A Guide To A Guide To My Financial PlanMy Financial Plan

Presented byPresented by

Daniel R WesselsDaniel R Wessels

November 2008November 2008

RoadmapRoadmap

Financial success

Achieving my life’s goals

Financial Plan & Budget

What do I want out of life (goals)

Must Have’s versus Nice to Have’s

•Ask for advice

•Start early in your life

•Stick to your plan

•Deviate from budget

•Delay your plan

•Human fallibility

•Lack of knowledge

Financial failure

GoalsGoals

Fulfil my potentialFulfil my potential Be a role model for your children, family, Be a role model for your children, family,

community, societycommunity, society Enjoy life, social security, have funEnjoy life, social security, have fun

My Financial Plan

Integrated with my lifestyle

My Financial PlanMy Financial Plan

Invest in myselfInvest in myself EducationEducation BusinessBusiness

Invest in my financial well-beingInvest in my financial well-being Retirement and social securityRetirement and social security

Invest in my family / peopleInvest in my family / people Donations & CharityDonations & Charity RelationshipsRelationships Children’s educationChildren’s education

Risks to my financial planRisks to my financial plan

Financing decisionsFinancing decisions

Life-changing events [trauma]Life-changing events [trauma]

Investment decisionsInvestment decisions

Attitude & BehaviourAttitude & Behaviour Ill-disciplineIll-discipline Greed (get-rich-quick schemes)Greed (get-rich-quick schemes)

How do I overcome these risks?How do I overcome these risks?

Appropriate and responsible use of creditAppropriate and responsible use of credit

We moved from “save now, spend later” to a We moved from “save now, spend later” to a generation of “spend now, save later”generation of “spend now, save later”

We forgot the prudent lessons from the We forgot the prudent lessons from the generations that lived through or grew up generations that lived through or grew up during the during the Great DepressionGreat Depression of the 1930s of the 1930s

The Great Depression of the 1930sThe Great Depression of the 1930s

The Great Depression of the 1930sThe Great Depression of the 1930s

When to (not to) make use of creditWhen to (not to) make use of credit

HouseHouse VehicleVehicle FurnitureFurniture Electronic equipmentElectronic equipment Trendy clothing Trendy clothing GroceriesGroceries HolidaysHolidays

Appropriate use of creditAppropriate use of credit

Housing (mortgage)Housing (mortgage) Vehicle financeVehicle finance Credit cardCredit card Personal loansPersonal loans Overdraft Overdraft

Beware of “One Credit” Accounts!

Life-Changing EventsLife-Changing Events

Disability & Loss of IncomeDisability & Loss of Income

Death of spouseDeath of spouse

How much cover do I need?How much cover do I need? Disability: 75% of annual incomeDisability: 75% of annual income Life cover: 3-5 times annual incomeLife cover: 3-5 times annual income Check your pension plan benefitsCheck your pension plan benefits

Investment DecisionsInvestment Decisions

Short-term needs (< 5 years): Predominantly CashShort-term needs (< 5 years): Predominantly Cash

Long-term needs: Predominantly equities & propertiesLong-term needs: Predominantly equities & properties

Demographic shifts: We live longer now…Demographic shifts: We live longer now…

In the long run inflation is our enemy No 1In the long run inflation is our enemy No 1 Diminishing purchasing powerDiminishing purchasing power of money of money

How much do I How much do I need to save need to save for retirement?for retirement?

The Eroding Effect of InflationThe Eroding Effect of Inflation

Time value of Time value of R10,000 at R10,000 at different different inflation ratesinflation rates

5% inflation5% inflation 10% inflation10% inflation

5 years5 years R7,835R7,835 R6,209R6,209

10 years10 years R6,139R6,139 R3,855R3,855

20 years20 years R3,769R3,769 R1,486R1,486

How much do I need to save?How much do I need to save?

Less than 10% of all people will retire Less than 10% of all people will retire financially independentfinancially independent

Retirement Capital Target (age 65) Retirement Capital Target (age 65)

15-20 times annual income needs to maintain 15-20 times annual income needs to maintain living standardsliving standards

See exampleSee example

Starting point 25 years of age

Retirement age 65 years of age

Lump Sum Investments (ex Residential Prop) -

Present Gross Income 100,000 per annum

Retirement income needs 150% of present income stream

Savings Ratio 20% of gross income per annum

Increase in Income 7.0% per annum

Inflation 6.0% per annum

Growth on Capital 10.0% per annum

Ratio 15  

AGE Future Value Present Value

Retirement income need 65

1,542,858 150,000

Retirement capital available 65

22,508,341 2,188,310

Saving for Retirement…Saving for Retirement…

Capital

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,0006

5

68

71

74

77

80

83

86

89

92

95

98

10

1

10

4

How long will my capital last after How long will my capital last after retirement?retirement?

How much do I need to save?How much do I need to save?

