Financial Services

How to Build an Emergency Fund:

I share a recent article written in Investopedia:

Version:1.0 StartHTML:000000316 EndHTML:000046143 StartFragment:000017952 EndFragment:000046076 StartSelection:000018026 EndSelection:000046066 SourceURL:https://www.investopedia.com/personal-finance/how-to-build-emergency-fund/?utm_source=personalized&utm_campaign=aca_bx&utm_term=16189768&utm_medium=email How to Build an Emergency Fund

To quote the American poet Henry Wadsworth Longfellow, “Into each life some rain must fall/Some days must be dark and dreary.” To deal with those dark days, having an emergency fund is a necessity. Think of it as a shock absorber for the bumps of life, one that’ll keep you from adding to the load of debt you doubtless already carry. Here we look at how much you’ll need to save for your emergency fund and how you can get started.

While some call having one to two months’ wages in reserve ideal, most fnancial experts recommend that people maintain an emergency cash reserve large enough to cover three to six months’ worth of household expenses. That’s  a great idea, but it also requires some effort to achieve. The first step in the process is to figure out how much you spend each month. Consumer expenditure statistics from the U.S. Department of Labor indicate that the average annual expenditure per consumer unit, which is similar to a household, is $57,311, as of 2016 (the most recent year for which data is available). This data is broken down by month in the table below. The months in bold highlight the cumulative quarterly expenses, and therefore, the recommended cash reserve for the average household.

Number of MonthsCumulative Expenses
1$4,775.92
2$9,551.83
3$14,327.75
4$19,103.68
5$23,879.60
6$28,655.52

Source: Based on average annual expenditure figure  from the Bureau of Labor’s Statistics’ Consumer Expenditures–2016 release

While your household expenses may be higher or lower than the average, there’s no doubt that even three months’ worth of expenses is a big number. One look at that number and the average person’s first reaction is, “I can’t come up with that kind of money.”

Why So Much?

The amount of money required to fund a proper emergency fund is certainly significant, but we live in uncertain times with uncertain economies. Corporate loyalty is a thing of the past and unemployment can happen unexpectedly, usually at the worst possible moment. Likewise, emergencies like sudden illness or disability, major car repairs or a new roof, can be expensive and there’s never a good time for these things to happen.

While it’s probably true that you don’t have an extra $14,327.75 lying around, everything is relative. Even six months’ worth of expenses is a puny number compared to the amount you will need to save for retirement; there’s not a savvy investor out there who balks at the idea of stashing away so much money that he or she will never need to work again. When compared to what you’ll need over the course of 20 or 30 years in retirement, three months’ worth of expenses doesn’t look like much. (For more on retirement savings see How To Maximize Your Retirement Income.)

Crunching the Numbers

Now that you have things in perspective, it’s time to start saving. Approach this effort the same way you would approach any other financial goal. Put together a plan and execute it. The first step is to determine how much you spend each month. Housing, transportation and food will likely be the  categories that eat up most of your cash. The average household spends nearly 60% of its income (which averages $74,664 before taxes, according to the BLS Consumer Expenditures report), on these items.

Once you know your total expenses for each month, multiply that number by three. Reaching that number will be your initial goal. To achieve your three-month target, you need to start saving money.

If we assume your initial goal is $10,000, the table below illustrates how much you will need to save each month, over a five-year or a 2.5-year period.

5-Year PlanAmount Needed per Month2.5-Year PlanAmount Needed per Month
60 months$166.6730 months$333.33

 

Putting Your Plan into Action

Buying a less expensive car, the next time you are shopping for an auto, and downgrading your cell phone service are two easy ways to come up with some cash to fund your savings plan. Skipping that two-week vacation, cutting down on the amount you spend dining out, and saving your next raise or bonus are also simple methods of adding to your emergency fund.

The key is to add to the emergency fund at regular intervals. Ideally, you should treat your it like any other recurring bill that you must pay each month. Dedicate the appropriate amount from your paycheck and set it aside. While most people have no qualms about regularly sending enormous amounts of money to credit card companies, they balk at the idea of paying themselves first. Change that equation.

