My budget speech

As far as experiences go, most humans consider the task of preparing a budget as slightly more enjoyable than root canal and not quite as riveting as standing in the queue at a Clicks pharmacy. Tomes of evidence exists to prove that people who run monthly budgets are more in control of their futures, spend less recklessly, succumb to impulse shopping less often, are less likely to be duped by advertising campaigns, generally have emergency funds in place, have less debt and are more positive about their futures than people who don’t. And yet, despite the mass of evidence in support of the humble, but ever-so-powerful budget, we avoid it like a mall at month-end.

With consumers the world over seemingly in the grim grips of austerity, the mere mention of the word ‘budget’ only serves as an unwelcome reminder of their fiscal realities. The word ‘budget’ seems to imply something less – less freedom, less fun, less quality, less happiness and a lesser lifestyle. Many of us equate the word ‘budget’ with the inevitable tightening of the belt, restricting of spending, down-scaling, doing without luxuries and somehow living a poorer quality of life. Preparing a budget should be the punishment of the reckless spender, the innumerate masses or the unrehabilitated shop-a-holic, not so? Being forced into a position of succumbing to the agonising task of preparing a budget means one has somehow reached financial rock-bottom with the noose of debt tightly wound around one’s neck, and the only glimmer of light at the end of the fearfully long fiscal tunnel is the down-right demeaning task of preparing a budget.

Countries, governments, companies, trusts, schools, charities and churches the world over run and operate perfectly respectable budgets, but it appears that the lesser favoured personal budget doesn’t receive the same deference. Whilst some may blame it on an aversion to numbers, it seems more likely that the real reason we avoid drawing up our personal budgets is because, well, it’s personal. It’s about our lives, our children, our partners, our lifestyles, our choices and our futures. Budget aversion is less about the fear of facing financial reality and more about emotional trepidation at the possibility of having to make life-altering decisions having had the bottom line bared.

While many may prefer to claim ignorance over their monthly spending habits, immunity from the consequences is unlikely. And though ignorance may be bliss for some, the euphoria is generally short-lived. Despite the recklessness of not knowing what you’re spending your money on, the sad reality is that ignorance robs you of knowledge, and lack of knowledge is the thief of power. Simply put, ignorance makes short work of making sure you have absolutely no control over your financial future. The starting point of budget preparation is to accept that, as a financial tool, it is the supreme enabler of personal financial power. In many instances, preparing a budget forces couples to confront issues in their relationship that are causing stress, anxiety and marital tension. Although money itself has no power per se, it can be used within a relationship in such a way that it leads to mistrust, dishonesty, selfishness and in many instances, divorce. After the physical survival of the family unit, its emotional survival depends largely on financial stability and tranquility within the home, with the starting point being the family’s budget.

A budget is an under-rated, under-utilised, highly effective and incredibly powerful tool that can be used to more clearly map one’s financial future. A budget forms the basis for making informed decisions, taking firm control of one’s finances and securing a family unit’s well-being. Far from being a necessary evil that restricts and inhibits one’s lifestyle, a budget is an essential good that has the power to set one free financially. Let’s use it.

Have a super weekend!

Sue

The Budget is this week’s hot topic!

Money makes a mean master

Ask most people out there if money is their master and you’ll undoubtedly receive an emphatic and resounding ‘no’ in response. Granted, there may be a few people who’ll unashamedly disclose that money is their god and the main pursuit of their life, but rarely will anyone freely acknowledge that money is their master – not least because the horror of this realisation lies not in accepting that money is your master, but in finding out that you are in fact its servant. Understanding your relationship with money and the role that it plays in your life – whether as master, servant, god or mere commodity – is pivotal to your underlying personal happiness and fulfillment. And if you’re unknowingly serving the deceptive task-master and time-thief called money, personal happiness and fulfillment may be very, very far from your reach.

A mere commodity of trade and a lifeless inanimate object, money is undoubtedly the master of deception. Although in and of itself it has no power, it is the most important commodity in our lives and is something that we quite simply cannot survive without. Money has become a synthetic symbol of status in a world that unashamedly worships wealth. The seriously wealthy are pervaded by an almost ethereal quality that somehow suggests to the world that they can magically obtain and experience what is seemingly impossible to us lesser mortals. Money instills in them a counterfeit sense of confidence, courage, credibility and capability that wouldn’t exist but for their impressive bank balances. Rather than publicly applaud and acknowledge the genuinely good works of men and women, we’ve stooped to measuring where individuals lie on the ludicrous ladder of money. Populating a rung on the Forbes’ list of wealthiest men and women in the world is considered a sign of true success, a measure of happiness and a symbol of almost certain personal fulfillment.

Money, as the deceiver, can lead us to believe it has power to create a plethora of virtues that some humans spend a lifetime searching for – personal contentment, internal satisfaction, genuine happiness and a purpose for life being just some of them. The reality, though, is that money remains a mere commodity to be traded for goods and services, and the moment we allow money to assume any purpose over and above this, we exalt it to the position of master and we become its unwitting hand-servant.

Stuck in the ever-turning economic wheel of survival, it’s easy to understand how so many people become lured into a master-servant relationship with money without realising it at all. Living in a world where we are constantly implored to buy bigger houses, faster cars, smaller computers, wider televisions, smarter phones, more exciting games, sexier clothes and more exotic food, it’s no wonder that money has become the common denominator for most people’s perceived happiness. The problem, though, is that material possessions only provide fleeting moments of not-so-real happiness that are soon usurped by financial worries that far outweigh whatever happiness your money ostensibly created in the first place. And if you’re worried about money, consider that worry is a very real symptom of misplaced trust. Have you entrusted your happiness to your money? Are your decisions being controlled by money? Can you be bought? Is money your master?

Entrusting money with our happiness is easier and more common than one would believe. In our pursuit for more, we have no choice but to work harder, smarter and longer. The more we work, the more money we earn. Earning more money allows us to acquire more. Acquiring more assets to put on proud display improves our perceived status in society as we vie for a place on our neighbourhood’s very own unofficial Forbes list. And so the cycle of ‘work, earn and spend’ continues to the detriment of our personal health, our relationships and our pursuit of lasting and genuine happiness. The problem with the ‘work, earn and spend’ cycle is that it encourages us to trade a priceless and irreplaceable commodity (our time) for a lifeless and completely replaceable one (our money). In doing so, we put a monetary value on our time and allow money to rule over our precious hours. As Shepard Fairey once said, “A dollar is worth exactly what you are willing to give in order to get it.”

Whilst one can never underestimate the value and nobility of hard work, earning a good income, providing for one’s family and obtaining personal fulfillment from ones chosen career, we need to accept that the real value of money lies in its versatile utility and the power within each of us to use it for good. As necessary traders in the economy of money, we would do well to believe that the only successful relationship we can have with money is that of confident and qualified master over it. Assuming the role of master in the human-money relationship automatically subjects money to the role of obedient and faithful servant willing to do our bidding and achieve our God-given purposes. Any relationship with money that purports to be anything less than this is robbing us of our most precious earthly gift– time.

In the beautiful words of an anonymous wordsmith, “What you do today is important because you’re trading a day of your life for it”. Make sure you are the master of whatever it is you’re trading.

Stay blessed.

Sue

Be the master of your relationship with money

In too deep

Of all the mathematical equations we’re faced with daily as financial planners, there’s none quite as simple as this: to be debt-free you need to spend less than you earn. Coupled with the widely accepted axiom that money can’t buy happiness, the extent to which South Africans are debt-burdened is both quietly alarming and undeniably tragic. The fact that debt has become a deeply embedded part of our culture is testament to its inextricable link to our hopes, dreams, sense of security and self-worth. In fact, it’s probably safe to say that the nexus between one’s financial situation and self-esteem is a better indicator of credit risk than anything else.

The profile of the average debt-burdened South African goes way beyond the obvious. Over and above younger new recruits and lower income earners, it’s worth noting that people who have indebted friends are more likely to ring up their own significant share of debt. Although debt is unarguably an unpleasant place to be, the illogical power of the herd mentality seemingly anoints debt with more than a dollop of acceptance. It’s for no small reason that the trappings of debt are commonly referred to as a cycle. As consumers we’ve been shamelessly seduced into believing that money can buy us everything from hope to handbags to happiness. The truth is that when we spend on credit, we are mock-purchasing our dreams on someone else’s money – and when the time (all-too-quickly) comes to pay the creditors, our dreams rapidly reduce to fiscal nightmares as we enter the dark pit of debt. Cue the age-old love-hate relationship that so many of us have with money.

The most significant step towards transforming ones financial position is to alter one’s relationship with money. Whilst money on the one hand might be considered entirely practical, it appears that spending is pure emotion. A task as simple as purchasing a birthday present for a friend can give rise to a plethora of human emotions including greed, guilt, fear and shame, not least because society may determine that the value of the gift is an indication of how much you value the friendship.

One of the most common emotional pitfalls by debt-laden consumers is that of rationalising one’s purchases – engaging a deep-set belief that one is worthy of being indulgent because one works hard for their money. Rationalised purchases balance precariously on the ‘I deserve this’ premise, but invariably reveal the irrational truth when payment time arrives. Hard-pressed to pay outstanding bills, the consumer is forced to cut back on luxuries, become thrifty and apply all methods of cost-saving. Enter next month’s pay cheque and the consumer, indignant from weeks of untopped Salti-crax, feels the urge to splurge as an overdue reward for enforced austerity.

Unlike the spender who rationalises his purchases, the optimistic spender holds an illogical belief that tomorrow will bring a cure for today’s financial woes. Their consumption is notoriously uncalculated and impromptu as they shop up a storm with a false sense of reality. Reading the small-print, opening bills and checking bank statements are anathema in the world of the eternal ‘shoptimist’ who almost endearingly believes that he’ll win the lottery, be awarded a bonus or be head-hunted for a sought-after position long before credit crunch-time arrives.

