Thrifty Swag

One of my previous posts started with a quote from Howard Marks, apologies for the repetition but the quote is as relevant here as it was then: “Few people think the secret to their happiness comes from prudence and caution. Most people think it comes from that stroke of genius which will put them on easy street.”

I’ve often, playfully so, asked people at what rand value would they consider themselves rich enough to call it quits and retire, to date no one has had a number, however most have replied that they want to be “very” rich. I usually follow up by asking how they plan to acquire all these riches, in most cases people believe they’ll one day have a revolutionary idea that’ll put them on easy street, or win the lottery (this is why the quote is so applicable here).

I am no exception, but I realised that such a frame of mind prevented me from saving, I mean why should I be saving now when one day I’ll have a great idea that’ll immediately make me a millionaire, or even a Billionaire?

The realisation led me to an epiphany; given the existential uncertainty associated with the future, why not start saving now to ensure an adequate asset base irrespective of whether my future entrepreneurial endeavours play out or not. I figured old me will be happy with younger me for having started the wealth building process early.

I started saving small amounts while aggressively focusing on controlling my consumption/expenses, as time went I realised that I now had more and more money available for saving monthly. One thing I always do is to pay myself first, I believe long term wealth creation has at its foundation temperament and habits, by paying myself first I am reinforcing the two.

Obviously a budget is critically important, start saving 10% of whatever money comes your way, gradually increase that percentage and focus on controlling your spending (get involved with the reward programmes your bank offers so you can get paid while spending, ya dig? Check out some of my previous posts on these programmes, others are to follow).

Enjoy the process, there’s much to learn from it over and above the monetary aspect.

Don’t forget – Spend less than you earn and invest the difference!!!!

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Greenbacks

Ever wondered why Nedbank has always been associated as being a bank for old people? well you’re about to find out!

Nedbank has a reward program (surprise!!!!) which rewards clients for spending using their linked cheque and credit cards. Its evident that the bank is trying to encourage clients to swipe for spending as opposed to using cash.

A friend that works at a bank said to me yesterday “someone may be asking why banks reward you for swiping your card. Maybe mention that it’s because they earn interswitch fees from Visa/Mastercard when you use your card, so everyone wins” this is true and to add, the fees they earn are higher on the credit card than say on the debit card for example.

The Nedbank reward program is called Greenbacks – Green being money and the banks colour, not bad right? Greenbacks aren’t as complicated as other reward programs, in the sense that there aren’t levels for the reward programme based on the services you utilise with the bank (FNB for instance has levels for their eBucks reward program, the higher your level the better the points and discounts you get), as long as you are enrolled for the program you will receive 1 Greenback point for every R5 spent using your Nedbank Greenbacks Mastercard, 2 Greenbacks points for every R5 spent using your Nedbank American Express card.

This all makes sense right? if a large sum of your customers are old people you have to keep things very basic, simple and easy to understand. Don’t try ask them to login 4 times a month on their banking App because that ain’t gonna happen bro! Ask FNB how that went for them…

Unfortunately not many vendors accept American Express cards as it’s more expensive for them compared to Visa and Mastercards. Nedbank has a deal with American Express, through the structure of the program, and its evident that Nedbank is attempting to get clients to always ask “do you guys accept American Express?”, prior to whipping out their Mastercard.

The once of initiation fee is R150 (bummer since it’s free at some other banks), the bank waivers the fee for certain bundles i.e. Professional Banking. The client may use the accumulated points to purchase products from certain vendors e.g. Netflorist, SAA, Healthspas etc and a large variety of different shops. You may also elect to use the points to pay for your Banking Fees, donate to charity and/or invest in Nedgroup Unit Trusts. You may also elect to convert the points to cash. Not bad at all, but I am sure you are wondering what the conversion rate is well… I’m still yet to find the exact answer to that.

The conversion rate is driven by the proposed use of the points, for example, 2800 points are required for a R100 investment in a unit trust, 3300 points are required to convert the points to R100 cash. How do you expect my Gramps to figure that out dude????

The program can be advantageous to the client if used properly and taken seriously. The only downfall is that there is no form of savings behaviour that this program encourages, it’s all instant gratification and spending like crazy to get more point. Not cool bro! Nedbank, if you’re out there and you’re reading this piece, please give points for saving as well ya dig?

If you’re already bank with these guys enquire about the program at the branch (do those still exist?), request the brochure which contains much more detail prior to making any decisions.

Swipe, Earn, and Spend!

Swipe and get rewarded

“Few people think the secret to their happiness comes from prudence and caution. Most people think it comes from that stroke of genius which will put them on easy street.” – Howard Marks

If you have an active bank account and you’re not signed up for your banks rewards program to get points, you are doing this life thing all wrong bro! People find reward programs offered by banks to be rather worthless to say the least (I disagree with this btw). Reward programs can be extremely opaque and hard to understand, no arguments there.

However, I’m here to convince you that rewards programs are pretty cool and worth it and you should give it a go, especially since you’re subsidising those who use the same bank as you if you ignore them anyways.

