Living Financially Carefree

By Jaco Fouché & Jaco Barnard

There are too many people who get no satisfaction out of their personal financial situation. In many instances this is because of a lack of knowledge, limiting beliefs or no willpower to change their situation. This was the inspiration behind Living Financially Carefree.

Every person should at least get the chance to live financially carefree, and you are assisted along the way with easy-to-understand language, practical examples and witty side remarks from the two Jacos.

In this book the authors share their extensive research, reading and their personal experience. It is probably the most comprehensive book you will find on the topic of personal finance, covering financial literacy, wealth creation, financial institutions, legal aspects, as well as various sundry topics of financial planning. The perfect book to start you on the road to financial freedom.

Jaco Barnard is a CA(SA) and financial planner with a post graduate diploma in financial planning. He has more than a decade of teaching experience in cost and management accounting. In this time he has received various awards as outstanding lecturer.

Jaco Fouché is a CA(SA) and financial planner with a post graduate diploma in financial planning, a master’s degree in financial management and a PhD in accounting education. He has more than a decade of financial management teaching experience. In this time he has received various outstanding educator and presenter awards.

The two Jacos have done presentations all over Africa and are famous for their lively, interactive and practical applications.

May this book be the start of your road trip to financial freedom...

• Language: English
• Publisher: Jaco Fouché & Jaco Barnard
• Release date: Feb 16, 2018
• ISBN: 9781370971923

Jaco Fouché & Jaco Barnard

Jaco F (the more attractive one) and Jaco B (the younger one) are both lecturers, CA(SA)s and financial planners. The two Jacos have done presentations all over Africa and are famous for their lively, interactive and practical applications.They share their mistakes honestly so you do not have to make them, but more importantly, they share practical tips to save and make you money so that you too, can live financially carefree.

Book preview

LIVING FINANCIALLY CAREFREE

A ROADMAP FOR THE JOURNEY

LIVING FINANCIALLY CAREFREE

A ROADMAP FOR THE JOURNEY

Jaco Fouché & Jaco Barnard

Copyright © 2018 Jaco Fouché & Jaco Barnard

First edition 2018

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage or retrieval system without permission from the copyright holder.

The Author has made every effort to trace and acknowledge sources/resources/individuals. In the event that any images/information have been incorrectly attributed or credited, the Author will be pleased to rectify these omissions at the earliest opportunity.

Published by Author using Reach Publishers’ services,

P O Box 1384, Wandsbeck, South Africa, 3631

Edited by Derek Awkins for Reach Publishers

Cover designed by Reach Publishers

Website: www.reachpublishers.co.za

E-mail: [e-mail]

Publication information:

Distributed by FTI Publishing Pty (Ltd), South Africa

PO Box 20118

Noordbrug 2522

To the Reader

Are you also sick and tired of being STRESSED out, worried, or even embarrassed over your finances? Do you think you need to have a degree in finances to understand them? Do you feel that investments are ONLY for people with lots of money? Do you just HATE budgets, since they never work? Do you think you can NEVER be good at finances? Are you TIRED of being looked down on by financial institutions? Do you KNOW there should be more? There are too many people who get no satisfaction out of their personal financial situation. In many instances, this is because of a lack of knowledge and belief, or willpower, to change their situation.

This was the inspiration behind starting this book on managing personal finances. We have seen way too many not enjoying life because of financial problems. Every person should at least get the chance to live financially carefree, and it is possible for everyone – we would like to assist you along the way. It is unfortunately not necessarily going to be easy, and there is no talk of quick fixes. The rewards, however, are worth it – for you and the generations to come. To motivate you, we will start off by telling you our own stories:

Jaco Fouché

As I am writing this in 2017, I am a 43-year-old male, a chartered accountant, financial planner and academic, married to Susan, and we have four lovely children. I am passionate about financial wellbeing. But my story starts way back. My grandfather (on my mother’s side) worked for Spoornet, now called Transnet. He was a bus driver. My grandmother was a hairdresser who worked from home. When my grandfather retired, his pension was just above that of the Government’s Old Age Grant, which my grandmother later received. Still, I cannot recall them ever complaining about money, not a single day of their lives. They always had enough, even to help out others. My paternal grandfather also worked at Spoornet (until he retired because of health reasons) and my grandmother was a seamstress. They were both honest, hardworking people, but not wealthy in financial terms.

Both my parents had only grade 10 educations, since they had to start working to help support their families. My father started doing his apprenticeship as a mechanic and my mother had to start working again when I was in grade seven to help support our family of four children. From them, I learned to be a hard worker and to work in a respectful manner with money. Despite not having abundant money, they supported all four of their children and enabled them to study at university. I can honestly say that I am proud of them. I was able to attend university with the aid of a study loan, and did vacation work to pay for my books and have some pocket money.

