Tips for Managing your Money by Africa Publishing Company

111

Managing your Money

Presented in a non-intimidating, friendly style,111 Tips for Managing your Money affirms that you do not need to be a finance-whizz to get the most out of your money. In this handy guidebook you will find a rich store of practical advice for every household, emphasising the involvement of the entire family in managing its resources. The author shares her many years of experience in the world of finance through a wide variety of tips, including: • • • • •

Important financial concepts What to look for when investing The value of a good credit record What is your philosophy of money? Planning your debt

• • • •

Banking tips Should parents pay for chores? Buying a car Fraud prevention

Gelyn Musvosvi

Gelyn Musvosvi brings her many years of experience in the world of accounting and finance to this project. Previously a lecturer at Solusi University and the CFO of Gateway Incorporated in the USA, Mrs Musvosvi is currently the Dean of the Faculty of Business at Helderberg College in Somerset West, South Africa. Gelyn and her husband, Ps Simbarashe Musvosvi, are the proud parents of three adult children, Munyaradi, Tapiwanashe, and Rufaro. In her spare time, Gelyn enjoys reading, preaching, and spending time with her family.

111 Tips for Managing your Money

Do you want to be equipped with the knowledge and skill to make good financial decisions?

111

TIPS FOR

Gelyn Musvosvi

111

TIPS FOR

MANAGING YOUR MONEY

111 TIPS FOR MANAGING YOUR MONEY Gelyn Musvosvi Copyright © Africa Publishing Company Exclusive distribution licence for West Africa – Advent Press PO Box 0102, Ossu, Accra, Ghana Tel: +233 303 930 696 / +233 312 297 076 / +233 312 295 968 Email: advent_press@yahoo.com Exclusive distribution licence for Southern Africa – Africa Publishing Company PO Box 111 Somerset Mall 7137, Western Cape, South Africa Tel: +27 (0)21 8527656 Fax: +27 (0)86 5022980 Email: info@africacopublishing.com ALL RIGHTS RESERVED This book or parts thereof may not be reproduced in any form, stored in a retrieval system, or transmitted in any form or by any means – electronic, mechanical, photocopy, recording or otherwise – without prior written permission from the publisher. Unless otherwise marked, all Scripture references taken from the Holy Bible, NEW INTERNATIONAL VERSION. Copyright ©1973, 1978, 1984 by Biblica, Inc. All rights reserved worldwide. Used by permission. ISBN: 978-1-920579-34-0 Publisher: Marcos Cruz Editor: Cindy Hurlow Designer: Melanie Kriel Picture Editor: Cindy Hurlow Published in South Africa Notice: The publisher offers this book to the public in the hope that it will provide information and guidance to the benefit of the reader. However, the reader should keep in mind the role of professional advisors who are authorised to analyse readers’ individual circumstances and qualified to provide the best possible advice in each case. The publisher declines all responsibility should a problem occur from the reader’s use of this book.