Perhaps the saddest, and most common, of the emotional financial trappings is when money is equated to happiness. Far from being a meaningless adage, ‘retail therapy’ really is considered a form (albeit ineffective) of purging for some consumers. Psychological research shows that people are more likely to engage in impulse spending when experiencing emotional emptiness or low self-esteem. Material purchases become poor and unsustainable substitutes for power, happiness, fulfillment and personal satisfaction. Whilst money per se has no power, debt has even less and serves only to unsuccessfully mask the personal shortcomings of the spender.

And yet, psychologists believe that the most powerful underlying cause of debt is something that they refer to as the locus (location) of control. Those who attribute their own success or failure to external factors such as luck, fate, karma or the universe are more likely to find themselves deep in debt. People who rely on external control factors are unable to accept that their debt situation is a direct result of their actions, choices and decisions. Continually at the mercy of external control factors, these consumers consider themselves to be undeserving victims of circumstance and spend their lives trawling through debt, waiting for somebody else to fix the problem.

On the other hand, people with an internal locus of control understand the very basics of responsibility – that for everything they buy there is an opportunity cost that may affect something else they may want in the future. They have an innate acceptance that financial freedom is something which lies solely within their personal control. They understand that, quite simply, debt is not something that happens to you, but rather a precarious financial situation that most consumers enter into consensually. Taking control of one’s debt is as simple as claiming ownership of the problem and as complicated as you’ll allow your debt reduction plan to be.

Taking control of our emotionally driven behaviour, recalibrating our attitude towards money and accepting personal responsibility for our financial positions will grant us final passage into the world of financial freedom. I’ll end with the entirely relevant words of Albert Ellis who suggests that, “The best years of your life are the ones in which you decide your problems are your own. You do not blame them on your mother, the ecology, or the president. You realise that you control your own destiny.”

Have a blessed day!

Sue

The colour of money

The colour green is broadly speaking synonymous with spring-time, young saplings, eco-friendly products, fresh beginnings and the renewal of hope. It signifies the wood element and connotes growth and vitality. It’s the colour of garnets and emeralds, of dense forests, moist young branches and thick damp moss. For the people of China, the much-loved colour green is the hue of their precious jade stone, while for the average consumer in the Western world, we’d be forgiven for assuming that green is the colour of money. Market research, however, indicates that money abounds in all colours and shades of the rainbow and that, as consumers, our reactions and responses to colours significantly influence our purchasing behaviour. Retail customer responses to colour have become high-science in the study of consumer behaviour, as market researchers establish powerful links between the use of colour and the manner in which we make purchasing decisions.

While market researchers have always known that our brains are hot-wired to respond to colour, the extent to which colour influences the way we shop is still being studied and gauged. If we accept the premise that 80% of information reaches our brains via our eyes, it goes without saying that colour helps us to make sense of our surroundings. We’ve long known that cooler colours such as shades of green and blue evoke a sense of peace and calmness, which is why they’re often used in hospital wards and theatres. Blue is also used by large corporates and banks in the wake of evidence that people are more productive in blue rooms.

Hospitals often use blue to calm and relax patients, while big corporates know that blue promotes productivity. When it comes to food, blue is an appetite suppressant.

More in-depth studies involving the use of colour and light have led researchers to the conclusion that colour in the retail environment is far more complex and powerful than we ever imagined. The artificial environments of large retail stores – which generally include bright lights, straight lines and synthetic materials – can cause consumers to feel confused and vulnerable. To counter the stress effects of these harsh environments, retailers have begun using clever combinations of light and colour to create a sense of coherence. For instance, research has shown that when clothing shops used energy-efficient lighting their sales plummeted because the lighting wasn’t strong enough and the clothes appeared a different colour. On the other hand, research is clear that female shoppers prefer a dimly lit lingerie department as they feel more comfortable handling underwear in a darker environment.

Walk into any food retailer and you’ll discover the dominant use of the colours brown, red and green. Why? Because when humans search for food, they learn to avoid toxic colours such as black, blue and purple. Clothing retailers have discovered that while younger generations prefer the energy of bold colours, older people tend to prefer more subtle, refined colour palettes. Fast-food restaurants harness the power of vivid oranges and reds – bold colours that encourage us to eat quickly and leave. And while the colour blue can cause appetite loss, it’s been established that red is an appetite stimulant. More luxurious restaurants use gentler colours that appear more sophisticated and allow us to linger longer.

Fast-food restaurants use red because it stimulates appetite and encourages people to eat quickly and leave.

Green, red and brown are the three favourite colours used to promote food.

Being a bright and vibrant colour, red is able to stimulate shoppers to make bold decisions in the moment. It denotes passion and speed, and is often used by retailers to make an impact. In fact, we now know that the colour red activates the pituitary gland and, as a result, is used by bars and strip clubs to entice people to drink more. Interestingly, red is also an aggressive colour and too much red can cause an increased metabolism and raised blood pressure – which is why red is cleverly used as an accent colour rather than the dominant colour on sale and bargain boards.

Red and orange are used as bold accent colours to promote sales,discounts and bargains.

Conversely, yellow has proven to be the least effective colour to use in a retail stores. Physiologically, yellow is a difficult colour for the human eye to take in and, as a result, can cause fatigue and agitation. The results of numerous psychological studies indicate that people lose their tempers quicker and babies cry more often in yellow rooms. Because yellow is such a difficult colour for the eye to see, it makes it the perfect colour on which to place black text, hence the use of yellow for “caution” signs, crime scene tape and the lowly but oh-so-effective Post-It note.

Yellow is not easily processed by the human eye and is therefore a good background colour for black text.

Although purple is avoided when it comes to food retailing, as the colour of royalty and vast wealth it’s often used to denote luxury when selling lingerie, vehicles and jewellery. It’s the colour of class and sophistication, and is the preferred colour of beauty products and anti-aging serums. It’s close cousin, pink, is a happy, romantic and light-hearted colour and is used ad nauseum to advertise feminine products such as perfumes, lingerie and beauty creams. Fascinatingly, it’s been proven that pink can drain energy, and sports clubs have been known to paint visitors’ locker rooms pink in an attempt to sap the energy of their opponents.

Pink is the epitomy of all that is feminine and is regularly used to advertise lingerie, perfumes and beauty products.

Black is considered sexy, sleek and powerful, and is a favourite colour of electronic stores, high-tech retailers and fast car companies. Naturally, colour trends change over time and have subtle variants throughout the world. Whilst white is considered the absence of colour and a symbol of purity in the Western world, it also happens to be the colour of death in China. Similarly, whereas green has historically been used by retailers to denote products which are fat-free, it’s use has now changed to signify organic produce instead. With the massive international move towards organic, the colour green has become somewhat indomitable. Retailers know that it’s the easiest colour for the human eye to process and that it makes customers relax.

Black denotes all that is sleek, sexy and hi-tech!

The science of combining colour and light to increase the persuasiveness of retailers is massively complicated. Although consumer behaviourial specialists have only begun to understand the magnitude of colour’s influence in the retail environment, they know that every hue in the light spectrum can most certainly influence our purchasing decisions in the moment. As intelligent consumers, we’d do well to acknowledge the powerful use of colour within the retail sector and that, contrary to popular opinion, money is not limited to the colour green.

Retire like never before

We certainly do live in interesting times and, as financial planners, this period in the world of investing is being made increasingly interesting by the retirement renaissance that is unfolding before our very eyes. The largest generation in the history of the world is balanced on the precipice of their golden years and is set to redesign the world’s understanding of retirement. Although much uncertainty surrounds the entrance of the Baby Boomer generation into the world of retirementville, there are two certainties you can take to the bank – this generation is going to live longer than any other generation the world has ever seen, and they’re going to unquestionably retire like never before.

Researching the tomes of history enables much light-shedding when it comes to appreciating the full extent of current events, so let’s examine the past for a moment. If you are currently 65 years of age, in 1800 you would have been dead 27 years ago – at the ripe old age of 38. In 1900 you would have been dead 12 years ago having spent all of 53 years on planet earth. If you were born in 1940, the average life expectancy was 66 years, generously allowing you forty years to fund for your one retirement year – a feat that even the least experienced investor could probably manage. Looking at these numbers, it’s not difficult to appreciate why retirement planning is still such a relatively new concept in the world today!

Moving swiftly forward to our more current longevity reality, if you were 65 in the year 2000 you had between 12 and 15 years of retirement to fund for. If you are 65 this year, you have a 25% chance of living to the age of 97. That’s another impressive 32 years of retirement still to enjoy (and pay for). Children born in 2011 will have a 30% chance of living to 100, allowing them approximately 40 years of work to fund for 35 golden years.