During the last year as an article accounting clerk, I married my wife, Susan. I was earning a trainee accountant’s wage and she was still studying. At the end of that first year, we were broke. Our debt (overdraft, credit card and study loans) exceeded what we owned (which was more or less nothing). We were living in a one-bedroom flat, with a bed, washing-machine, fridge and living-room set from a discount chain store (no TV) and we had one car. When we moved into our first house, we had to close the doors on the empty rooms with no curtains.

My father-in-law introduced me to the stock market, where I made some small investments with my travelling allowance, before we bought our first house. My first real share investment was as part of an investment club in 2006, to which 16 friends and colleagues each contributed R 5 000. By 2016, this club had a portfolio of more than

R 2.7 million. My first property investment was when I bought a student house, along with my parents and in-laws. My wife and I had only a 5% interest, but it was a start. I had also tried my hand at a few businesses. Many of them failed and one was a huge disaster. Others are, after a few years, starting to pay off. I once read that overnight success takes about seven years to accomplish.

I would say my change in thought started in 1999, when I completed my Master’s degree with a dissertation on personal financial management. Since then, I have never stopped learning about managing personal finances and I constantly try to apply all that I have learned … and am still learning. Are there things that I would do differently today? For sure! We all make mistakes along the way. What is important is not to get discouraged and to continue in the direction of our goals. In this book, I will also share many of my mistakes, so that you won’t have to make the same ones in the pursuit of your goals.

Jaco Barnard

As I am writing this in 2017, I am a 38-year-old male, a chartered accountant, financial planner and academic, married to, no, not Susan, but Rika, and we have three children. My grandfather on my father’s side was a carpenter, who started a furniture factory, together with a family member. He became very ill with an unknown disease, which caused partial paralysis, and he landed up having to use a wheelchair. This resulted in him having to leave the business and incurring many medical expenses. Later, he recovered from the illness and started to work as a carpenter for other furniture factories. His wife did not work outside of the home. They never had a lot of money, but never complained, either, just worked harder. My grandfather even fished and sold his catches to earn additional income. My grandfather on my mother’s side was a teacher and his wife also did not work outside the home.

After school, my father started working as an article clerk and, while studying part-time, completed his degree at the age of 35. He was an accountant for most of his life and my mother a teacher. My mother only started teaching again once all her children had completed primary school. We never had a lot of money and when I was 7 years old, we (a family of six) stayed in a rented, two-bedroom flat and my parents drove one car. But, in spite of this, my brothers, sister and I had the opportunity to study fulltime. I will forever be grateful to my parents for the opportunities that they gave me because of their hard work and sacrifices. During my school years, I delivered newspapers to earn pocket money and saved most of it (by investing it in my father’s mortgage bond).

I started working as a trainee accountant and was able to buy a car with my savings (from the newspaper deliveries and vacation-work undertaken during my studies) and a small loan. That was the last time I borrowed money to buy a car! I got married in my third year of articles (just as Jaco had!), but fortunately I did not have to incur any debt.

I joined the North-West University in 2004 as a lecturer and stayed in Potchefstroom for two years, before I bought my first property. What a stressful thing to do! After staying there for 5 years, I did what most people do - upgrade. Fortunately, during those 5 years I saved enough to be able to buy the new property without having to sell the first, resulting in it becoming my first investment property. I also decided to invest a bit of my income in shares, mainly using Satrix.

All income that I receive, other than my normal monthly salary, I try to save. I either put it into my mortgage bond, or investments. Although I am not yet financially independent, I am on my way, BUT I am living financially carefree, and am doing it with a normal salary!

You now know us a little better - ordinary people, living financially carefree. We have chosen the title of this book as Living Financially Carefree, with the subtitle A Roadmap for the Journey because, like a roadmap, it aims to give you some direction, although eventually you have to choose the route. What is our definition of financial freedom? Many books on personal finance may make you feel that you would never be able to accomplish financial freedom unless you became some kind of millionaire, had a huge share portfolio, a large number of properties or numerous business ventures. You may even think that you must have enough so that you do not need to work any more. We look at it differently. We divide the rest of your life into two sections, each with its own criteria and meaning, in our view, of financial freedom. This is explained below:

What we share in here is based on much research, reading and personal experience. It is also, according to us, the most comprehensive book we have seen on the topic of personal finance, covering financial literacy, wealth creation, financial institutions and legal aspects, as well as various sundry topics of financial planning. May this book be the start of your road trip to financial freedom...

