Slide 1

08 April 2014 Slide 2 Slide 3 * I dont earn enough to save: * I dont earn enough to buy my own property * I am young and healthy and dont need insurance: * Retirement is for old people: * I will pay off my student loan at a later stage: * Finance is for big people: * I wont qualify for a home loan: Slide 4 Slide 5 Slide 6 Slide 7 Prime Interest Rate is the interest rate that commercial banks utilise when issuing interest rate loans to applicants. Current Prime Interest rate is 9% Slide 8 * Diet vs Eating Plan * Budgets have a strict control (less flexibility) * Spending plan = Guideline * Provides flexibility * Efficient allocation of money * Indicator of money availability * Maintain control of expenses * Debt control Slide 9 1. Gain control of your own finances 2. Get out of / stay out of debt 3. Create a nest egg for unforeseen expenses 4. Resist the urge to spend impulsively 5. Achieve goals that you have set for yourself 6. A step towards Financial Freedom Slide 10 Income Net Salary (After Deductions) Allowances Car Allowance, Etc.. Other income: Rental Income; Dividends, Etc. TOTAL INCOME Slide 11 Expenses House Rent/Bond Payment Utilities: Water, Electricity Levies Car Repayment Repayment of Debt Credit Card Store Cards Loans InsuranceFuelGroceries Slide 12 Expenses Insurance CoverMedical ExpensesCellphone Fees: Bank Fees Gym Subscriptions EntertainmentHouse Hold ItemsTOTAL EXPENSES Slide 13 Spending Plan Income after deductionsLess ExpensesLess Debt Net Income Slide 14 Spending Plan Income after deductionsLess Savings= Expenses Net Income *Savings Slide 15 * What you spend vs What you earn? Expenses Income Allowances Other Income Salary Living Expenses Housing Slide 16 Housing 35% Expenses 25% Vehicle 15% Savings 15% Debt 10% Slide 17 Housing 35% Expenses 25% Vehicle 15% Savings 20% Debt 5% As Debt Savings Slide 18 * What you spend vs. What you earn? Expenses Income Allowances Other Income Salary Living Expenses Housing Slide 19 Slide 20 * House: Bond * Long term investment * Wealth and Asset Growth * Appreciates in Value * Vehicle Finance * Depreciates in Value * Not an Asset * Overdraft * High interest rate * Credit Card * High interest rate * Store Account * Very high interest rate 1.Pay off the Bad Debt (Quick Money) ASAP = Can cost up to 20% more in interest 2.Dont miss any intalments = Negative Credit Rating 3.If you cant pay the full installment, speak to the company to make debt payment arrangements 4.Consolidate all debt and repay one amount monthly Slide 21 * Bank Rewards Program * FNB (Ebucks) * Standard Bank (Ucount) * Benefit Programs * Multiply (Gym discounts, Etc.) * Discover (Gym discounts, Etc.) * Negotiate a Salary increase at Interview stage * Negotiate Interest Rates * Price of What you see is not necessarily the price you have to pay * Shop around * Internet Purchasing * Be Indian & Bargain * Purchase Coupons * Checkers (Mobile App) Slide 22 Slide 23 * Savings Account * Low interest earning account (+/4%) * Inflation (+/-5.9%) * Interest earned Inflation = Interest gained = - 1.9% * Your money is therefore depreciating year on year due to Time Value of Money * R100 today is not worth a R100 next year this time, due to factors such as inflation and the exchange rate. Slide 24 * Build up an emergency fund * Do not use a general bank account * Inflation Eating Effect (5.9%) -IEE * Unit Trust/Savings Acc (Interest Rate > 5.9%) * Retirement Planning * Unit Trusts * Shares * Property * Fixed Deposit * Remember: * Interest earned > Inflation Rate * Time Value of Money Slide 25 * Principle Numero Uno Invest for the Long Term * Warren Buffet * Diversify your portfolio Slide 26 To Buy or To Rent? Slide 27 * Ownership * Long Term stability * Cornerstone of Financial Plan * Good start to life & family raising * Your House * Long-term Saving Commitment * Long-term Investment * Retirement Planning * You dont want to be paying off debt or rent when you are retired. * Once the Debt is repaid, the monthly bond repayment becomes savings * Interest not paid is more tax efficient than interest earned * Maintenance of the property * Additional costs such as rates, taxes, insurance and possibly levies. * Long term investment & commitment Slide 28 * Most cases lower than bond repayments * Start saving differential as a deposit for a house * Flexibility to give 30 Days notice at end of rental contract * Rent paid is seen as an expense * Rent paid wont be seen again * Any investment in the house will be at your own expense * If ownership is changed, then what * No Asset Wealth creation Slide 29 * Theres a general shortage of residential rental properties and as a result, rent is rising - an average of 10.8% last year, according the latest figures from PayProp. As such, many young tax- payers are finding that monthly repayments on their own property are lower than rent. - Chas Everitt Slide 30 * Renting Currently: Start saving for a Deposit * Benefits of a Deposit: * Reduces the Interest portion of Home Loan repayment * Reduces the Risk towards the Bank & More credibility in application Greater Affordability * 100% home loans are not 100% guaranteed * Can be difficult & Depends on your financial situation Slide 31 * Your not restricted to a city/town if you have bought a house. * Could be used as an investment property * When applying for your next property, utilise the lease agreement as additional income which could offset the bond of the investment property * Strategy should be purchase your residence property and pay it off. * While gaining access to additional funds, build up your property portfolio. * Use other peoples money to pay off your bond * Use other peoples money to build your asset base Slide 32 * The earlier you start the better, due the compound interest effect. * Pay off your bond as soon as possible: * Put a portion of your increase into your bond. * Strategy to every year add 10% of your salary into your bond: Slide 33 House Search Research OTP (Offer to Purchase) Home Loan Application Signing of Bond Agreement Transfer Slide 34 Seller Property Agent Buyer (YOU) Financial Institution Transferring Attorney Home Loan Attorney Cancellation Attorney Appointed by the Seller to transfer the property into Your Name Appointed by the Bank for the Granting of the Home Loan Appointed by the Bank for the cancelling of the Home Loan of the Seller Bargain Tip: Buying directly from the Seller cancels out the middle man & therefore bargain a better price as a commission is earned by a property agent. Slide 35 Slide 36 Slide 37 Slide 38 Slide 39 Slide 40 1. Proof of income: your latest salary advice. If you earn commission or overtime, provide the latest 3 salary advices Latest 3 months personal bank statements 2. Personal Assets & Liabilities Statement for loan amounts over R1 500 000. 3. Copy of your ID document (for both applicants if applicable). 4. Copy of Marriage Certificate or ANC Contract (if applicable). 5. Copy of the Purchase Agreement.* 6. Latest 3 months bond statements.** 7. Latest rates/Levy Statement/Utility account statement.** Slide 41 Slide 42 Slide 43 * Affordability: not the amount of money you earn, but how much you can afford. * Fixed vs. Variable Interest Rates * 100% Home Loan vs 80% Home loan * Saving for a Deposit * Banks will also look at your credit record * Additional Costs: * Attorney Fees * Transfer Fees * Water & Electricity Account Deposits Slide 44 * Prime Interest Rate fluctuates and correlates to the Repo Rate * Repo Rate * Any change to the repo rate results in a change in the Prime rate * Which therefore affects the homeloan * High Risk loans = Higher Interest Rates * E.g. Credit Card, unsecured loans * Low Risk loans = Lower Interest Rate * E.g. Home Loan, Vehicle finance Slide 45 * The Bank looks at an applicants: * Income & Expenses as well as funds left after all expenses have been paid to work out if the applicant can afford to repay the loan or not. * Affordability refers to the applicants ability to honour their obligation within the homeloan agreement to repay the homeloan amount granted by the bank, through monthly instalments which includes the interest rate over a set period. * Use an online Affordability Calculator for a rough estimate All bank websites, as well as fin24.com or property24.com Slide 46 Slide 47 Slide 48 Slide 49 * Purchase a Property as young as possible * Earlier in the property market = more time to repay. * Long Term Investment * Look for Bargains * Stay within affordability range * Stick with starting out small. * New Developments: * Less Maintenance in early years * Can benefit form no transfer fees * Purchase another Property for rental income * Use this rental agreement to gain access to another home loan. * Use other peoples money to build your assets. Slide 50 * Interest Rates are still relatively low * Housing market is still in the buyers favour * Nelspruit has a large demand for property * High Demand for Rental Property * Housing Prices in Nelspruit has shown year on year increase * Nelspruit is one of the fastest growing cities.. * Better to jump in while prices are low & affordable * Eg. Think of what your parents paid