleaned up. The main reason we don't permanently kick these habits is that, they somehow fill the void inside of us. You can only replace a bad habit with a good one. That void needs to be filled with something, Right.

I changed my bad financial habits by replacing them with good habits. I am a designer and tend to buy a lot of home stuff. I also have acute hoarding habits. I decided to have a business that sells used, vintage and antique home-ware. This enables me to acquire new stuff as often as I wish. I simply resell existing. You may not be reselling (I don’t see why not though), but need to replace the mall time with something that adds better value to your life.

We also need to understand that changing bad habits is a very difficult and lonely journey. The society is about spending and spending more. The higher your debt, the more likely you would be "liked". Our society shows a high level of respect for people who are flashy. Being one's own person often takes swimming against the tide. Do it despite everyone else's perceptions. It is your own journey and your own goals. Your ability to exercise self-control can stretch beyond your imagination. It is easier than you imagine.

• Always keep your eye on the ball. Refer to the article on setting SMART goals posted in the blog.
• Know what triggers your bad habit. If it takes cutting mall visits and people who are bad influence from your life, do it.
• Keep busy with something else. Physical exercise could be one.
• Get support structure if you must. Surrounding yourself with like-minded people does wonders for one's goals.

Those are a few steps I took when I changed my bad financial habits. I stay put most of the times.

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SHARING GOALS

Sharing goals with friends, family and other like-minded people can help provide one with the much needed support. This may also provide a safe place to "sort of" account on implementation and progress. I am very much aware that this is a non-negotiable NO for many people. But the outlier in me makes this perfectly OK, at least for myself. Well, I am evidently a blogger. You know, the crazy bunch that deliberately thinks aloud.

Sharing goals

In the previous post, we detailed how to set personal finance goals. If you haven't already, go check the post before this one. You will not be disappointed *broad smile*. Having set the smart goals, I find that sharing them with just one person helps me strive to bring them to fruition. I cannot be the only one who thrives on support. Anyway today's post will be about me…of course, my self centeredness knows no bounds *more smiles*.

For as long as I can remember I had an accountability buddy. My accountability person is usually a like-minded friend who also derives similar benefits from the friendship. In my twenties I had a friend who impeccably played this role in the finance area of my life. She had a lot of goals herself, which gave a high degree of mutuality to this accountability role. We never planned to keep each other accountable, but we did. She would tell me how she plans on paying her apartment up in a very short space of time. I would do the same. That is when most of our friends were shopping just to kill time and to feel "rich".

I later started this blog, specifically to keep myself accountable. I account to myself with no reservation here. If I set a goal using this blog, I am sure to achieve it at the set time. But this happens when I commit to constant reporting. You may not have been following me for long enough to have been part of my mortgage pay up journey that I took about 6 years ago. I was very excited each time I write the progress report. This pushed me to pay more on the mortgage, to beat my set target deadline. All of this happened here in the open, in my blog. I did that until my mortgage was fully paid. What a feeling!I attribute my bond repayment success to the target setting and tracking that I was doing in this space.

I still share some of my goals with close friends. Apart from that, I have set an accountability club on Facebook to keep myself and others accountable to ourselves. It is a closed group with like-minded friends. Every month each of us reports on progress towards achieving their set goals. One may have only one goal communicated to the group. Reporting is done in the form of sharing evidence which is done monthly on all set goals. The regular updates keep each member of the group accountable not only to us as group members but to themselves too. I would recommend this approach to anyone who has ambitions to build wealth.

Sharing goals does have its cons too by the way. One has to be careful when they choose their accountability buddies. Negative buddies are to be steered clear of. I know people who bring so much negative energy to one's excitement and dampen the spirit. Choose wisely.

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SETTING FINANCIAL GOALS

I must have told you about the guy who goes beyond the exercise of setting financial goals by framing and hanging them on the wall of his home office. He takes pleasure in seeing his goals on display daily. I don't quite do that, but it seems to do wonders for people as visual as the guy. I myself am a goal driven nutcase. I can never achieve anything without intentionally setting a goal for it. I am currently re-building on my emergency fund for instance. I have committed to a specific amount that I save every month towards my maximum emergency fund. Without that commitment, I tend not to be consistent. I can be that messy.

setting financial goals

I advocate for goals that are challenging enough to push one where they are aiming to be, but yet attainable. Whenever I plan to achieve a financial milestone, my goal states the amounts to be saved and/ or invested with target returns. The idea of SMART (specific, measurable, attainable, result-focused and time-bound) goals will never get out of fashion. I have a detailed explanation of SMART goals which entails writing goals down, setting targets and celebrating every milestone achieved below.