So, you may ask, if we know all these interesting facts, what’s the problem? Other than the fact that retirees are now outliving their retirement funds the reality is that most people – despite the evidence – are still not funding for their retirement years. And, as shown above, your retirement years could be very, very long indeed. Having counselled and advised many people through their working careers and into retirement, we’ve determined that there are a number of key factors that prevent individuals from being adequately funded for their retirement. Here’s what we’ve found to be the five main factors preventing individuals from ensuring their golden years are indeed golden:

1. Not having a game plan: Despite what certain self-proclaimed investment guru’s claim, funding for your retirement is not rocket-science. The single greatest factor preventing individuals from funding for retirement is not having a game plan. It’s a bit like the advice dispensed to Alice by the ever-wise Cheshire cat – if you don’t know where you going to then any road will do. Sit down with your financial planner, paint your retirement picture, put a financial plan in place to achieve those dreams and then revisit your plan every year to make sure you’re still on track.
2. Making bad financial decisions: Once you’ve got a retirement plan in place, the key is having the strength of character to adhere to it – religiously. A significant contributor to the demise of many retirement plans is the interference of human emotion, specifically greed and fear. Learning to make investment decisions based on sound financial advice as opposed to using your emotions as a financial compass is an art. Find a financial planner that you trust implicitly and make sure you make all financial decisions together. (On this topic, you may want to look out for next week’s blog on how emotions can influence investor behaviour entitled “Clients behaving badly”.
3. Under-estimating longevity: As a general rule in our business, we over-estimate longevity expectations rather than under-estimate them. Whilst it’s true that no one knows how long they’re going to live, there’s one thing we do know for sure – longevity is increasing and not decreasing – so let’s build in some extra funding to provide for the longevity trends. Many well-thought out and carefully adhered to financial plans have failed dismally for the single reason that the longevity assumptions were wrong.
4. Retiring too early: Our entire working lives we’ve been brainwashed into accepting that we need to retire at age 65, and yet nothing could be further from the truth. Yes, it’s the legislated age in terms of pension funds and retirement annuities, but as individuals we need to seriously reassess whether this is truly the age we intend to cease generating an income. Whilst we may want to cease formal employment at this age, there is an abundance of ways to ensure that one can continue generating an income well after the age of 65. (Please look out for next week’s blog entitled “So you want to retyre”).
5. Over-spending: Finally, overspending in ones retirement years is a common problem and results in many retirees being rudely awakened to a vastly diminished bank balance and many years of living still to fund. Having a documented financial plan will ensure that you know exactly how much you can spend in retirement, how much your living expenses are set to increase year-on-year and how long your remaining funds will last.

Whilst we’re passionate about lifestyle financial planning, we also believe most emphatically in taking the mystery and complexity out of investing so that it becomes accessible and understandable to all South Africans. There’s no doubt that many individuals have avoided undertaking the financial planning process through a genuine fear of the unknown and feelings of inadequacy when it comes to investing. The truth, however, is most succinctly summarised by investment guru, Warren Buffet, when he says: “To invest successfully over a lifetime doesn’t require a stratospheric IQ, unusual business insight or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework”.

If you don’t have a retirement plan, put one in place today to ensure that you can retire like never before.

Have a blessed Easter weekend!

Warm regards

Sue

To have a sound financial plan, you don't need to be an investment genius. You just need a financial plan.

Are you the Minister of Home Affairs?

Whilst economic times have necessitated the rise of the double-income family, there are still millions of mothers out there who choose – for a number of varying reasons – to be stay-at-home mothers. However, having fought alongside their gainfully employed sisters for the right to freedom of choice, it saddens me that so many working mothers look down on their happily unemployed counterparts as though they are doing a job that is somehow beneath that which they were destined for. As much as we chortle over the creative titles of ‘domestic goddess’, ‘home executive’ and ‘CEO of the home’, the reality is that the role of the stay-at-home mother – which can have rich emotional and financial benefits for the family – is no less demanding, important, taxing or fulfilling than any other paying job available to us women.

Granted, the role of the stay-at-home mother has changed significantly over the course of time and is somewhat different today from the image of the dutiful, apron-clad housewife from the 1950s. Today’s stay-at-home mother enjoys a diversity of functions that, if analysed, cover the various functions (and more) required to manage a small, successful business. If we consider that the stay-at-home mother is indeed a Minister of Home Affairs, let’s have a look at some the functions found within her portfolio:

1. Catering: The stay-at-home mother is generally responsible for providing the meals for her spouse, their offspring and any domestic workers employed by the home. The function includes effective meal planning (whilst taking into account budget constraints), grocery shopping, meal preparation, preparation of school lunches, stock-taking, stock control, catering for entertainment purposes and general management of the kitchen.
2. Human Resources: As the person hiring and firing the staff employed by the home, the stay-at-home mother fulfils a vital HR function. Generally speaking, she is responsible for ensuring that a suitable domestic worker is employed to assist with household cleaning and chores. She is responsible for ensuring that a contract of employment is in place, that wages are agreed upon, that a job description exists, that duties are performed according to a pre-determined standard and that wages are paid timeously. These services would obviously extend to any garden or maintenance staff employed.
3. Operations: We are particularly blessed to have our office building and our home right next door to each other. While this is exceptionally convenient, having two buildings on one large property has made us acutely aware of just how much operational maintenance is required in terms of building and garden upkeep. Leaking taps, blocked toilets, broken irrigation pipes, burnt out pool pumps, broken windows, faulty toasters and lawn mowers that won’t start – the list is depressingly endless, and tending to the operational upkeep can be particularly time-consuming, not least because it requires that many functions are outsourced to external experts. The stay-at-home mother is responsible for liaising with external service providers, negotiating prices, monitoring service delivery and arrangement for timeous payment.
4. Secretarial: If nothing else, a must-have qualification for any stay-at-home mother is a set of seriously exceptional secretarial skills which, when added to her innate ability to multi-task beyond what many would deem humanly impossible, gives new meaning to effective diary management. Juggling personal appointments and commitments, as well as a plethora of school and sporting extra-murals, matches, tournaments, practice sessions and doctor appointments – the stay-at-home mother must be able to arrange nothing short of an effective military operation with nothing but a cell phone, a home computer and a family sedan.
5. Logistics and travel: In terms of transporting precious cargo, any parent will appreciate that there’s nothing quite as stressful as driving with young children in the car. The stay-at-home mother is responsible for arranging the transport (sometimes outsourced to friends and family out of sheer necessity) of the kids with meticulous precision to ensure that everyone is dropped off and collected at exactly the right place, at exactly the right time, with the correct uniform and requisite accessories and the exact amount of money required.
6. Corporate Social Investment: As with any business, there’s a necessary component of giving back to the broader community which stay-at-home mothers tend to embrace with open and loving arms. Most stay-at-home mothers that I know give selflessly of their time, energy and skills to an array of worthy causes including school committees, Church groups, charities, community organisations and upliftment initiatives – many quietly getting on with their humanitarian work without flashing lights, bill boards and glossy flyers advertising just how caring they are.
7. Psychology: It goes without saying that the role of the stay-at-home mother can be an emotionally taxing one as she plays psychologist-in-chief, agony aunt and main-shoulder-to-cry on to her children, their friends, her husband and most likely her circle of friends as well. Stay-at-home mother or not, the emotions involved in parenting a child are indescribably huge (and rewarding), and require an enormous amount of time, energy, empathy and saint-like listening skills.
8. Medical: Depending on the medical health of the children, taking care of the family’s medical needs can be financially challenging, emotionally tiresome and incredibly time-consuming. Mothers of children who experience learning disabilities or disorders, or who have more complicated medical problems, can spend enormous amounts of time during the day consulting with doctors and specialists, taking the children for tests and assessments, collecting and dispensing medication and researching alternative treatment for the child. If they have more than one child, it goes without saying that they still need to juggle and attend to the demands of their other children.
9. After-hours services: Having three children of my own, I know how challenging weekday evenings can be when trying to vacillate between a spear-diving oral, a project on the lunar system, a mental maths worksheet, turning the chicken breasts, signing homework diaries and wrenching the baby rabbit from the jaws of the Labrador. Not only has the saying ‘a mother’s work is never done’ been made meaningless by its mindless repetition, the value of recognising that a mother’s role involves a considerable amount of work has been entirely overlooked – regardless of whether she chooses to stay at home or not.
10. Finance: Having provided financial planning advice to many couples, our experience shows that the stay-at-home mother tends to take responsibility for the household and family finances. Being in a position to control the daily in-flows and out-flows in terms of money, the stay-at-home is generally adept at managing money matters which includes paying medical aid premiums, submitting claims, managing personal and household insurance, managing the family bank accounts, paying accounts, managing debt and overdrafts, as well as effective budgeting. Taking care of the day-to-day management of the family finances is a significant role and can great affect the family’s financial future if not performed effectively.

I have a strong sense that society needs to reflect on the vital role that stay-at-home mothers play – not only in the home but in the broader economy. Mothers, as an economy, have enormous buying power with statistics showing that they make the majority of purchasing decisions regarding family vehicles, children’s education, family vacations, household appliances, clothing, food and entertainment destinations. Stay-at-home mothers don’t receive a pay cheque in return for services – a veritable impossibility given the priceless nature of their job. Regardless of employment status or earning potential, let’s celebrate the role of the stay-at-home mother as an integral part of our communities, our country and our economy.

Have a blessed day!

Sue

P.S. While putting this article together, I had a few chuckles with some ‘stay-at-home-mom’ friends of mine who shared some frustrations about their ‘jobs’. It ended up with me putting together this tongue-in-cheek collage of what various people think ‘stay-at-home’mothers’ actually do. Enjoy!

The stay-at-home mother may not receive financial rewards, but the emotional rewards are priceless!

Fair trade

Having done my obligatory time in the corporate labyrinth, it’s easy to look back on the pile of fallen ladders and chipped glass ceilings with a heart of thanks for having escaped the madness otherwise known as the rat race. As some wise soul once said, even if you win the rat race, you’re still a rat. And what a filthy animal a rat can be. There can be nothing more soul destroying than being trapped in a job that makes you desperately unhappy. Having been there myself, I know first hand the agony of going to work in order to ‘make a living’ rather than ‘make a life’. I believe so strongly that God put us on this earth that we may have enjoy an abundant life, and a job that strips us of our happiness is essentially robbing us of our right to a fulfilling work life.

One of the most thought-provoking statements ever uttered was made by the Dalai Lama when he was asked what surprised him most about humanity. His answer was this: “Man. Because he sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived.” And herewith lies the question that I believe every working person should ask themselves: What, exactly, are you prepared to trade for money?

To elaborate on this point, let’s consider a scenario. You’re coming home after a day in the office and pull up in your driveway. As you’re getting out of your car, a hijacker points a gun at you and asks you for your wallet and your car keys with a threat that he’ll kill you if you don’t hand them over. What would you do? Every person I know would avoid eye contact, hand over his wallet and car keys, and allow the hijacker to drive off with their money and their car. Why? Because you value your life more than your money and your car, not so? In a crisis situation, our human instinct (fight or flight) takes over and our most basic need for human survival becomes insurmountable. The value of our material possessions becomes completely insignificant and mere survival, albeit sans any material possessions at all, would be better than not living.