Contents

Introduction

1. Finance vs Accounting

2. A skill that everyone needs

3. Planning is decision-making

4. What is Personal Financial Planning?

5. Tools required

6. Keep all source documents

7. Be organised

8. Proper filing of records—manual

9. Proper filing of records—electronic

10. Involve the family

11. At what age should kids be taught about money?

12. Needs vs Wants

13. Planning helps you to have self-control

14. Boys and money

15. Societal pressures on boys

16. Girls and money

17. Societal pressures on girls

18. The benefits of managing money together

19. Save as a family

20. What’s eating your money?

21. Rewarding good savings

22. Teach your children to save up for things

23. Should parents pay for chores?

24. Children should earn money rather than just receive it

25. Lessons against ‘shoplifting’ at home

26. Teach your children integrity

27. What is budgeting?

28. Know your income and expenses

29. Fixed expenses

30. Variable expenses

31. Consolidate your budget

32. What is a cash budget?

33. How to set up a cash budget

34. Reconciling your budget

35. Make your budget effective

36. Be positive

37. Make a little go a long way

38. Take care of the big leaks first

39. Stretching your gross income

40. Stretching your disposable income

41. Stretching your discretionary income

42. Don't pick and pay ignorantly

43. Is shopping around always worth it?

44. â&#x20AC;&#x2DC;Menuriseâ&#x20AC;&#x2122; your grocery list

45. Do not go shopping on an empty stomach

46. Bulk buying

47. Do your own chores

48. Do your own gardening

49. Eat home-cooked meals

50. Save on electricity

51. Save on fuel

52. Bargain hunting

53. Important financial concepts

54. Time value of money

55. Compounding

56. Discounting

57. Present value

58. Future value

59. Net present value

60. Interest rates

61. Savings

62. Banking tips—part 1

63. Banking tips—part 2

64. Reconcile: banks make mistakes too!

65. Buying a car—part 1

66. Buying a car—part 2

67. What is debt?

68. Different types of debt

69. Before you incur debt

70. When debt is a necessity

71. Planning your debt

72. Managing your debt

73. Using credit cards

74. Making use of loans

75. The value of a good credit record

76. The consequences of debt

77. What are investments?

78. What to look for when investing

79. Short-term investments

80. Long-term investments—part 1

81. Long-term investments—part 2

82. Fixed deposits

83. Invest in your retirement

84. Pension funds

85. Property

86. Shares

87. Invest in your children’s education

88. Trust funds

89. What is risk management?

90. Insurance

91. Medical insurance

92. Looking after your health is the best medical insurance

100

93. Fraud prevention—part 1

101

94. Fraud prevention—part 2

102

95. Draw up a will

103

96. Be prepared for disasters

104

97. In the beginning, God…

105

98. What is your philosophy of money?

106

99. Money = Happiness myth

107

100. Money = Love myth

108

101. Money in Bible times

109

102. Biblical finance in our times

110

103. Stewardship

111

104. Tithe

112

105. Do we ‘pay’ our tithe?

113

106. Offerings

114

107. Partner with God—part 1

115

108. Partner with God—part 2

116

109. Partner with God—part 3

117

110. Peace of mind

118

111. Where is your treasure?

119

INTRODUCTION

am sure when you saw the title of this book you thought, ‘Money!’ You are correct in thinking along those lines. We will indeed be talking about money, but we will focus mainly on how to manage that money. I like to compare the managing of finances to the steering wheel which is used to manage and manoeuvre a vehicle. Once after I had been invited to present a seminar on Personal Financial Management to one of the churches, a friend met me and said, “I thought of going to your presentation, but I don’t even have that much money to manage, I simply live from hand to mouth!” I then asked my friend what appeared to be an odd question: “When do you need your steering wheel the most—when your car is the only one on a straight and smooth road or when you are driving on a mountainous road with several hair-pin curves and steep cliffs?”

“I would need my steering wheel all the time, but I would definitely need it most where there are those curves!” he said. I then said to him, “You are right. And in the same way, you need this presentation the most now. Every rand needs to be planned, directed, and controlled if you are to make it safely to the end of your financial journey!” Take a trip with me as we discover the 111 tips for managing your money.

Please note that throughout this book, in examples or tables, I have used the South African Rand as the currency for illustrative purposes. However, the principle of what is being taught is the important feature and these principles can be applied using any local currency. The Editor.

1. FINANCE VS ACCOUNTING

s Finance the same as Accounting? I have had the privilege of teaching both courses at college and I always tell my students that Finance and Accounting are ‘cousins’. We will not discuss who is older in this relationship! If someone were to ask you to ‘account’ for where you were last night, what they are asking you to do is explain, report, describe, and tell them the story of where you were last night. Accounting in financial terms therefore asks us to report, explain, describe and tell your financial story. Knowing your financial story and doing nothing about it would not help, would it? What you do with that financial story is where Finance begins. Finance therefore is the ‘art’ of managing your money and other assets. Therefore we can say that Accounting is the story of how you managed your money and other assets in the past, and Finance is taking information from the previous accounting records (as well as from its environment, like economics and management) in order to make future decisions. Really, you cannot have one of the cousins without the other!

2. A SKILL THAT EVERYONE NEEDS

f I were in charge of the worldâ&#x20AC;&#x2122;s education systems, I would recommend that Personal Finance courses be made mandatory for all students before they graduate with a diploma or degree from any university or college. In fact, I would insist on some Personal Finance teaching to be done even before students graduate from high school. Before the reader thinks that I am simply trying to create a need for the subject I teach and love, let me try to explain.