• Specific. You most likely have different goals at any given time. The "my goal is to build wealth" is a goal too broad and overwhelming to work on. I have heard of this particular one far too often in my wealth class. A smart goal is more specific than that. When setting financial goals, one needs to break a goal down with an attempt to respond to their own "What", "Why" and "How" for specificity.

What is my goal? My goal is to earn high rental income.
Why this goal? I need high rental income to supplement my current income and invest for early retirement.
How will I achieve this goal? I am saving through a high interest investment vehicle towards acquiring my investment property. I am currently saving R5000 per month. I am also working on improving my credit rating to increase my chances of getting charged low interest by my lender of choice.
It does not get more specific than that.

• Measurable. The measurability of your goals enables you to track your progress. This is the only way that you can have an evidence of the work you are putting towards achieving your objectives.

Let's take our rental income goal as an example. The investment property will only be purchased in exactly two years' time. Break this goal into smaller targets goes:

• Monthly:- I am saving R5000 every month to build towards my deposit.
• 6 Months:- To improve on my credit rating I am paying all my consumer debt off by month 6. I will also be having R30,000 plus interest at this date.
• 7 Months: In month 7 I am getting a new credit card that I will take great care of for the purposes of improving my credit score.
• 12 Months: By the end of year one, my credit rating will have improved to excellent. I will be having over R60,000 in my investment account at this time.
• Year 2: I will be having extra income to boost my savings at month 13. By the end of year two I will be having R240,000 in my investment account.

You must be getting the measurability point of this post. I do this a lot. I go to an extent of adding interest to my excel spreadsheet. This makes the goal tangible and motivates one to work harder to achieve it.

• Attainable. I have come across a lot of people who have dreams that remain dreams purely because of lack of their dreams attainability. We all wish to achieve stuff but it takes a bit of time and proper planning to get where we want to be. We have to be millionaires before we become billionaires, unless of course we win lottery. Our current goals cannot be to be billionaires in a short space of time whilst we have not even attained the first R1 Million.

Having said that, your goals should challenge you. Easy will not cut it either. Remember to break your goal down into smaller targets. This enables one to determine how possible achieving their goal is. Always remember to start where you are when setting financial goals.

• Results-focused. The only way to get things done is by focusing on the outcome. Always keep your goal alive. Take care of the processes but have your goal in your face/ mind at all times. Keep in mind that your main outcome is owning your investment property. Every step that you take is for the advancement of that goal. And the question asked is "how is this objective advancing my ambition to earn my rental income".

• Time-bound: Tying your goal to a time frame helps one to pace themselves in achieving it. A lot of us are procrastinators. A time-bound goal will keep one moving.

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YOUR RELATIONSHIP WITH MONEY

Have you ever given yourself enough time to sit down and analyse your relationship with money? Yeah, neither have most of us. We just walk around pretending that our financial crisis is going to somehow sort itself out. We also get scared of being associated with the "love" of money. Because we may get labelled as "evil". To keep ourselves as saints we choose to lead a life of low productivity and high wastage. As if that makes us better citizens.

your relationship with money

Oh well, let's be serious for a minute. The main challenge with the majority of human beings is lack of patience. The idea of getting satisfaction sooner rather than later is so much more attractive. This, in most cases is what leads to a lot of us being highly indebted. Wanting a great lifestyle is by all means not a bad thing. Wanting it too early and with money one does not have is the main cause of the debt crisis that we are faced with.

I will not waste any time on instant gratification. It is what it is. I have written and spoken about it until I was blue in the face. Everyone wants everything and they want it now. They want a nice executive car and a new closet that matches it. And they want it all, NOW. Instant gratification is what stands between most people and their ability to create wealth. This can certainly be rectified by the change in the mind set.  Giving more value to long term goal versus the short term satisfaction. It is not easy but very doable.

Next to lack of patience is the negativity. Most people don’t believe that they can be better, wealthier, wiser, etc. We are ultimately what we believe. This reminds me of when I started my business last year. I got into it with faith that my business was going to get very big. I started behaving like I was running a huge business because I never doubted for a minute that, that is where I was herded. Thinking big commands respect. Whilst thinking small diverts one's focus from setting and working towards meaningful goals. When you believe that you can achieve, you just do. Try it.