The sad reality, however, is that this natural human instinct to value life above all else becomes hopelessly lost in the world of consumerism. We’ve been turned into overly-discerning, demanding and difficult-to-please consumers by our economic system (powered by the mass marketing media), and we are now products of greed itself. We’ve allowed ourselves to become the ‘created consumer’, and we believe it is both our right and our duty to consume, spend and desire more. The real problem, however, is not the consumerism nor the greed. The real problem lies in what we’ve grown accustomed to trading in exchange for our life.

Much has been written and published about the concept of financial independence and what it means to be financially free. As lifestyle financial planners, one of our fundamental principles is to help our clients create a great life and not a good living. We firmly believe that to be financially free one needs to accept that money is just a means to an end, and is not the end itself. If one of your goals is to make as much money as possible, then it’s most probable that lifestyle financial planning is not the appropriate style of advice for you. You’re likely to be more thrilled by picking stocks and timing markets. The calibre of financial independence we ascribe to is under-pinned by a number of key principles:

1. Decide how much is enough: In my previous blog entitled ‘How much is enough?‘ I elaborated on this question in detail. Being able to answer this question depends largely on whether you’ve accepted the truth that money cannot and will not make you happy. Not ever. Once you’ve decided what’s really important, the process of calculating how much money you need to live on becomes so much simpler. If your greatest desire is merely to make as much money as possible, the question ‘How much is enough?‘ becomes both redundant and irrelevant, because no amount of money will ever be sufficient to satisfy your insatiable appetite for material wealth.
2. Be responsible with your money: Once you know how much is enough for you and loved ones, consider how you can employ your money for to uplift the world around you. I’ve always loved the words that Bill Gates’s mother spoke to Melinda Gates before she died, giving birth to the Gates Foundation legacy “From those to whom much has been given, much is expected“. Whilst many ascribe these words to Mrs Gates, the words were in fact recorded in the Parable of the Faithful Servant in Luke Chapter 12, Verse 48: “From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.” Regardless of your religious persuasion, we are citizens of a world wherein there is much suffering, illness and poverty.  If we (a) know how much is enough, (b) believe that all human life is equally valuable, and (c) accept that money can be used for enormous good, then the truth is we’ve all got important work to do.
3. Practice fair trade: This is one of the oldest principles in the world of economics, and yet so many of us fail to apply to it to the most valuable asset of all – our life! This principle brings me full-circle to the critical opening question posed above – what, exactly, are you prepared to trade for money? And is it a fair trade? Let’s rephrase this question slightly. How much of the abundant life God has planned for you are you sacrificing in exchange for your salary and the material wealth it can buy you? And is it worth it? Many people are trapped in jobs that they, quite literally, detest while working excessive hours, sacrificing time with their children, missing out on their kids’ sports and extra-murals, travelling for business, spending a fortune on baby-sitters, tutors and au pairs, in exchange for what they perceive to be fantastic salaries. And yet they know that no amount of money can buy the delight on their son’s face when he scores his first goal or wins his first match because, quite simply, it’s priceless.

Knowing and accepting what you’re trading in exchange for your material wealth is a significant step towards attaining financial freedom. Financial freedom is not about having enough money that you never have to work again. True financial freedom is about working so that you can create a great and abundant life for you and your loved ones. This step can involve deep personal questioning and the ability to face the truth about what’s really valuable to you. Make sure that what you’re prepared to trade is a fair exchange. And don’t ever, ever trade the priceless stuff.

Stay blessed!

Sue

My husband, Craig, coaching the kids' waterpolo team with his friend, Ralph. Priceless stuff!

Break the spend trend

If you keep doing what you’ve always done, you’ll keep getting what you’ve always got. If you apply this saying to the way in which you manage your money, the equation reads something like this: if you keep spending the way you’ve always spent you’ll keep getting what you’ve always got – which is probably precious little disposable income, a whole lot of debt and zero retirement funding. Having focused on budgeting and consumer behaviour in my previous blogs, you’ll appreciate that many of our money problems are direct results of our own behaviour and attitudes towards money rather than the fact that we don’t earn enough money.

When it comes to consumer behaviour, another interesting phenomena is how habit-forming our spending behaviour can be – to the point where, even though we go through our budget with the finest of tooth combs, we are unable to recognise unnecessary or excessive expenditure. As financial planners we’re often asked by clients to assist them reduce their expenditure, and it’s something that we gladly do. With years of experience in fine-tuning budgets, here are our top tips on cutting back costs that have often crept into the monthly budget through force of habit.

1. Home entertainment: Whilst everyone enjoys going out to a restaurant for a meal once in a while, the cost of eating out has reached a point of almost being financially unjustifiable (let alone unaffordable!). A bottle of wine that costs R60 at your local supermarket will cost you about double that at a restaurant. A 300g steak is nothing less than R100, coffee arrives at R15 a cup and before you know it, a meal for two people can easily cost R500 including the tip. Entertaining at home is significantly more cost-effective, especially if you all club together and share a meal. We regularly have friends around for a meal where one friend brings the salad, the other brings a chicken dish, someone whips together a potato bake and everyone brings a bottle of wine. While R500 for a meal doesn’t sound like much, if you’re eating out once a week, you’re spending R24 000 per year on dining out.
2. Reassess your bond insurance: A common misperception in this country is that home owners are obliged to purchase their home loan insurance through their financial institution. This is absolutely not the case. Whilst your bank can insist that you have home loan insurance in place, you are free to purchase your insurance through a provider of your choice. If you’ve purchased your home loan insurance through your bank, there’s a strong likelihood that you’re paying excessive premiums. Also, as your home loan reduces, make sure that your life cover reduces with it. Chances are you haven’t checked your home loan insurance in a while. Get your financial planner to run some quotes and get your monthly premiums reduced.
3. Accept the gift of a tax-break: South African tax legislation allows you to invest 15% of your pensionable income into a retirement funding tax-free. If you’re not investing for your retirement, you’re effecting compromising your future financial freedom and paying too much tax at the same time.
4. Quit it: A box of cigarettes costs around R25 for a pack of 20 cigarettes. If you smoke 20 cigarettes a day, it means you’re spending at least R750 per month supporting your deathly habit. That’s about R9 000 per year that you’re paying for the pleasure of having your lungs damaged, excluding the medical costs incurred treating your upper respiratory tract infections, allergies and other smoking-related illnesses. To put the cost of smoking into perspective, the cost of your smoking habit is equivalent to half the cost of one child’s education at a good Model C school . If both of you smoke, the cost of your habit is the equivalent of putting one child through school.
5. Box office: Reducing your expenditure often means changing your habits and undoing the psychology behind what allowed us to create the habit in the first place. If you order take-aways for lunch or buy ready-made lunches, you’ve probably developed the attitude that your life is too busy to prepare your own lunch or that you deserve the luxury of not having to make your own lunch. Another interesting purchasing phenomena is that we sometimes tend to close our eyes when making certain purchases. We also become insensitive to the relative cost of items. Retailers rely on this aspect of marketing, and trade on the fact that, over time, we’ll become numb to the excessive cost of basic items. Take the innocent ready-made sandwich for example. How is it possible that while we’re accustomed to paying R5.00 for a loaf of bread, we find it perfectly acceptable to pay R19.00 for a single sandwich which contains only 2 slices of bread and a few slices of over-processed cold meat. A ready-made sandwich and soft drink every day, and you’ve just blown R900 on ready-made lunches for the month. Now calculate the cost of purchasing your own bread and fillings, and taking your own sandwiches to work in a lunchbox. If you get creative and use left-over meat, chicken or salads, you will literally save yourself hundreds of Rand per month.
6. Pay it off: Yes, pay off your credit because it’s costing you a fortune in interest charges. But don’t cancel your credit card outright, because it’ll benefit you if you ever need to prove your good credit record.
7. The not-so-convenient store: I’m as guilty of this one as anyone else. Whilst these stores may be convenient for shopping, they’re entirely inconvenient from a financial perspective. Yes, they run regular specials on milk and bread, which are clever marketing tactics designed to make you feel justified stopping there in the first place. The problem is that the costs of their other goods are unjustifiably inflated. And once again we’ve become desensitised to the exorbitant costs. So you stop to pick up bread and milk, and leave having purchased the latest Car magazine, a cooldrink, a packet of chips and some chewing gum – all of which are severely over-priced comparison. Daily stops at your local convenience store can result in hidden expenses that eat away at your disposable income very rapidly.
8. Meal planning: I can personally attest to the value of this piece of advice. When life gets entirely frantic, I often fall into the trap of popping into the shops on a daily basis to buy something for supper simply because I haven’t taken the time to plan the week’s meals. I’ve had to really discipline myself to assess the week ahead and work out the meals for the week. I also take into account what I need for the kids’ school lunches and then I shop accordingly. I stock up on bread, rolls and milk and keep them frozen until they are needed. By doing this, I avoid having to pop into the shops for a ‘top-up’ shop during the week or having to visit the not-so-convenient shop.
9. Cancel your landline: This is something that we did about 7 years ago, and we’ve probably saved ourselves about R1 000 per month. We both have cell phones which we carry with us religiously and we eventually realised that the only person using our landline was our domestic! There’s no doubt that we’ve saved ourselves at least R12 000 per year by cancelling the landline.
10. Check your package: If you’re on a cell phone contract and have been for some time, you’ve probably grown into the habit of upgrading your phone every two years and never really assessed the type of contract that you’re on. New cell phone packages are being released all the time, and it’ll pay you to get a good cell phone assistant to assess your cell phone account and give you advice on the most appropriate, cost-effective package for you. A colleague of mine has just changed his cell phone package and is saving himself about R400 per month – a result of getting expert advice from an educated sales assistant.
11. Mad magazines: I used to throw magazines into my shopping trolley as a matter of pure habit. The new Marie-Claire, Fair Lady or Femina was regarded as an essential item – in the same league as soap and loo paper. The cost of magazines is another price pitch that we’ve become completely numb to. R25 (minimum) for a monthly magazine and R15 for a weekly one and it’s easy to see how your monthly magazine habit can easily cost you well over R100, if not much more (depending on what you read). If you’re anything like me, most magazines lie on the table next to my bed waiting to be ready for weeks on end. If you’re serious about a particular magazine, then rather subscribe to it.
12. You’re rewarded: While some people remain sceptical about the plethora of rewards programmes out there, and rightly so, there are some really good programmes out there that are well worth using. Programmes such as Discovery Vitality, Clicks Club, Pick ‘n Pay Smart Shopper and FNB’s e-bucks really do work. As a word of warning, though, make sure you don’t fall into the trap of forced spending to take advantage of some ‘special offer’.
13. Closed the clothing accounts: This is probably the most over-stated but least followed financial advice on earth, and yet it still fascinates us that so many people struggle with the noose of shop accounts. Excessive interest rates and compulsory monthly minimum payments are compounded by the fact that the retailers regularly (and often without your knowledge) increase your credit limit, leading you blindly into more debt, higher monthly repayments and a tighter noose of debt. Do yourself a favour – close all your clothing accounts (and any other retail accounts). Cash is king. If you don’t have the cash, you can’t afford it.
14. Bank online: Besides for decreasing your banking charges, you’ll also earn more points on the rewards programmes of your bank. Discipline yourself to do your banking on-line. Using autobanks is expensive, so limit your cash withdrawals and rather draw larger amounts less often.
15. The sale fail: Unless you know exactly what you’re looking for, shopping at a sale can result in you spending money on unnecessary goods that you didn’t even know you needed in the first place. Let’s be honest, most shop sales are stocked with out-sized garments and goods that nobody else wanted to buy. So why on earth would you want to buy the stuff? Just because the price of something is good in relation to its original price doesn’t mean you need it. Practice the art of discernment.
16. Pampered pets: For the price of some pet food you could cook your pooch free-range chicken and basmati rice for dinner every night. I’m being absolutely serious. Check on the costs of some of the top-end gourmet dog foods and you’ll realised that we’re being robbed blindly by pet-food companies trading on our over-developed desire to pamper our pets.
17. Click through the news: If you consider how much of a newspaper you actually read, you’ll know that it’s precious little. Most major newspapers are available on-line and you can be selective about the articles that you read for free.
18. Bottled beverages: South Africa has some of the highest quality tap water in the world, so there’s really no need to buy bottled water at a cost of about R20 per litre. That’s more expensive that the cost of petrol! If you’re want filtered water, buy a water filter and filter your own. And of you think you’re drinking some specially formulated magic mineral water, check the label. Most bottled water attests to being just that – bottled water.
19. No luck: If you’ve ready my previous blog, ‘So you want to win the lottery?’, you’ll know that your chances of winning the lottery are 1 in 14 million. Quite simply, stop buying lottery tickets and focus your time, money and energy on curtailing your expenditure and generating more income.
20. Satellite holiday: If you’re going away for an extended period of time, arrange with Multi-choice to cancel your DSTV for the period that you’re away. You will then only be charged pro-rata for the days that you used your DSTV, saving you a few hundred Rand.

