Category Archives: Finance

Tips to increase your wealth

I am regularly asked for advice by younger people looking for a sure-fire way to build their wealth. They are often surprised when I tell them to invest more time and money in themselves and their human capital. Historically, people who do this are likely to create significantly more wealth over their lifetime than those who don’t. It is obvious that you need to accumulate investment assets but you also need to ensure that you earn income at an increasing rate over your career. The best way to do this is by investing in yourself.

What is human capital?

Human capital is the combination of skills, knowledge and abilities you have that will enable you to generate income over your working life. Nearly all of us have an ability to generate some income but very few people consistently invest in themselves so that they can increase their earning potential over time. According to the Federal Reserve of San Francisco, university graduates generate R16 million more income over their careers than non-graduates. This might give some context to the #feesmustfall campaign in South Africa.

If you choose to invest in yourself, you need to ensure that your skills and knowledge remain relevant and adaptable to changing economic conditions and an evolving business environment. You should regularly review whether you need to add to your skills or knowledge-base. Additionally, you need to be honest enough with yourself to be able to decide if you need to change careers if you are in a dead-end street. For instance, I would not consider newspaper printing as a long-term career option!

Specialise but not too much

Some careers reward those who specialise but one should always be careful of becoming too narrowly focused in your career. For example, deciding on an academic career researching the mating habits of albino penguins in the Southern Cape might not ensure a long-term income. However there might be less risk in being the orthopaedic surgeon who specialises in surgery of the shoulder in South Africa. Many young people strive to be a manager in a large corporate. This might be the most risky career choice one can make. Managers are essentially generalists and are often the first people to be fired in a merger or downsizing. If you plan to work in a corporate, you might do better focusing on being a revenue generator or product specialist.

Not only for academics

If you are not academically inclined or you have no interest in tech, you could always consider specialising in old world industries. There is a massive shortage of plumbers, electricians and general handymen. Now that more people work in services industries, there are many fewer people who can work with their hands. This provides an ideal opportunity for reskilling yourself if you have the inclination.

Easy ways to save more money

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

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

Here are four simple ideas to curtail your Christmas budget:

  1. Make your own crackers

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

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

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

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

  1. Make your own gifts

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

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

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

  1. Order your drinks online

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

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

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

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

The gift procedure that you need to know

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

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

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

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

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

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

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

Private versus public pay on finance

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

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

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

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

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

Teach for Children Financial

Many parents find it very difficult to talk to their children about money. Either the topic is seen as too sensitive or they just feel that they don’t know enough to give good advice.

However, the worst lesson that any parent could ever give a child about money is not talking about it. Children learn the most from the example that they are set, and that is why it is so important to show that money is not something to be scared of or anxious about it. It is something that should be made to work for you.

This is why it is best to expose children to the idea of saving sooner rather than later. From a young age they should see that they can have control over their money.

Here are three easy ways to get them thinking the right way about saving:

Give presents that mean something

Of course children love toys and having something to play with, but not every present they receive has to give them instant gratification. Putting money in a unit trust or stock broking account might not sound like the most exciting gift in the world, but it can be very rewarding.

For a start, it gives them some sense of having their own savings and some money of their own to look after. Over time, it’s also the best way to teach them about different savings products, asset classes, and things like interest and dividends, as they can see for themselves how they work.

A low-cost online stock broking account could even allow them to make their own decisions about what stocks to invest in. At an early age their decisions are not likely to be influenced by rigorous analysis, but they can still invest in companies that they know something about.

For instance, if they like eating at Spur, why not show them that they can actually buy a part of that company? Or if you always do your shopping at Pick n Pay, let them buy the stock. Over time, the likelihood is that their interest will grow in how these businesses work, how they generate earnings, and what being a shareholder means. This will eventually lead them to making more informed decisions about their investments.

Involve them in their own savings

If you are saving for your child’s education, are they aware of it? Do they know that you are putting away money every month, where it is going, and what it is for?

Explaining to your children that you are saving for their future allows for you to have a discussion around why it’s important to do this and how it works. Not only will this give them some sense that they can’t just take things for granted, but it also gets them thinking about the importance of financial planning.