The reason some people have the negative relationship with money is how they were raised. The only phrase they ever heard about money from their parents was negative.
"We don't have money"
"I am poor"
"Business is not for people like us"
Try and think of what your parents used to say about money. That could be where answers to your love hate relationship with money lie. When you do find the link between your own thoughts about wealth and your upbringing, fight that negativity every single day of your life.
I do not remember ever saying I do not have money to my kids. All I say is that, what they want is not in my budget, or that we have other priorities. My son was still attending preschool/ kindergarten when he asked "mama, what are priorities?" To this day, he knows that we prioritise, which is a more intelligent and positive message than not having money. Especially when you actually do have some.

Now that we have the negatives out of the way, let's look at how we can improve our relationship with money. Think about what will happen when you neglect anything in your life. It never grows, Right? That's exactly what happens when you neglect your financial affairs. Pay attention to where your money comes from and where it goes. One of the signs that you are not paying attention is that you find yourself having no idea what happened to the R1000 you withdrew. Red flag right there.

Paying attention to your money involves appropriate personal finance planning, budgeting and/ or tracking one's expenditure. Your financial health is as important as any other aspect of your life. As we should all know, a bad financial state has a potential to make one physically sick. Why then would someone only focus on their physical health and neglect their state of finances? That cannot make any sense at all.

Empowering yourself to know more about money should also be prioritised. Educate yourself, read, talk about money and learn from others. Learn from others' mistakes too.

Finally, draw a personal life road map. Know where you wish to be and how you plan to get there. I am reminded of a piece of reading that I recently came across. A guy who not only sets goals but frames and hangs them in his home office wall wrote about how that keeps him motivated. He is able to see his goals daily. I don't quite do that, but it seems to do wonders for the guy.
Goals should of course be challenging enough to push you where you are aiming to be. They should also be more specific and measurable. If you want to buy a house in two years, your goal should be to save XYZ amount for the down payment/ deposit, transfer and legal fees. You may even go further to break that amount to smaller deposits, like saving R2,600 per month over 12 months.

I hope you will join me and work towards improving your relationship with money daily. I am, as a matter of fact, aware that I am an impulsive spender. I need to check on myself often, otherwise I lose track. Everyone has a money weakness and needs to check on themselves often. Take a decision to be a better version of yourself. It is a lifetime commitment and a very worthy cause.

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TAX FREE SAVINGS ACCOUNTS INCREASED TO R33000

The joy I had when I learnt that the allowance for tax free savings accounts increased to R33000 from R30000 per annum. Most followers know that I am a fan of this government initiative. You may go check my previous posts on tax free savings account in South Africa, then choosing ETFs for my tax free savings account and low cost tax free investment to judge the excitement for yourself. R33,000 may be low, but it is a move in the right direction. The whole 10% increase, WHOOP!!!

tax free savings accounts increased to R33000

In his 2017 budget speech, Minister Pravin Gordhan had a lot of negative tax proposals. What's with the new 45 percent tax for above R1.5 million income earners, an increase in the dividend withholding tax to 20 percent, and an increase of 30c per litre in fuel levy and 9c per litre in the road accident fund levy. We are not surprised with the increases in the excise duties for alcohol and tobacco.


The part on the allowance for tax free savings accounts increased to R33 000 came as a pleasant surprise. Some feel it is a rather small increase. I am a happy chappy with any increase for sure. There are a number of ways in which one can increase their tax free benefits using these accounts. I, for instance intend to open a tax free account for my son this year. Some of his ETFs savings are better off there, as long as he is not going to use the cash anytime in the near future. He is one guy who does not like property investing. A story for another day. 

For the monthly savers and investors who want to maximise the benefit, R2750 will be their monthly contribution from March to February. One can save less than that if that is what they afford to put away. The lump-sum is another option for those with cash reserves.

As I mentioned in the past, I am using Exchange Traded Funds (ETFs) for this account. Reasons being that this is a long term savings benefit limited to R500,000 in one's lifetime which should earn the highest returns possible. Withdrawing from this account should be avoided. I wanted to add "at all cost" in the previous statement. This can serve as one of those cushy retirement provisions.