In these economic times we are being challenged to be more cautious, clever and discerning with our money and our expenditure. I challenge you to give consideration not just to your spending, but to your spending habits. Identify those spending habits that are chewing your disposable income, attack your budget aggressively and strip out the expenses that are all but wasting your hard-earned cash. It might be a cliche, but it really is true to say that a penny saved is a penny earned. Keep earning those pennies!

Take care

Sue

Attack your budget aggressively!

Life for the non-earning wife

For many years, middle class South Africa has been plagued by hordes of over-zealous (and often poorly qualified) insurance brokers, over-anxious to flog their array of over-complicated, barely-understood insurance products with badly drafted sales pitches intended to seduce you into buying policies based on fear, guilt and sometimes sheer ignorance. The insurance salesman, having limited (if any) knowledge of the concept of financial planning in its truest form, has been exorbitantly and inappropriately incentivised by South Africa’s dominant insurance companies, earning upfront commissions of staggering proportions – commissions and incentives that are way out of proportion to his qualifications, expertise, knowledge or the effort required to fill out the albeit time-consuming life insurance application forms. In their target-driven rush to flog their array of insurance must-haves, the broker has fallen desperately short of the requirements for sound financial planning. Their questionable, and many times blatantly unethical, behaviour has not only compromised the professional reputation of the qualified and serious financial planner, its also compromised the interests of their clients by failing to really assess the needs of the whole family. With examples too many to confine to one blog, let’s focus on the non-earning wife (or possibly husband) and her need for life cover.

As one of our underlying financial planning principles, we insist on preparing a joint financial plan for both spouses – regardless of who works, who doesn’t or how much each earns. Why? Because, regardless of income, qualification or career, the couple is running a joint household, they are raising their children jointly and they are jointly responsible for their financial futures. A common misperception that we need to deal with upfront when counselling couples is that the breadwinner is the one who needs life cover, disability protection and severe illness cover. If the wife doesn’t work, the assumption is that there’s no risk that needs to be protected. She doesn’t earn an income, she brings nothing into the family bank account and if she were to die or become disabled there’d be no financial loss, right? Absolute and emphatically wrong.

Let’s assume a family of four, where the husband is the sole breadwinner and (by mutual agreement) the wife is a stay-at-home mother to their two small children. The natural assumption is that the husband would require insurance of some sort of insurance in the event of his death or disability. And rightly so. If he were to die, he would need to leave his wife with sufficient life cover so that she could maintain their lifestyle, invest for the children’s education and fund for her retirement. If he were to become disabled, he would need insurance to protect his income – in other words, to pay him a monthly disability income until his retirement age. He’d probably also require a lump sum severe illness cover to provide capital in case he were to have a heart attack or suffer from a debilitating illness. In many instances in the past, this is where the financial planning needs of the family ended! But what about the wife? Or, more importantly, what about the husband and the children if something happened to her?

Now, I’m a working mother, and am privileged to work from offices that are connected to our home. As a mother of three children, I have a very full appreciation and respect for all mothers, regardless of whether they earn an income or not. Mothers seem to be genetically predisposed to the art of multi-tasking, with an innate ability to get the job done in the least amount of time, very little complaint, insurmountable energy and with no expectation of reward. Let’s assume, in our example, that the mother is tragically killed in a car accident, leaving her full-time employed husband and her two young children. The common assumption would be that there would be no financial implications as a result of her death. The reality, however, is that there’s a whole host of functions that would need to be replaced. Let’s look at her (non-earning!) job description:

• Performing household chores
• Grocery shopping
• Clothing the children
• Paying and organising domestic workers
• Lifting children to sports and extra-murals
• Liasing with school and teachers
• Supervising homework and projects
• Preparing meals and school lunches
• Running the household budget
• Taking care of speech therapy, OT, doctors and other medical needs
• Attending school meetings, PPTs and other committees

You see, where many people tend to get confused about is this: the full-time mother doesn’t earn an income, but she does work. And her role as mother is the most important job on earth.

My husband and I review our financial plan every year to ensure it remains appropriate to our needs. This may sound excessive, but you’ll be surprised at how dramatically your circumstances (both personal and financial) can change over the course of twelve months. Part of our financial planning process is based on the concept of scenario planning – answering the ‘what if?’ questions.

So, returning to our example above, when doing financial planning with the couple, we would have done some scenario planning around the question “what if your wife had to die?’. Some of the questions we’d encourage her husband to consider would be:

• Would your employer-granted compassionate leave be sufficient for you? Or would you need to take an extended sabbatical from work in order to deal with your grief and that of your children? If you’d like to take an extended period of leave (perhaps between 3 to 6 months), you’d need to provide for this in her life cover.
• Would your medical aid cover the costs of trauma/grief counselling for you and your children? If not, rather insure for these additional costs appropriately. In general, only comprehensive medical aids provide for psychology benefits subject to certain annual limits.
• Would you need to hire an au pair or a child-minder to take care of the children during the afternoons? By calculating the cost of a child-minder’s income and the years of schooling left, you can fairly easily calculate how much to insure for in this respect.
• Would you need to hire a tutor to assist your children with homework supervision? This will become more necessary as your children get older and their schoolwork becomes more challenging.
• What do you anticipate would be your baby-sitting expenses? You would need to consider the fact that if you travel regularly for business, you may need to hire a regular baby-sitter or live-in helper. Once again, these costs can be easily estimated.
• What would happen during school holidays? You will need to give thought to holiday care and the associated costs thereof. Alternatively, you may need to consider the costs of flying grandparents down for the holiday periods to help look after the grandchildren.
• Would you need to hire a domestic worker (or increase domestic help) to include meal preparation for the family? If you’re working full-time, you will need someone to prepare meals for you and the children, pack school lunches and attend to their nutritional needs.
• Would you consider cutting back on your hours of work in order to spend more time with the children? In this regard, you can calculate your potential loss of income over a period of time (for instance, until the children are in high school) and then insure for the future income loss.
• Would you consider having your parents (or perhaps your in-laws) move in with you to assist with the children? If so, would you need to renovate the house or make structural changes to accommodate them.

Food for thought? Absolutely. In a similar vein, if his wife were to become disabled, we would go through a very similar ‘what if’ scenario planning session in order to determine the family’s exact financial requirements should Mom no longer be able to perform her all-important role as mother, wife, chef, taxi-driver, bookkeeper, secretary, head buyer, chief-liaison-officer, therapist and tutor.