If you are among the many investors who don’t have a rainy day fund stashed away in case of emergencies, there’s no time like the present to start saving. Even if you don’t have the dedication to address the project with a dedicated savings program, you can start simple: Take the change out of your pockets at the end of the day and put it in a jar. You could also eat at home instead of dining out and “tip” yourself by adding a few bucks to your emergency fund. If you get cash back on your credit cards, or just paid off a big debt, such as a personal loan or an automobile, put that newfound money into your fund. If you get a tax refund, deposit the check into your fund. If you manage to dedicate just $5 per day to your effort (less than the cost of lunch!), you’ll have $1,825 at the end of the year; that’s $9,125 in just five years. (For more money-saving ideas, read Top 5 Easy Saving Tips.)

Money market funds or high-interest savings accounts are good places to park your emergency fund: They’ll make it harder for you to dip into it (face it: you’ll be tempted to from time to time) and you’ll earn a bit of return on the money, too.

The Bottom Line

View your emergency fund like an insurance policy. Once you have it, guard it carefully. It’s not a piggy bank; you should not using it for incidental expenses. In fact, as your salary rises, be sure to up the amount to match your new situation.

Use the fund only in the event of an emergency and hope that emergency never happens. Remember, once that money is spent it always much longer than anticipated to replace it. Start now and save whatever you can, even if it isn’t much. Some day, when you need the money, you’ll be glad you did. You’ll be able to weather those rainy days, without running up a credit card balance or taking out a personal loan.

For more personal finance tips, see Top 7 Most Common Financial Mistakes and The Indiana Jones Guide To Getting Ahead.

Financial Services

Cape Chamber of Commerce & Industry Annual AGM 2018:

The Cape Chamber of Commerce & Industry AGM 2018:

“Established in 1804, the Cape Chamber of Commerce and Industry is the oldest member-based business organisation in Africa. It is mandated to serve, enable and lead business. This is achieved through a multitude of services, networking opportunities as well as robust advocacy on behalf of business.”

http://capechamber.co.za

 #chambersofcommerce  #networking  #enablement  #betrue

Financial Services

#MillennialThinking:

A great article sharing key thoughts:

Reports* show that as a millennial investor you have a savvy attitude towards cash and you want to be in-the-know about how to grow your money. The value of advice is the focus this World Financial Planning Week, happening in the first week of October, and World Financial Planning Day on 03 October 2018. There is therefore no better time to get your financial house in order. The big question is, should you see a financial adviser, or go at it solo?

Good, independent financial advisers (IFAs) play a critical role in helping you make decisions that are right for your circumstances and can help you manage your behaviour for improved investment outcomes.

However, according to Accenture’s Wealth in the Digital Age Investor survey, only 20% of millennials work with an adviser exclusively, with 57% of millennials suggesting that they don’t trust advisers. The Financial Times Adviser reports that, according to research by the Personal Investment Management and Financial Advice Association, while millennials generally view financial advice as an industry of ‘exclusivity, inaccessibility and high cost’, they also value face-to-face advice.

The cost of free advice

There are pitfalls to substituting financial advice from an IFA with the opinions of family and friends. While investors may be reluctant to pay for advice, there is a far greater cost to not pursuing advice from a qualified source.

We often think that the best advice comes from those closest to us. With investing it is different. Those closest to you don’t know the detail about your financial circumstances. Remember that anyone can give their opinion, but not everyone is qualified to give financial advice. Using a credible, independent adviser can save you money in the long run, earning their keep time and again.

……anyone can give their opinion, but not everyone is qualified to give financial advice…… 

‘Social’ advice should be used as information gathering. Before making any decisions conduct your own research and seek advice from someone who is qualified and independent. Independent advisers are not incentivised to advise on some products over others, or employed by a product provider to sell their products.

In addition, there are laws in place that aim to prevent conflicts of interest between IFAs and product providers, which means a higher likelihood that an independent adviser will remain objective and choose the products that are best suited to you.

When should you see a financial adviser, and when not? 

Should you invest locally or offshore? Is an active or passive solution better for you? What product is best? What funds should you choose?

Choice itself can be a huge barrier. Different products suit different investment objectives – some have tax benefits and others have restrictions that you need to be aware of before committing. It can be overwhelming and time-consuming. An IFA will assist you in working through the options and making choices suitable for your unique situation.

It’s also important to take the time to consider your long-term needs. Do you need to save for your child’s education in addition to saving for retirement?

An IFA can help you shape all your future commitments into realistic goals. An IFA will also help you to keep on track in uncertain times.  Remember the golden rule: if your circumstances don’t change, your plan shouldn’t change.