Personal finance is defined in the Investopedia Dictionary on Personal Finance as: â&#x20AC;&#x153;All financial decisions and activities of an individual. This could include budgeting, insurance, savings, investing, debt servicing, mortgages and more.â&#x20AC;? Just as children are taught to read and write because they will use that skill in their daily lives, it is also important that students are taught how to make good financial decisions because they need this skill in their daily lives too. Whoever will be in possession of money or other assets needs to learn how to manage and control them effectively. The principles and techniques used to manage personal finance are similar to those used in managing corporate finance except that personal finance principles and techniques are on a smaller, individual scale. Do you have the skill? You need it!

3. PLANNING IS DECISION MAKING

lanning is, in essence, decision making. You have to decide what your financial goals are. Once you know what your ultimate financial goals are you have to keep these as your focal point throughout your planning process. Many of us have wonderful dreams about our financial situations but for too many of us these dreams remain just that until the day we die. Therefore the first step in personal financial planning is to set realistic financial goals. At the beginning of each semester, I usually ask my students what they wish their final grade to be at the end of the semester. I have never had a student who has an ‘F’ as their final goal! However, at the end of the semester, it is often not surprising to find those who had wished for an ‘A’ floundering in the ‘F’ category. One of the problems I have noticed is that many of my students know what they want their ultimate goal to be, but very few know how to plan to get there. Financial planning requires that you not only set realistic financial goals but map your way to getting there, as well as constantly check if you are on the right path. What is your financial goal?

4. WHAT IS PERSONAL FINANCIAL PLANNING?

ersonal financial planning is not as complicated as it sounds. Planning is simply the process of setting goals, developing strategies, and outlining tasks and schedules to accomplish your goals. Personal Financial Planning therefore could be defined as the process of setting personal financial goals, developing strategies and outlining tasks and schedules to accomplish your personal financial goals. It is important to remember that personal financial planning is a process and not an end result. One building block is added to the next until the goals are accomplished. At times there may be a need to revise the process, especially if we are not achieving the needed results.

Also remember that a plan is never written in stone. You need to be willing to analyse each building block at each stage to see if it a good starting point for the next building block. If it is not, you should adapt your plan. In the next few tips we will be looking at the best processes to use to achieve your financial goals.

5. TOOLS REQUIRED

ther than a pen, paper, and a simple calculator, you do not really need any specialised tools when compiling, maintaining and managing your household finances. You may not even need a calculator if your arithmetic is good enough. However, having said that, if you have knowledge of certain programs your financial record management could be much easier. These are some of the tools that will help you as you manage your finances: • Simple calculator—for your addition and subtraction. • Financial calculator—this would help you when you do the compounding, discounting and net present value calculations. • Spreadsheets—a knowledge of spreadsheets like Microsoft Excel is greatly advised. Once you put relevant functions on your Excel spreadsheet, it will just do the calculations whenever you enter any figures. Excel is also able to take care of your time value of money calculations. You may be wondering, ‘But how do I use Excel?’ If you just type in “how to use an excel spreadsheet” on Google you will be surprised at how many sites offer this knowledge for free. There is even a YouTube tutorial which you can use and follow. • A financial table is also another tool that you can use when discounting or compounding. • Book and pen—these are a must-have, especially if you are not going to rely on a computer for storing your data.

6. KEEP ALL SOURCE DOCUMENTS

ccountants use the name â&#x20AC;&#x2DC;source documentsâ&#x20AC;&#x2122; to refer to those original documents that describe what happened, when it happened, and how much it cost. One such source document is a cash receipt. For example, one of your till slips could tell the story of how, on 12 December 2012, you bought 13 items from Shoprite for R156. It provides the name of the cashier who received your money or gave you the goods on credit. The only thing not on the till slip is your name, but the rest of the information will be there.

With new technology, source documents can be electronic but they still have the function of verifying your financial story. What are some other source documents? All documents you receive that give evidence of your financial story are source documents. For example, if you purchase a bus ticket, keep the stub. If you buy fuel, keep a logbook stating how many kilometres you travelled, where you went and for what reason, when you filled up and how much fuel you put in (the cherry on top is that the slip will even say which garage you got the fuel from). If you pay your children for some work done, I advise you to document this and to sign it. It might seem unfeeling, as if you do not trust them, but you are training them for the real world. At the end of the month, if you have accounted for all your financial activities (no matter how small these activities were) you may be surprised at how much you actually spent! This will help you to make better choices in the future.