Another important piece of information is that, we will not be able to transfer our savings within the different service providers until 1 March 2018. When the National Treasury finally implements this provision, we will be able to move our investments from one service provider to the other without losing our benefits.  Investors will have to give an instruction to their service providers to transfer the funds on their behalf. It is important to note that, this will not be a self service function.

If you have not started with your tax free savings, 2017 may be the time you do. The sooner the better.

More posts on ETFs can be accessed here.

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BEST SAVINGS ACCOUNT

I am obviously not coming with only one best savings account option available for South Africans. We have quite a few options to choose from. One may have to look at their personal savings goals and the time they need to save for.
Before I even begin with the main issue, I thought it would be important to note the difference between saving and investing. Savings have lower earnings with the capital being safe from any risk. Investing on the other hand usually earns higher returns, with no guarantee of preserving even the capital invested. Lets go back to the best savings account options, shall we.

Best savings account South Africa

I was reminded of the need for this post last week when my bank called to find out if I didn’t make an error by putting money in a lower interest option instead of a notice account. I must also add that, even though the banker was correct, I am not a fan of bank savings. I use the bank for my emergency fund and extremely short term savings. Bank savings usually earn one extremely low interest. The following are just a few options that one can explore:

1. Saving by Paying Debt off
I have said it before, and am saying it again, paying debt off is probably the best saving option at one’s disposal. Most debt has unreasonable interest rates which eat into whatever interest a saver earns elsewhere. Debt like credit cards and other consumer debt often cost above 20% per annum in interest. It does not make much financial sense to pay above 20% in interest whilst earning way below 10% in savings. Something for one to think about.

2. Bank Savings Accounts
South African banks have various options for cash saving. These are given various fancy names, depending on the bank’s creativity. Do not get hung up on fancy titles.

• Basic Savings Account

This usually earns the least interest rates of the lot. I am using a one day notice account instead of this kind of account as a result. See the next bank option below for what I am personally using. A typical savings account may earn around prime interest rate minus 6.5%.  This is extremely low. It is definitely lower than inflation, which means that your money is in real terms losing value.
The main advantage of this kind of savings is that your money is readily available at all times.

• Notice Accounts

The notice accounts also differ from bank to bank. The most popular seems to be a 32 days’ notice account. This usually earns anything in the vicinity of prime interest rates minus 5.9% from R250 to prime minus 2.9% for any savings above R50,000. You will notice that, the higher the amount saved, the higher the interest earned. You are better off with an account balance of above R50,000.
I am using a one day notice account for my emergency fund which earns from prime interest rate minus 4.75% for R5,000 to R9,999 to prime interest rate minus3.5%  for any balance above R500,000.
There are various interest rate percentages earned in between R9,999 and R50,000. There are a number of bank savings options with a similar structure. I will repeat that, these and other bank accounts are typical low interest accounts which are ideal to keep savings for short periods of time or emergencies. An example will be a contingency/ emergency fund

• Money Market Accounts

The money market account also offers the benefit of the cash being available at any moment one needs it. The difference between the money market account and the basic account is the minimum amount one needs to keep in their account and of course the interest to be earned. This is usually from R20,000 with low earnings of about prime interest rate minus 5.75% and slightly above that for higher available savings.
Some banks offer a higher interest for their professional bankers. Wealth does pay.

• Fixed Term Deposit Accounts

The fixed term deposit accounts have their interest varying according to the term  the money is kept in the bank. This varies from 3 months to above a year. The implications are that you will not have any access to your cash until the term chosen lapses. The interest may go up to 1.25% below prime interest rate. This is not a bad rate for savings but the inconvenience of not having the access to the cash is the main disadvantage.

• Easy Access Deposit Accounts

Easy access deposit accounts are similar to the fixed term deposit accounts.

• Age and other Special Benefits

Most banks give a favourable treatment to citizens above 55 years of age. If you are in this category,  investigate the extra benefits on offer for pensioners.

3. Using the Homeloan and other Tools for Savings
Given the fact that homeloans are generally costing higher interest, using them as a savings tool is beneficial. The only way to ensure that one gets their cash when they need it is to ensure that they have an access bond in place. Some people use unconventional tools like credit cards for extremely short term savings.

The key is embarking on thorough research before one decides on the best savings account that meets their needs. We have dealt with investing throughout the blog. That is the obvious way to build wealth quicker. You will always need both for building and preserving wealth.

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Posts on Savings
Investing in Stocks/ Shares South Africa
Investing in Savings Bonds
Exchange Traded Funds (ETFs) 

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