The two Jacos

Contents

To the Reader

Chapter 1. A Balancing Act (The Racing Car Versus the Family Station Wagon)

Chapter 2. First Gear: Financial Literacy Principles

2.1. Personal Financial Risks

2.2. Consumer Spending

2.3. Basic Economic Principles

2.4. Understanding Debt and Credit

2.5. Financial Records and Financial Statements

2.6. Team of Advisors

Chapter 3. Second Gear: Wealth Creation

3.1. The Roof Over Your Head

3.2. Saving

3.3. Investments

Chapter 4. Third Gear: Doing Business with Financial Institutions

4.1. Banks

4.2. Insurance Companies

4.3. Investment Managers

Chapter 5. Fourth Gear: Financial Planning

5.1. A Personal Budget

5.2. Retirement Planning

5.3. Estate Planning

Chapter 6. Fifth Gear: Legal Aspects

6.1. Marriage

6.2. Consumer Protection and Scams

6.3. Tax

Chapter 7. Sixth Gear: Sundry Topics

7.1. Career-Planning

7.2. Your Own Business

7.3. Emigration

7.4. Involve the family

Roadmap to Financial Freedom

Glossary

Index

Notes

Chapter 1

A Balancing Act (The Racing Car Versus the Family Station Wagon)

The goal of this first chapter is to set the scene for the rest of the book. Hopefully, it will assist you to understand how you think about finances and encourage you to turn your financial choices into action. We also hope that it will encourage you to continue your own reading about personal finances once you have finished this book.

The current global financial crises and turmoil since 2007 have placed more emphasis on personal finances than anything else our generation has seen before. Even large organisations and financial institutions are realising the importance of dealing with financially-literate people. It is even acknowledged that the tragic happenings at Marikana in the North-West Province of South Africa, and the labour unrest associated with strikes, are due to people struggling to make ends meet. We have also seen the effect of poor financial decisions and rising costs in the #Fees must fall campaign regarding the tertiary education sector in South Africa. The question is, however, what should we make of all off this.

It has been said many times before that our financial decisions are influenced by mainly two emotions, namely fear and greed. If we are more motivated by greed, we will take more chances with our money (like spending what we do not have, or taking on too much debt, or going after reckless investments) and, if fear is stronger, we will be much more conservative (not being able to enjoy our money because we fear tomorrow, or making investments with such a low return that our money is actually worth less than it was before because we are not willing to make riskier investments). Often these emotions are informed by past experiences, current circumstances and personality.

We would, however, like to add another dimension to this – our level of financial literacy. Research has shown that higher levels of financial literacy support better financial decision-making. With this added to the equation, we can see that financial literacy will help us to balance our emotions and assist us in making better financial decisions.

It is therefore not so important what emotion drives our behaviour, but rather how that emotion is balanced by our financial literacy. It is due to this complexity that we will first have a look at our emotions, which are generated by the way that we think about money. In the rest of the book, we will focus on how you, the reader, can gain better financial literacy so as to ensure that you are able to make the best possible decisions despite your emotions.

Understanding the way you think about money

Before we can continue, it is essential that you understand your approach to dealing with money matters. This has to do with your past experiences, what you have been taught and how you view money. As stated earlier, all people differ with regard to their level of financial literacy, but they also differ in their approach to dealing with finances. Perhaps in reading the earlier section on fear and greed, you have already wondered or decided where you fit in.

It is important that we acknowledge that our upbringing will have had a large influence on how we view our finances. People growing up in difficult financial times or circumstances will often be more conservative, as they have seen and experienced financial hardship first-hand and would like to avoid that by making less risky decisions. But that is not all; we are also born with a certain personality that makes us more likely to take more risky decisions or not. Yes, we are complex human beings and this also reflects on our financial decisions.

You should now go to Circuit 1 (at the end of this chapter) and answer the questionnaire.

It is important for you to understand that your experiences as a child will influence how you deal with money (in a good or bad way). It is important that you identify these issues and, if you have a partner, understand each other’s approach.

In the second part of Circuit 1, you have to determine your money personality. You just need to select all the words in the four columns that best describe you (not how you would like to be). Add up your total score for each column and identify your personal finance-money personality, based on your highest-scoring column.

Table 1, at the end of the chapter, provides a description of the different money personalities. Once you understand your own money personality, you can build on your strengths and watch out for your weaknesses. We are going to address the money personalities again in many of the chapters to follow, so do not skip this step. If you know your strengths and weaknesses, you can balance these with better financial literacy and, eventually, make much better financial decisions. You will notice that we have set out four money personalities: CEO, Manager, Steward and Entrepreneur. Going back to our fear versus greed illustration, we could probably arrange them as follows:

You need to remember, however, that these are generalisations and we human beings are complex and don’t just fit perfectly into only one category. The different money categories do, however, provide us with a starting-point to think about our emotions.

Understanding financial literacy

Financial literacy has three elements:

• Knowledge;

•