Age 25: Age 25: 20% of gross income20% of gross income

Age 30: Age 30: 25% of gross income25% of gross income

Age 35: Age 35: 35% of gross income35% of gross income

Age 40: Age 40: 45% (!) of gross income45% (!) of gross income

NB: Start now, not laterNB: Start now, not later

Behavioural MistakesBehavioural Mistakes Not adhering to your budgetNot adhering to your budget

““Money is not everything in life…”Money is not everything in life…” But without it you can’t make a difference to your or other people’s livesBut without it you can’t make a difference to your or other people’s lives

Getting talked into quick-rich schemes, following hot tipsGetting talked into quick-rich schemes, following hot tips

Redemption of your existing retirement fund when changing Redemption of your existing retirement fund when changing employer (withdrawal from retirement fund)employer (withdrawal from retirement fund)

Working for yourself is a wonderful and gratifying accomplishment, Working for yourself is a wonderful and gratifying accomplishment, but beware…but beware…

Retirement provision Retirement provision Risk benefits (medical, disability & life)Risk benefits (medical, disability & life)

Aid to my financial planAid to my financial plan

Age & time on my sideAge & time on my side Cheaper insurance cover Cheaper insurance cover Principle of Principle of compounded interestcompounded interest

Wide range of Wide range of investment choicesinvestment choices

Consult experts and successful peopleConsult experts and successful people

BudgetBudget

Comparative QuotesComparative Quotes

Life & disability cover of R1 million eachLife & disability cover of R1 million each

Age 25:Age 25: R335 p.m.R335 p.m.

Age 40:Age 40: R665 p.m.R665 p.m.

The Principle of CompoundingThe Principle of Compounding

When repaying your When repaying your mortgage over 20 mortgage over 20 years, 80% of the years, 80% of the loan is repaid over loan is repaid over the last 10 years; or the last 10 years; or nearly 50% over the nearly 50% over the last 5 years!last 5 years!

The principle of The principle of investing is the investing is the same, but in reverse!same, but in reverse!

Mortgage: Capital Repayment

-

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

400,000.00

450,000.00

500,000.00

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

The Principle of CompoundingThe Principle of Compounding

The exponential The exponential growth curve of growth curve of investing over the investing over the long termlong term

0

100000

200000

300000

400000

500000

600000

700000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

The Eighth Wonder of the WorldThe Eighth Wonder of the World

Compound Interest …

“…the greatest mathematical discovery of all time!”

Einstein’s Eighth WonderEinstein’s Eighth Wonder

Person A starts to Person A starts to invest at age 30, invest at age 30, R10,000 p.a. for 10 R10,000 p.a. for 10 years only – thus a years only – thus a total contribution of total contribution of R100,000 – and leave R100,000 – and leave the savings plan the savings plan intact until retirement intact until retirement (age 65)(age 65)

Person A's Savings Plan

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64

AgeVa

lue

A

Einstein’s Eighth WonderEinstein’s Eighth Wonder

Person B only starts Person B only starts at age 40, investing at age 40, investing R10,000 p.a. until R10,000 p.a. until retirement at age 65 – retirement at age 65 – thus a total thus a total contribution of contribution of R250,000.R250,000.

Who will have the Who will have the upper hand?upper hand?

Person B's Savings Plan

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64

Age

Valu

e

B

Einstein’s Eighth WonderEinstein’s Eighth Wonder Not even a close Not even a close

race…race…

Person A will have a Person A will have a retirement value retirement value double that of person double that of person B, even with 2.5 B, even with 2.5 times less times less contributions…contributions…

……it’s all about the it’s all about the powerful effect of powerful effect of compounding!compounding!

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64

Age

Valu

e

A B

Investment ChoicesInvestment Choices

Unit trusts, endowment policiesUnit trusts, endowment policies

Pros and Cons of each investment vehiclePros and Cons of each investment vehicle Cost structures and complexitiesCost structures and complexities

Recurring premiums from R300 p.m.Recurring premiums from R300 p.m.

Financial budgetFinancial budget

Differentiate between Differentiate between must have’smust have’s and and nice to have’snice to have’s

Must Have’sMust Have’s Donations / CharityDonations / Charity Retirement provision & Life/Disability coverRetirement provision & Life/Disability cover Rent / Mortgage (and vehicle finance)Rent / Mortgage (and vehicle finance) Household expensesHousehold expenses

Nice to Have’sNice to Have’s Dining out, theatres, state-of-the-art entertainment equipment…Dining out, theatres, state-of-the-art entertainment equipment…

SummarySummary

What do I want to achieve and gain out of life?What do I want to achieve and gain out of life?

Formulate a financial planFormulate a financial plan My education, my financial independence, my social contributionMy education, my financial independence, my social contribution

But life happens…But life happens… Disability, financial mistakesDisability, financial mistakes

Give yourself a fantastic chance…Give yourself a fantastic chance… Beware of too much & expensive creditBeware of too much & expensive credit Never forget that time is your best friend, but don’t delayNever forget that time is your best friend, but don’t delay Stick to a budgetStick to a budget

THANK YOU!THANK YOU!

Questions?Questions?

Presented by: Daniel R Wessels

Martin Eksteen Jordaan Wessels cc

Financial Advisors

FSP 12406

2nd floor 5 St GeorgesSt Georges MallCape Town8001

021-4193134

drw@mweb.co.za