What are reward programs? In short, your bank wants to give you some money back (reward you) for every time you swipe your bank card to pay for something, whether it is groceries, fuel etc.  They do this using some sort of point system or a form of virtual currency e.g. FNB gives you eBucks, Nedbank its greenbacks, Standard Bank its UCount and finally apparently ABSA gives you cash back. It is similar to Rewards programs that are being offered by your Pick n Pay’s(Smart shopper), Clicks(club card) and Woolies (WRewards), just to name a few.

Why should you bother with these reward programs? Simple, you get money (rewarded) for spending money using your bank card! And you can spend this money however you wish! AWESOMENESS. The cool thing about it is that you get discounts that you wouldn’t have got if you weren’t earning your rewards points or you can invest these rewards with your bank. E.g. depending on your rewards level with eBucks certain “stores” offer up to 40% off on their goods/services. This month, KFC, Cycle Lab, Dischem, Shoprite/Checkers are on that list of 40% off. This means you can buy a R100 gift voucher for R60, and oh boy don’t we love a good bargain?!

Remember, the more you use your card, the more points you will collect.

The idea with these rewards programs is that you accumulate the maximum points possible for your spending range in that particular month, kinda like “sweating” your spending to get the most from it. Work it! Accumulate these points and use them for big ticket items or buy vouchers that you can use during the festive season. I am currently collecting KFC vouchers for my girlfriend who is currently doing her LLM in Duke University School of Law, Durham, North Carolina. These points are very helpful during gifting seasons, for birthdays etc. I mean you can buy gift vouchers up to 40% off on some instances, it’s a no brainer!

Most of these programs award more points if you do most your monthly spending on your credit card. I know a lot of people have control issues (instant gratification) when it comes to credit cards, well its easy just put a monthly limit on your credit card according to your monthly budget and you won’t overspend a cent because it is not possible and ensure that you choose the full payment method where you settle your credit card in full every month before it starts incurring any interest.

Rewards points offerings from your bank can be used to maximise on your spending and improve your financial situation. If managed properly. However, reward points systems differ from institution to institution. Which is something that one has to consider when choosing a bank and subsequently a rewards system that suits their own financial needs and goals. With that said, I suggest calling your banker to find out more.

More to come on the different reward programs.

 

 

Savings Diet

saving-diet

“I think the biggest mistake is not learning the habits of saving properly early because saving is a habit”

SAVING is fundamental to the process of growing your wealth!

South Africans appear to not like the idea of saving, well at least not anymore. Savings as percentage of personal income back in 1980’s was around 8% and a quick sprint 30 years down line, savings as percentage of personal income is at -2%. This is mainly attributable to personal debt, vanity! Over the same period, the percentage of personal income used to pay off our vain ways (personal debt), has increased from 42% to 77%.  These numbers are depressing to say the least.

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There are also a wide range of excuses that we use to avoid saving:

  • “I’m young. There is plenty of time to save later”
  • “What about government pension? I will just live off that when I retire”
  • “I deserve to have fun with my money today-I work hard for it.”
  • “The market is down, so why bother to invest in the JSE?”
  • “I will start saving when the market improves”
  • “I need to get my first car, the I can focus on saving”

 

All these excuses have a common theme. It is this wrong money philosophy that most of us share the “I will deal with it later” syndrome.

 

There is never a better time to start saving than today. Saving should be like a lifelong diet, forming part of your monthly financial obligations. Call it, paying yourself first. And not only when it suits you or when the “markets look safe”. Savings, similar to maintaining good health, requires sacrificing certain luxuries over the short-term, so you can benefit of good health over the long term.

 

Although most South African’s live from hand to mouth, incorporating a savings diet to monthly financial planning should still be done.  The ability to save has nothing to do with the size of income. Start small, make at a habit so that when your earning capability increases, it does so with your saving.

 

Here are a few pointers on how to save under challenging circumstances;

  • Trick yourself into saving and start early.
  • Control your expenses and do not let them control you!
  • Do not live above your pay grade. (Stay in your lane, forget the Joneses!)
  • Claim your taxes!
  • Reduce personal debt as quickly as possible.

 

This all sounds simple and straightforward, well that’s because it is, but the hardest part is getting started and having the discipline to do it over and over again (rinse repeat).

 

Consider setting a scheduled payment (on the day you get paid) from your cheque account into an investment or savings account to make make forming this good habit as painless as possible.

 

Once we achieve this discipline, we can use our savings to grow our wealth by investing in asset classes such as shares that will give us adequate returns for our hard-earned money over the long-term.

 

Saving is not easy, that’s the truth. But the idea of being able to survive on a government pension fund is impossible for most of us. So saving should be like a challenge that will help you live comfortably and financially sound in the future. Take this simple idea and take it seriously.

 

“A man without savings is always running. He must. He sits nervously on life’s chairs because any small emergency throws him into the hands of others. Without savings, a man must be grateful. Gratitude is a fine thing in its place. But a constant state of gratitude is a horrible place in which to live.”