for their house in comparison to what the going rate for that same property is today. * Diversified Province and therefore significant opportunities.. * Tourism & Business Development boom Slide 51 If your current rent is:1 Year5 Years10 Years15 Years 2,000 24,000 120,000 240,000 360,000 2,500 30,000 150,000 300,000 450,000 3,000 36,000 180,000 360,000 540,000 3,500 42,000 210,000 420,000 630,000 4,000 48,000 240,000 480,000 720,000 4,500 54,000 270,000 540,000 810,000 5,000 60,000 300,000 600,000 900,000 After 15 years = Large portion of a bond could be repaid Tenant pays off your bond Constraint when renting & raising a family You would struggle to rent during retirement Slide 52 Slide 53 Slide 54 * You have no started your Financial Careers: * What about your Debt: * Homeloan Payments * Car Payments * Suretyship signed? * Children * You are your own Business * You get paid for your time, services, skills, etc. * You market yourself * You Need Cover * Your Income Needs Cover * Your Health Needs Cover * Why is your Car Covered but you aren't? * Medical Aid * Hospital Plan * ST Insurance: * Car; Household; Moveable's * LT Insurance: * Life Cover * Trauma Cover/ Dread Disease Cover * Accidental Injury Cover * Functional Impairment Cover * Sickness Benefit * Income Protector * Disability Cover Slide 55 WeekDatesAmount to Save: Total Cumulative 1Jan 1- Jan 510R10 2Jan 6 Jan 1220R30 3Jan 13 Jan 1930R60 4Jan 20 Jan 2640R100 5Jan 27 Feb 250R150 6Feb 3 Feb 960R210 7Feb 10 Feb 1670R280 8Feb 17 Feb 2380R360 52Dec 29 Dec 31530 hmitha87@gmail.com Slide 56 Slide 57 Slide 58 Slide 59 * Salary * Commission * Rental Income * Buying and Selling * Houses * Merchandise * Rendering a Services Slide 60 Taxable IncomeRate of Tax (R) 0 - 174 55018% of taxable income 174 551 - 272 70031 419 + 25% of taxable income above 174 550 272 701 - 377 45055 957 + 30% of taxable income above 272 700 377 451 528 00087 382 + 35% of taxable income above 377 450 528 001 673 100140 074 + 38% of taxable income above 528 000 673 101 and above195 212 + 40% of taxable income above 673 100 Slide 61 Rebate PrimaryR12 726 Secondary (Persons 65 and older)R7 110 Tertiary (Persons 75 and older)R2 367 AgeTax Threshold Below age 65R70 700 Age 65 to 75R110 200 Age 75 and overR123 350 Slide 62 * Medical Aid Deductions * Retirement Contributions * Pension Fund * Provident * Retirement Annuities * Income Protectors # * Same as Salary Plus * Own Cell phone costs * Own vehicles costs * Marketing Costs * Entertainment Expenses * Food Slide 63 * Not submitting a return - The penalty amount imposed depends on a taxpayers taxable income and can range from R250 up to R16000 a month for each month that the non-compliance continues. SARS Website * What Happens If I Dont Pay and I should? Its a criminal offence not to pay income tax and if youre caught you may be heavily fined or sent to jail. Also, you cant cheat SARS. Its like Big Brother; always watching! So if you dont make a full and honest disclosure of your annual income (in other words, if you dont declare all your earnings), this is considered fraud or tax evasion and its punishable by fines or jail time. Slide 64 If you earn under R250 000 for a full year from one employer (thats your total salary income before tax) and have no other sources of additional income (for example, interest or rental income) and no deductions that you want to claim (for example medical expenses, travel or retirement annuities), then you dont need to submit a return. SARS Website Slide 65 The key changes that will be implemented on T-Day are: You will be able to deduct both your and your employers contributions to a pension fund, provident fund or retirement annuity fund of up to 27.5% of your remuneration or taxable income, whichever is greater. There will be a cap of R350 000 on the total amount that you may deduct from your taxable earnings in a tax year. This is to prevent the wealthy from claiming excessive deductions. Contributions in excess of the annual cap may be rolled over for use in years when your deductions do not reach the R350 000 cap. You will be able to add the nominal value of any unclaimed additional amounts to the tax-free lump sum at retirement. Any new contributions made to a provident fund will be subject to the same annuitisation rules that apply to pension funds. This means that at least two- thirds of the savings must be used to buy a pension at retirement. Bruce Cameron Slide 66 * Who has talked to their parents about Retirement * Who knows if their parents will be able to retire sufficiently * Have your parents