Different life events introduce new financial challenges, which may require advice. For example, getting married or divorced, having children, inheriting a large sum of money, or retiring.

Financial advice is crucial in order to navigate the ‘how do I…?’ questions that inevitably arise during any of these big changes.

However, if your biggest financial need is paying off debt, it may be premature to seek the services of a financial adviser. You may wish to rather speak to a debt counsellor. As with financial advisers, not all debt counsellors are alike. Only counsellors who are qualified and who are registered with the National Credit Regulator (NCR) may offer debt counselling services.

If you do not feel equipped to make all these decisions on your own, an adviser has the objectivity and experience to help you meet the full range of challenges you might face and help you stay on track.

https://www.rbcwealthmanagement.com/global/en/millennials-and-wealth-transfer

Financial Services

“Honesty is the best policy” (Benjamin Franklin)

SELLING YOUR HOUSE: DISCLOSING DEFECTS 

When you sell anything, our law requires that you deliver it to the buyer without any defects. That’s not easily achieved with property and you should always protect yourself with a voetstoots (“as is” or “without any warranty”) clause in your sale agreement.

But, as a recent High Court case involving a house with roof leaks, defective pool equipment and a list of other defects shows, that won’t protect you if you acted unlawfully in failing to disclose known defects to the buyer at the time of sale.

It’s important here to understand the difference between “patent” and “latent” defects, and we suggest a way to avoid any disputes or accusations of fraud when selling.

“Honesty is the best policy” (Benjamin Franklin)

A recent High Court decision again confirms that when it comes to selling your house, honesty is indeed the best policy.

Specifically, disclose all defects you know of to potential buyers, or risk expensive litigation and damages claims.

Defects and Defences

The buyers of a house, who had paid R2.3m for it (the seller having reduced her original asking price from R3.6m to get a sale), sued the seller for damages in respect of various defects. These, they said, had only come to light after transfer.

The Magistrates Court awarded them R92,352-80 in damages, and the High Court upheld that award on appeal. The seller must also pay legal costs, which will no doubt be substantial. Her loss is a practical lesson in the dangers of trying to hide defects from potential buyers.

The seller did not dispute the existence of the defects complained of, nor did she claim to have shown or disclosed them to the buyers, but she did raise various legal defences to the buyers’ claims –

  • Leaking roofs, defective windows, broken mirrors, defective pool equipment and missing keys: The seller argued that all of these defects were “patent” (easily identified on inspection) rather than “latent” (hidden or non-obvious). The buyers, said the seller, had an opportunity to thoroughly inspect the premises but had chosen not to do so and therefore had no claim. The Court however found that there was no evidence to corroborate this – there being for example no evidence that the buyers had inspected the house on a rainy day when the leaks would have been detectable.
  • The electric fence: In regard to latent defects such as the defective electric fence, the seller claimed protection from a voetstoots clause in the sale agreement. But our law is that a seller has a general duty to deliver the thing sold to the buyer without defects, and whilst a seller should always try to guard against liability for latent defects with a “voetstoots” (“as is” or “without any warranty”) clause, it offers no protection where the seller has acted fraudulently.

Thus a buyer can sidestep a voetstootsclause by proving that the seller “at the time of the conclusion of the contract was aware of the existence of the latent defect in the [house] sold and deliberately concealed the existence of the defect to the purchaser or refrained from informing the purchaser of its existence.” On the facts of this case, held the Court, the seller had deliberately concealed defects such as the defective electric fence energiser.

  • The pool filter and cleaner: The sale agreement included a specific one-month warranty in regard to fixtures and fittings, which included the pool equipment. These, said the seller, had been in normal working order at the time of the sale. But the evidence showed that defects in them, resulting from years of wear and tear and requiring complete replacement, had in fact been discovered within the one month period after the sale. The seller had to honour the warranty.
  • The electrical compliance certificate: The certificate required by the sale agreement and provided by the seller was found after transfer to have been invalid. The house was accordingly not electrically compliant and the buyers could recover their costs of fixing the defects.

A note for sellers

Don’t fall into the trap of assuming that buyers will find defects for themselves, or of believing that a voetstoots clause will automatically protect you from liability.  Avoid all doubt by thoroughly inspecting your property, annex to the sale agreement a written list of all defects you find or know about, then get the buyer to sign it in acknowledgment. There is no substitute for proper legal advice here.

https://www.lhtc.co.za/LegalBrief/Read/50042