Our society, in general, undervalues the role of the stay-at-home-mother and this is never more evident that in the field of financial planning. In the words of GK Chesterton, “How can it be a small career to tell one’s own children about the universe? How can it be broad to be the same thing to everyone and narrow to be everything to someone? No, a woman’s function is laborious, but because it is gigantic, not because it is minute.”

The mistake made by so many financial planners is they assume that if there’s no financial loss, there’s nothing worth protecting. The reality is the loss of a mother is greater than anyone can ever quantify, and the loved ones left behind are well worth protecting.

Have a blessed day!

Sue

My husband and 3 boys are well worth protecting!

Thy Will be done

Talking about your death is not the most uplifting topic of conversation to have with your partner. No one really wants to contemplate dying, or what will happen to your spouse and children if you were no longer around. This is true of many couples, especially younger couples who are still raising young children and who somehow can’t contemplate the need for Estate planning. While you’re young, fit, healthy and full of vitality, having a conversation about death is akin to being struck by a soggy blanket on a sunny, African day. As I’ve said before, lifestyle financial planning is about planning for both the foreseeable and the unforeseeable events in life. Planning for the foreseeable is the ‘easy’ part of financial planning – saving for your first home, planning tertiary education for your children, investing for retirement. These are all the events in our lives that we can (to a large extent) control, plan and be strategic about. The real challenge lies in counselling clients about the unforeseeable events that life can and may very well deal one. Retrenchment, dismissal, cancer, a debilitating disability, your untimely death or the death of a loved one. Admittedly, these are the tragedies we hope life won’t throw at us. Sound financial planning, however, means putting cost-effective and appropriate mechanisms in place to make sure you and your family are best protected against any of life’s unforeseeable, and not-so-pleasant, events. One of the greatest legacies you can leave to your spouse and your children is a Will. And if you think that Wills are only for high net worth individuals, think again.

Unfortunately, the well-intended Will has received shockingly incorrect publicity from the over-simplified US film-industry. And just as a matter of interest, American estate planning legislation is not based on Roman-Dutch law that forms the basis of South Africa law – which makes the American version of a Will even more inappropriate for us South Africans. So, forget everything you’ve ever seen in the movies about Wills, disinherited step-sons and embittered widows. As South Africans operating under a highly-developed legal system, the reality is that we should all have a valid Will.

Contrary to popular opinion, the Will is not the privilege of the wealthy few. In terms of our law, if you die without a Will (i.e. Intestate), all important issues such as the guardianship of your children, the distribution of your assets, and the administration of your Estate will be done by the South African courts, which is certainly not an ideal situation given our already over-burdened courts. By having a written, signed and witnessed Will, you are able to avoid having your Estate wound up by the State, no doubt subject to massive delays and bureaucracy. Besides for using a Will to appoint your own executor of your Estate, there are loads of other sound reasons for having a Will.

If you have minor children, we strongly recommend that you prepare a Will. Why? Because in your Will you may appoint a legal guardian to your children in the event of your death. What’s really important to know (and we can’t stress this enough) is that, if you and your spouse were to die intestate, the State would appoint a guardian for your children – and it may not necessarily be the person you would have chosen. As awkward and uncomfortable as the discussion may be, we encourage you to sit down with your spouse and talk about who you would appoint as legal guardians for your children. After our children were born, my husband and I had an in-depth discussion about appointing legal guardians for our children if we were to die. Although we both have siblings, we nominated my parents as the legal guardians for our children. Whilst our siblings would undoubtedly love our children and raise them well, we felt that ‘inheriting’ three additional children whilst in the prime of one’s life may be unfair to any of them. Our Will therefore makes provision for my parents to be the legal guardians of our children, and the proceeds of our Estates would be held in Trust for the children and administered by my parents on their behalf until each of them reaches adulthood. We’re acutely aware that there’ll come a time in the future where we will need to reassess the guardianship of our children, especially as our parents age. At this point, we will reconsider the options and update our Will.

On the topic of guardianship, we also strongly believe it’s something you should discuss with your children – when the time is right. Our two eldest children reached a stage (at around 10 years) where they became acutely aware of the concept of mortality. They started questioning what would happen if either of us were to die. As parents, our natural reaction is to brush it off with a careless, “Don’t be silly, nothing’s going to happen to Mommy and Daddy”. However, the fear of losing one’s parents is a very real fear that plagues children and we owe it to them to reassure them. Our children know that if we were to die, they will be raised by Granny and Grandpa. While it’s not a happy topic of conversation, knowing the answer to the ‘what if’ question has definitely settled their young minds.

Another compelling reason for having a Will is to ensure that your children don’t inherit under the laws of intestate succession. If you don’t have a Will, your assets will be distributed between your surviving spouse and your children according the the Intestate Succession Act. Because you died without a Will, the money inherited by your children will be transferred the the State’s Guardian Fund and will be administered by this fund until your children reach adulthood. On the other hand, if you include a simple clause in your Will which provides for a Testamentary Trust to be formed when you die, all money inherited by your children will be managed by your Testamentary Trust and by your appointed Trustees. It really is a standard, uncomplicated clause that will ensure that your children’s inheritance will be handled by your appointed loved ones who will, undoubtedly, have your children’s best interests at heart. I don’t know about you, but I’d like to leave a well-managed and properly administered legacy for my children that will cause them no additional stress and heartache after I’m gone.

Like the topic of money, the “What happens when I die?” conversation is never something to look forward to. Instead of viewing a Will as a complicated, legal document for the seriously high net worth individuals, consider viewing a Will as an act of love for the precious people you’ll leave behind. Without being offensive, having a Will is not about you – it’s about them! A well-written Will which documents how you’d like your assets distributed and which makes provision for a Testamentary Trust for your children shouldn’t cost you more than a couple of hundred Rand. Having witnessed the heartache experienced by those who’ve inherited intestate, I have a very real appreciation for how essential it is for every one of us to have a Will.

Having a Will is a lot less complicated that dying without one. Get thy Will done!

Have a blessed day.

Regards

Sue

Having a Will is less about you and more about your loved ones.

Penny wise, pound foolish

Yes, we’ve all heard the famous idiom that cautions us against frugally counting our pennies and saving every hard-earned cent, while at the same time losing sight of the larger picture to the extent that we lose more money than we could ever hope to have saved by coin-counting. The problem with idioms is that they’re repeated so often (and sometimes completely out of context), that they eventually (sadly) lose their impetus and the value of their message is diluted to the point of being meaningless. You might be surprised to know that being ‘penny wise and pound foolish’ is not just the foolish financial behaviour of the frugal few. If we give the idiom some careful thought, we’re likely to find that we’ve all fallen victim to the dangers of being penny wise and pound foolish.

The oft-quoted idiom was first recorded in a book by E. Topsell written in 1607 called “Four-footed Beasts“, and while this information may leave you unmoved, I find it fascinating that consumer behaviour today succumbs to the same pitfalls as it did some four hundred years ago! Let’s look at some modern day examples:

1. Selecting the cheapest medical aid option: How many of us have been guilty of this one? We’re a healthy family that suffers from no chronic ailments, no history of ill-health and no major hospital expenses, so why should we bother paying for a comprehensive medical aid plan, right? Wrong. A common misconception is that the history of your health (and that of your family) is absolutely no indication of what can happen in the future. Cheaper medical aid plans generally include capped benefits, larger co-payments and a limit on hospital cover. While your monthly premiums will surely be more affordable on the entry-level medical aid plan, it can only take one major hospital event to side-swipe you financially. Which leads me to the next matter of…
2. Not going to the doctor when we’re ill: How many of us have been guilty of this one? You wake up with a sore throat, swollen glands and a throbbing headache. To avoid the costs of going to the doctor (but in order to survive the day)  you pop into your local Clicks and pick up some over-the-counter medicines – the cost of which (you’ll convince yourself) is substantially less than a doctor’s consultation and a course of antibiotics. A few painful days and a couple of hundred Rand later you end up where you should have been in the beginning –  in the doctor’s rooms begging for a course of antibiotics to clear up that dreaded throat infection. Now, I’m not for one moment suggesting that you should dash to the doctor for every ailment. But let’s be honest, Strepsils don’t treat throat infections – they only ease the symptoms to a very limited extent – so be cleverly selective about seeking medical treatment and don’t be fooled into thinking that over-the-counter medicines are cheaper than prescription ones.
3. Taking out a funeral policy: There are so many more practical ways of ensuring that you’ve got sufficient funds to cover the costs of your funeral! Funeral policies cost on average about R60 per month for a R10 000 funeral benefit, and if you stop contributing towards your funeral plan, you don’t get any of your money back. I’m all for getting your Estate in order and planning your affairs, but you’ll be better saving an additional R60 per month month into a savings account than buying a funeral policy.
4. Opening shop accounts to take advantage of special offers: The incredible offers that retailers and banks offer for opening an account never cease to amaze me! The latest FNB radio advert offers prospective clients a brand new Samsung Galaxy plus a Samsung tablet just for opening a new cheque account. Most clothing retailers offer special discounts or shop vouchers for opening a new clothing account. There’s nothing clever about taking advantage of these special offers. These savvy marketing strategies are designed  ensure that the retailer still makes a handsome profit out of you. Even if you open a shop account to take advantage of the discount, the chances are that you’ll end up making the minimum monthly repayments and get nailed by the interest.
5. Buying the least expensive clothes/shoes: We’re not even vaguely suggesting that you should confine  your purchases to Jenni Button or Jimmy Choo, and spending your disposable income of designer labels is never a good idea. But, conversely, buying no-name-brand or low cost clothing and shoes can cost you more in the long run. Retailers and shops that stock the really budget clothing (and footwear) ranges generally compromise on quality somewhere a long the line. In addition, you’ll find their returns and exchange policies to be lacking or, at best, inadequate. Poor quality combined with a poor refund policy could result in you spending even more on your clothing than you would have if you’d shopped at a more reputable retailer in the first instance.
6. Not putting money in the parking meter: Taking a chance by not putting money in your meter often results in the an excessive parking fine that could so easily have been avoided if you’d just slipped a few coins into the meter. Over and above the financial implications of having to pay a parking fine, the inconvenience of having to deal with the traffic department is enough to make paying for your parking worthwhile. Which leads me to the topic of…
7. Speeding: I find it fascinating that the  people who queue at petrol stations late at night before a petrol price hike are often the very same people who have no regard for speed limits. Over and above the dangers of driving recklessly, speeding can take a massive chunk out of your monthly disposable income – far more than the impact of a few extra cents per litre!
8. Buying the cheapest products: A direct by-product of our inability to delay gratification is that we end up purchasing cheaper products of lesser quality. We’ve no doubt all fallen for the trap of convincing ourselves that the toaster that costs R120 is probably just as good as the Russell Hobbs toaster that costs R400. We also know (albeit subliminally!) that  Russell Hobbs products come with better guarantees, are widely accepted to be of a higher quality and that the Russell Hobbs toaster has the exact functionality that we’re looking for. My advice is as simple as delaying gratification and paying cash next month for the product that you really want.
9. Not taking out a motor plan on  your vehicle: Instead of blaming Murphy for the fact that your vehicle’s head gasket blew exactly one month after your motor plan expired, consider the fact that motor plans (and motor plan extensions) can be worth their weight in gold. It only takes one head gasket replacement to appreciate the value of a comprehensive motor plan!
10. Eating fast foods: There’s absolutely nothing cost-effective about ordering take-aways. In fact, a take-out meal for the family can cost more than a meal at a restaurant if you take into account the additional delivery charges and the generally poorer quality of a delivered meal. There are so many cost-effective ways to prepare a really healthy and substantial meal for your family. And if you’re short of ideas, you’re bound to find something interesting at Nina Timm’s sensational website.
11. Not contributing to a retirement fund: While funding for your inevitable retirement is essential, it’s also important to find a balance between being able to afford a good lifestyle now, creating an emergency fund and putting enough away for your retirement. Whatever you do, don’t skimp on your retirement funding so that you can enjoy unnecessary luxuries now. Retirement may seem like a lifetime away, but if you’re 40 years old now and plan to retire at age 65, the scary reality is that you’ve only got 300 pay cheques left to save for retirement.
12. Spending money to make you feel good: One of the most dangerous (and expensive!) methods of giving yourself an instant mood lift is to go shopping. If you need to boost your mood, go for a run, have a hot bath, eat a tub of ice-cream or have coffee with a friend. But, whatever you do, don’t allow shopping to become your pick-me-up of choice.
13. Drawing smaller amounts of money: For the impulsive shopper, carrying wads of cash in your wallet is nothing short of pure torture. And, yes, an effective prevention against impulsive buying is to carry smaller amounts of money in your purse. However, the solution is not to draw smaller amounts of money more often, as this will only result in escalated bank charges. If you’re disciplined enough, draw the amount of cash you’ll need to tide you through the week, but only keep enough cash in your wallet for each day.
14. Buying cheap life insurance: We’ve all heard the adverts: if you phone now, you’ll be able to get R500 000′s worth of life cover for a ridiculously low monthly premium. Never (and I repeat, never!) buy life insurance without consulting with your financial planner first. Life insurance comes in all shapes and sizes, and while your first year’s premiums may seem ridiculously low, you’ll probably get caught out by the excessive annual premium escalation clauses and a whole list of exclusions that you weren’t told about upfront. Get advice. Period.
15. Buy two, get one free: The ‘buy-two-get-one-free’ is deal is great – if you need three of the same thing! If not, you’re wasting your money simply for the sake of getting something (anything!) for free. ‘Buy bulk and save’ is a wonderful concept, but if the extra bulk you’ve purchased is never going to get used or (in the case of food) is going to go off long before anyone gets around to eating it, then you’d have been better off spending less money on buying a single item.

Make sure you spend time looking at the bigger financial picture!

Lend or lose?

Okay, so here’s another truly fascinating money matter – the question of whether or not to lend money to a family or friends. Whilst the easy answer would be an emphatic NO, unfortunately emotions have a way of conquering logic when it comes to making money decisions, especially when it involves our loved ones. I doubt there’s a single reader out there who would feel comfortable watching a family member or loved one suffering financially. And therein lies the big dilemma – do you lend a financially embattled family member or friend money to address a short term need with the risk of losing the relationship (and possibly the money as well!) in the longer term? Lend or lose?

We’ve all heeded the famous warning of Polonius, Chief Counselor to King Claudius in Shakespeare’s Hamlet where he says, “Neither a borrower nor a lender be, for oft loan loses both itself and friend.” The glaring reality is that we ALL know (sometimes through first-hand experience) or have read about the dangers of lending money to family in friends. Shakespeare knew it, too, over 400 years ago. In fact,  King Solomon who wrote the Book of Proverbs knew the dangers of lending money almost 2 500 years ago when he wrote, “The rich rule over the poor, and the borrower is servant to the lender.”

And therein lies the very essence of why lending money to a loved one can be disastrous. The loan itself has the potential to dramatically change the very nature of the relationship between two people. Whatever the relationship was before making the loan, the very essence of the relationship is completely redefined by the fact that one person becomes ‘the borrower’ and the other person becomes ‘the lender’ (or in the words of King Solomon, ‘the servant’). And we’ll explore the manner in which the borrower-lender relationship deteriorates over time  shortly.

Assuming that at some stage in our lives we’re going to allow our emotions to override our logic and become the “lender” in our family or friend relationship, here’s some cautionary advice on what to be careful of together with some tips on how to manage the loan (and the relationship) so that both survive the transaction!

1. Don’t enter into an open-ended agreement: If you agree to lend your loved one money, the wisest step you can take is to reduce your agreement to writing. If you think this sounds too ‘formal’, you’re right – it is formal! You are agreeing to lend your hard-earned money to another person, so make it legal and put it in a contract. The contract doesn’t have to be complicated, but there are certain issues that must be covered in the contract which include (a) the agreed interest rate, (b) the monthly instalments, (c) how and where payment must take place, (d) when the loan period ends and (e) any repercussions for non-payment. If you feel inadequate or embarrassed about putting the terms of the contract in writing, suggest to your friend that you get a third party to mediate the agreement and draft the contract. As the lender, you may feel that it is inappropriate or even rude to ask for interest or for fixed period for the loan for fear of offending your friend. The truth is that you have feelings and emotional attachments to your friend, whereas an independent party will be able to give the two of you completely objective advice that protects the interests of both the borrower and the lender. Bear in mind that it can be incredibly stressful having to impose a business transaction onto your friendship, and a level-headed, independent party could help you remove the emotions and focus on the facts.
2. Give the loan priority: A common mistake made by many lenders is that they aren’t upfront with the borrower about when they’d like to be paid back. Because talking about money is such a sensitive matter, we tend to avoid discussing the loan in too much detail. I find this area of human behaviour so fascinating. We can have the most intimate discussions with our friends about the most intensely personal aspects of our lives, and yet when it comes to money we skirt around the topic in the most peripheral terms! How on earth did we mutate into a generation of people who can openly discuss sex but fear the very mention of the word money? My advice is to be completely honest about when you need (or would like!) your money back. Whatever you do, don’t leave the borrower with the impression that there’s no rush to pay the money back. This form of open-ended agreement can only lead to unnecessary heart-ache and despair. The borrower may feel that the loan repayment is not a priority and will therefore not rush to repay the loan. You will, most likely, build up resentment towards the borrower for not paying the loan back quicker. Your resentment could well be misunderstood by the borrower, and so the cycle of misunderstanding, mis-communication and hurt continues until eventually the friendship becomes too awkward to continue. All the heartache and hurt could so easily be avoided if both parties were open and honest upfront.
3. Overcome your fear of asking for your money: If you’re even thinking about lending a friend money, overcoming your fear of asking for your money back is something you’re going to have to  learn to do. Whether your agreement is in writing or not, there may come a time when his repayments are late or long overdue which will force you to brave the big question. If you don’t think you’ve got what it takes to ask for your money back (or at least remind your friend that he owes you money), then you need to prepare yourself for the inevitable consequences – feelings of resentment, awkwardness, guilt and possible estrangement. My advice is that, before you agree to lend the money, make sure that you’re strong enough to ask for your money back if necessary. If not, be prepared for the internal debate which goes something like this: If I ask for my money back, I may lose a friendship. If I don’t, I may lose what’s rightfully mine.
4. Agree to keep the loan private: A loan agreement between two people is an intensely private matter – make sure you keep it that way! Whilst money itself has no power, the intense feelings involved in borrowing and lending money (especially within a family or friendship circle) have the potential to alienate, humiliate and anger in the most destructive manner.
5. Be aware that it can make family or friendship gatherings awkward: And so it goes without saying that the more people who know about the loan, the more strained and awkward your social gatherings can become. Every member of the family (or circle of friends) has heard a different version of the truth, each person has their own opinion on the matter and (such is human nature) people respond by either sympathising with the borrower or the lender. As a result, your group becomes polarised and divided along lines of individual loyalty, and so the rift begins is treacherous (and sometimes inevitable) course.
6. Beware of the lender-servant relationship: We have proof that even long before Jesus was born, healthy human relationships had the potential to degenerate into the sorrowful lender-servant relationship trap. King Solomon warned us against the dangers of lending to loved ones for this very reason. This lender-servant relationship is another fascinating area of human psychology wherein it’s been proven that, whilst the borrower develops intensely strong feelings of being ‘servant’ to the lender, the lender generally doesn’t reciprocate feelings of being  ’master’ to the borrower. It is very much a one-sided, emotional pitfall of guilt and misguided loyalty that is experienced intensely by the borrower. It is these feelings of intense guilt and of owing something more than mere money to the lender that can alienate and destroy friendships.
7. Be careful not be to an enabler: A notable point to consider is that, if a person cannot borrow money from a traditional lender (such as a reputable financial institution), he may not be able to produce a credible credit record. Always keep in mind the reality that loaning money (in most instances) is a temporary fix. If your friend can’t pay his bond this month, what is he going to do differently next month to ensure that he can? Financial troubles are generally a sign of ongoing, underlying problems or issues that need to be addressed and fixed. By agreeing to lend your friend money, you may well be the enabler – the person that is enabling him to continue managing his money incorrrectly – and thereby prolonging and increasing your friend’s financial woes. Which leads me to the next point…
8. Try to help the financial situation in other ways: If, by lending, you feel as though you’re exacerbating the problem and enabling the borrower’s money woes, then I’d strongly recommend reconsidering making the loan.  What is your loved one or friend doing wrong that he has encountered financial problems in the first place? Is he living beyond his means? Does he need help drawing up a budget? Does he need help managing his business? Does he have a spending problem? The most appropriate, long-term solution may not involve lending him any money at all!
9. Make sure you don’t need the money: It may seem obvious, but before lending anyone money, make sure you’re not going to need the cash in the near future. No matter how small the value of the loan, it’s essential that you’re not going to need access to the cash before the expiration of the loan period, or any time soon thereafter. This point really serves to drive home bullet point number 2. Do yourself a favour – make the repayment of the loan a priority. Make it clear when you need the money back. And don’t even consider lending the money if you’re going to need it any time soon.
10. Don’t compromise your morals and your principles:  One of the recurring opinions on the topic of lending to loved ones is this: If you loan the money, be prepared to write it off. If they pay it back, it’s a pleasant surprise. It they don’t, you never expected it back in the first place. I’m going to be completely controversial here and disagree with this statement wholeheartedly. Why? Because making the decision to lend money should not force us to compromise our own morals and principles. Regardless of who you lend money to, the facts remain – (a) it is your hard-earned money, (b) it rightfully belongs to you, (c) you were asked for a loan, not a donation and (d) a promise is a promise.