talked to you regarding saving and was there a culture of saving in your family Slide 67 Slide 68 Slide 69 Slide 70 60% of all pensioners interviewed as part of Sanlams BENCHMARK retirement survey told the interviewers they did not have sufficient funds to live on. Of these, 64% had to cut back on their living expenses and 31% had to carry on working. This is a shocking statistic because these retirees mostly come out of the defined benefit environment where the company made provision for their retirement based on the number of years of service. They are not the current working generation that has changed jobs seven times on average and cashed in their pensions along the way. This next generation of retireesthose people between the ages of 45 and 55are facing, quite simply, a train wreck. Dawie de Villiers, co-author of the survey and chief executive of Sanlam Structured Solutions, estimates that the number of people who have sufficient retirement funds will fall to 10%. This means that nine out of 10 South Africans who belong to a retirement fund will not have enough to retire on. Slide 71 But perhaps what is even more concerning is that people have no idea how bad their financial situation is. The survey, which interviewed pensioners, working pension-fund members and pension-fund companies, found that half (50%) of retirement fund members interviewed believe that they are on track for their retirement planning, yet the average contribution from members monthly salaries is well below the recommended provision of 15%, indicating a general lack of awareness of the actual situation. The total employer and employee contributions was shown to be an average of 11,7% (average employer contribution of 10,8% and employee contribution of 5,8%), falling short of the recommended average of 15%. Self-employed people showed that their retirement contributions are significantly less, at an average of 3,6% of their salary per month. We also know that about 80% of the time people cash in their retirement funds when changing jobs. Slide 72 * Personal Investments * Property * Houses * Commercial Property * Investment Portfolio * Pension * Provident Fund * Retirement Annuities Slide 73 * Any person that is 18 years old * Any Person that is 25 years old Slide 74 * 18 year Old Person * Paying R100 per month until age 25 (that means for 7 years) and then leaving the money until age 55 * Growth of 10% * 25 year old person * Paying R100 per month until age 55. That means for 20 years non stop * Growth of 10 Slide 75 * 18 year old Person * At age 55 this person will have * R89 371.94 * At age 60 this person will have * R147 034.44 * 25 year old person * At age 55 this person will have * R76 569.69 * At age 60 this person will have * R133 789.03 Slide 76 * Name: John * Age: 22 * Income:R15 000 * Retirement Age: 60 * Wants to retire with 80% of his current Income I.E. R12 000 * WHAT should he put away per month? Slide 77 Client's nameJohn Current age22 Retirement age60 GenderMale Expected investment return on portfolio (p.a.)10% Inflation rate7% Expected total income tax rate at Retirement18% Current balance of existing retirement fundingR 0 Current monthly savings for retirementR 0 Yearly growth rate of contributions10% Current monthly need (after tax):R 12,000 Current value of one-off need at retirement:R 0 Slide 78 CALCULATIONS - OUTPUT Calculations are set to give the client income for 10 years Projected monthly net income (after tax) required at retirementR 156,951 Projected monthly gross income (before tax) required at retirement R 191,404 Required lump sum at date of retirement, to fund gross post- retirement income and one-off requirement R 39,950,503 Total expected proceeds from existing funding, at retirement date R 0 Total expected deficit at retirementR 39,950,503 Extra monthly contribution required to fund the expected deficit at retirement R 2,446(16%) Slide 79 * Cashing in Pension * Stop paying Pension * Never Joining a pension fund * Sickness reducing term that can be worked * Procrastination * I will do it in few years I currently want to enjoy myself * I will but not know, I have to take care of my children * (Will your children take care of you?) Slide 80 * Make sure you start saving early in your life and commit yourself towards the spending plan and you will enjoy the fruit of your labours. * Make sure you teach your children saving principles from a early age. They are never to young to start saving * Make use of piggy banks * Making use of savings/Investments in their names and guiding them on setting saving goals.