7. BE ORGANISED

n the previous tip I advised you to keep all your source documents. But source documents left lying around just becomes clutter!

Organising your life and knowing where to find what, saves you hours. One of my nieces posted this on Facebook: “Love it when I hide things so well that even I can’t find them… 2 hours wasted!” Look at it this way: you will be held accountable to the Lord for the hours you spent on earth. Surely you do not want to report that a quarter of your life was spent looking for things you once had and ‘hid’? One way to kill the zeal of managing your finances is to misplace your source documents and then have to spend hours looking for them. The following two tips deal with manual and electronic filing. These are two of the best tools for keeping your documents organised and your home free of clutter. 15

8. PROPER FILING OF RECORDS - MANUAL

ery few people I know love to file. We love to just put it ‘somewhere where I will remember’ and twenty minutes later, we have no clue where we have just placed that very important envelope with the receipts! All your financial documents should be stored in an orderly manner so that it is easy to access them. Here are a few tips on filing: • Do not keep unnecessary paper (e.g. the envelopes you receive your invoices and receipts in). Avoid printing out electronic invoices and receipts or documents (see the next tip on electronic filing). • Use a filing cabinet instead of the top of your desk for filing your documents.

• Have an in-tray where you put all your documents when you receive them. By the end of each day (or the week, at the most) empty that in-tray by filing or shredding what is not needed. Don’t keep the documents in the in-tray for too long because they may become too overwhelming. • Label your filing folders in such a way that anyone who may want to assist you will know what the label is. You could group your folders in alphabetical order or according to clusters for easy access. • After you have filed your taxes, staple all needed evidence to your tax return and file it in another cabinet for three years—just in case the taxman wants to audit you. • Whatever is not for the taxman and is more than a year old should be shredded—unless of course it is a receipt for a big purchase with a warranty of more than a year (e.g. a computer or sewing machine).

Happy filing!

9. PROPER FILING OF RECORDS—ELECTRONIC

t is a big give-away as to my age that I remember very well when computers appeared on the scene in the early 1980s. We talked about a ‘paperless office’. We were going to do all our business with no papers left lying around as clues of what we had done! I must say I have indeed witnessed a huge reduction in the use of paper. When I make payments for my bills, I hardly use any paper— including paper money. Instead I do electronic transfers. Filing, too, can be virtually paperless! But how do you file when you have electronic invoices and receipts? • Create a folder called Financial Management on your computer. • Create folders under that folder according to the year. • Under each year create folders for your different activities, for example, ‘Invoices’. • Save all documents as PDF files to avoid anyone tampering with the documents. • Be consistent with your filing system so it will be easy to trace where things are. • Don’t put away for tomorrow what you can file today. Filing electronically is only a click away. • Back up all the time. Also remember your computer might crash or be stolen so have a good external backup (e.g. an external hard drive).

10. INVOLVE THE FAMILY

f you have a family then your financial planning should involve all the members of your immediate family.

Call your family members—from the youngest to the oldest—and let each of them mention what their goals are. Involving your children in this process is training them for the future when they will have to handle money. As the head of the household, you will need to direct the discussion of the meeting. The aim is to reach a consensus on realistic family goals.

Discuss how the whole family might help to make the family’s goals achievable. Let’s assume that your goal is to build a retirement home in the next ten years. Your spouse, on the other hand, has the goal to buy an apartment that could generate funds. Your two teenagers each have a goal of their own. If no agreement is reached, which of the goals will be followed? It is quite possible that if there is no consensus as to which goals your family wishes to achieve none of the goals may be achieved as the resources will be split in too many directions. Rather communicate with each other and as a family decide on the goals you want to pursue. In the next few tips we will look at how every member can be an active participant in managing the finances of the family.

111

Managing your Money

Important financial concepts What to look for when investing The value of a good credit record What is your philosophy of money? Planning your debt

• • • •

Banking tips Should parents pay for chores? Buying a car Fraud prevention

Gelyn Musvosvi

111 Tips for Managing your Money

Do you want to be equipped with the knowledge and skill to make good financial decisions?

111

TIPS FOR

Gelyn Musvosvi