You may have an emotional connection to a loved one, and you may very well be convicted to lend that person money. Having weighed up the facts of the matter, you may reach the conclusion (driven largely, no doubt, by emotions) that a loan is the most appropriate course of action. Before you do so, please take heed of the advice dispensed above – least of which is to not compromise your principles and to make sure you’re not the enabler of his financial woes. The real solution may lie in the very wise words of  W. L. Bateman, ”If you keep on doing what you’ve always done, you’ll keep on getting what you’ve always got.”

Stay blessed!

Sue

Borrowing money can make you feel like a servant to the lender.

The psychology of impulse buying

If an impulse purchase is defined as “anything that you didn’t intend buying when you walked into the shop”, then pretty much most of what I buy can be classified as an impulse purchase. Let’s get real – our lives are hectic and, whilst the theory behind it is great, one very rarely gets time to sit down and draw up a proper shopping list. Between working all day, playing taxi to 3 super-active boys, cooking dinner each night, doing homework, finding time to exercise and spending time with the family doesn’t leave a  whole lot of time to draw up shopping lists. As most of you relate to, my regular visit to Woolworths or Pick ‘n Pay looks something more like a trolley dash than a planned shopping expedition. Whilst yanking my trolley (and I always seem to pick the one that veers randomly off to the left!) up and down the aisles, I tend to remember a whole array of items that I completely forgot I needed. The pack of multi-coloured cardboard needed for that school project, the bottle of mint jelly for tonight’s roast lamb, the bunch of flowers for a sick friend, the blue t-shirts that the kids need for  tomorrow’s sports day, and so the list of things that you didn’t know you needed goes. Sound familiar? Ofcourse it does. And the retailers know it, too. Which is why they employ a whole host of tactics that are designed to make us spend more (and unnecessary!)money during our frantic shopping trips.

The truth is that retailers have been cashing in on impulse buying for decades. They employ trained purchasing consultants who study the human psychology of spending, and then put mechanisms in place to ensure that (a) their shops are optimally designed, (b) their products are displayed in the right places and (c) that you are cleverly led through the shop so that all your ‘impulse buying’ mechanisms are on high alert. Have you ever reached for a packet of chips and been surprised to find that there’s a display of chocolates and 2 litre Cokes right next to the chips? Fancy that – exactly what you needed! Cooldrink and chocolates to go with your chips! That’s no coincidence – it’s a well thought out marketing strategy called grouping. Grouping is where retailers group a number of related items together that help to trigger impulse needs. For example, when you’re shopping for braai meat you shouldn’t be surprised to find marinade, braai salt, charcoal, blitz, gas firelighters, cooldrinks, paper plates and paper serviettes well within your reach.

Another tactic employed by retailers is the clever tactic of contrast – and I bet we’ve all fallen for this one! In order to make one product look attractive, retailers often place a similar (but more expensive) item right next to the cheaper item. The presence of the more expensive item makes the consumer feel that the cheaper item offers real value for money. By purchasing the cheaper item you are made to feel as though you are making a rational and logical choice, and not an impulsive one. Clever strategy.

Retailers regularly use the exclusivity tactic – especially when marketing to those people who like to keep up with the Joneses.  By making it clear that there is only very limited stock or that only a certain number of these items have been produced, the consumer is led to feel that he is special for having made this near-exclusive purchase. Once again, this tactic is designed to lead the consumer to believe this his purchase was NOT impulsive, but was a thought-out, rational purchase.

Ever dashed into Woolworths and headed straight for aisle number 2 to quickly pick up some rolls for lunch – only to find that the rolls are not longer displayed in aisle number 2? That’s not the shop simply trying to irritate you. That’s a cleverly designed tactic called organisation where retailers deliberately mix up their products so that consumers can’t find them. They know that, in your hunt for the bread rolls, you are bound to pick up a number of other items that you never knew you needed. Yet again, this tactic has been developed to trigger those impulse shopping neurons.

Imposing time limits on the sale of certain products is another trick used by retailers to trigger impulse shopping. Very often products are marked down to a special rate for only a certain period of time. This tactic leads the consumer to believe that, whilst he may not necessarily need the product, it would be stupid of him not to purchase it at such a good price.

Ever wondered why the sweet aisle near the checkout points (point of sale marketing) are waist-heigh? Well, they might be waist-heigh to you but they’re at eye-level to your child. That’s called positioning – putting the product at exactly the right place for the targeted consumer. Ever noticed how coffee and tea is displayed at eye-level to an adult, but Milo, hot chocolate and Nesquik are displayed at eye-level to a child. It all makes perfect sense!

Retailers also know that one of the key emotions that prevent consumers from making a purchase is guilt. In order to counter buyers’ guilt and remorse, retailers are pretty adept at highlighting the non-economic rewards of buying the product. It’s Mother’s Day and, if you really love your Mother, you’ll buy this gift and spoil her. The retailer is cleverly playing on your emotions by forcing the rational assumption that your love for your Mother should naturally outweigh any guilt that you feel at making the purchase. In order to further alleviate any guilt that you may still feel, the retailer will also go out of its way to offer you credit and a fantastic return policy. Which means that the consumer is receiving a triple marketing whammy: (i) they’re being made to feel guilty if they don’t spoil their Mother, (ii) they’re being offered credit to make the purchase (which means that not having cash is no excuse!) and (iii) their guilt is further alleviated because if your Mom doesn’t like the present, she can just bring it back, right?

The reality, however, is that retailers aren’t going the change or abandon their advertising and marketing tactics out of sympathy for the impulse shopper. In fact, they’re going to spend more money and do more research on how to get you and me to spend more money when we enter their stores. The only way that we’re going to escape the impulse shopping trap is to change our behaviour by being more vigilant and informed when entering a store. Take a look around next time you go shopping. Try to recognise the marketing “traps” before you fall for them. Whilst it’s not always practical to draw up a shopping list and stick to it, be aware of the possible pitfalls. Decide what you’re going to buy for Mom and how much you’re prepared to spend before you enter the store. That way you should avoid being entrapped by the impressive Mother’s Day display and lenient returns policy.

Whilst many people laugh off their impulse buying as a guilty pleasure or a charming personality trait, the reality is that many families suffer as a result of excessive impulse spending. Now, I’m certainly not preaching that we shouldn’t be allowed our luxuries and our indulgences. Ofcourse you are! Just make sure you’ve included “luxury spending” into your budget so you know how much you can indulge. I’d like to encourage you to think seriously about your spending habits. After you’ve been shopping, take out your slip and go through it carefully. Try and identify which items were purchased “unnecessarily” and as a result of clever marketing tactics. Make a mental note and try avoid that trap in the future. Another tip is to pay for your purchases with cash. When you are carrying a limited amount of cash in your wallet you are more likely to control your purchases than if you use your credit card.

My attitude towards shopping is really a matter of ‘forewarned is forearmed’. We don’t all have the time to prepare meticulous shopping lists and precise budgets, but we can equip ourselves with enough knowledge to avoid being taken advantage of as consumers. Yes, we all have needs, desires and longings – and these are exactly the emotions that retailers are trying to trigger and tease when we enter their stores. My advice is to recognise their marketing tactics for what they are. Acknowledge the emotions they are trying to trigger. Remain rational and logical about your purchases. Focus on your greater financial goals – a vehicle upgrade, a weekend away with the family, your child’s upcoming sports tour. Make a conscious decision not to be consumed by the attractive non-economic rewards that are being promised in order to counter your guilt. Taking control of your financial future begins with taking control over every single purchase. In every sense of the word, it pays to be a conscious and clever-thinking consumer.

Have a blessed day!

Sue

Valentine's Day has grown into a massive, multi-million dollar consumer trap.