Soccer Team Formation – Defenders.
Empower Your Defence (Decrease your expenses).
So far we’ve covered one way to change your financial-soccer formation, and that’s by bringing in more forwards i.e. increasing your income. In order to bring in more forwards you typically “steal” them from the midfielders or from defenders. Financially speaking this equates to reducing your expenses, which is what we’ll cover in this chapter.
Compare the above 2 formations – this first has only one income generator (forward), a clogged midfield (they’re not playing to win, they’re playing to “not lose”), and 3 defenders. The second formation has 4 income generators (forwards), a lean midfield and a strong defence.
Financially speaking I’ll liken the midfielders to your payslip deductions, and the defenders to your after-payslip deductions.
So your midfielders would be: tax, pension, provident fund, UIF, medical aid, etc – any deductions listed on your payslip.
Your defence-expenses would be: Rent/bond, transport, school fees, insurance, funeral plan, clothing accounts, Will policy, cellphone costs, life policy, savings, furniture accounts, TV license costs, DSTV, food, doctor’s costs etc.
Midfielders (payslip deductions)
Most of us think we have absolutely no say in this matter. And while we can’t get rid of these expenses completely we aren’t completely helpless in this matter.
If you’re an employee, you will be taxed at full employee rates, with no allowable deductions. However, once you start another business (income stream) you open up many options in terms of allowable deductions. You WILL require a tax consultant to ensure that you only claim what is allowed and don’t fall foul of the law. However, the cost of this tax consultant is TAX-DEDUCTIBLE (my favourite two words).
Again, as an employee you may think you cannot negotiate this with your employer, and you’d be wrong. When I was single I was on my employer’s choice of Medical Aid (as primary/only member). When I got married, I changed over to my husband’s medical aid (he was the primary member, and I was the dependent). When my husband changed jobs and we didn’t like the new Medical Aid option, I went back onto my employer’s medical aid (I was the primary member and my husband was the dependent).
All this to say one thing – don’t let your employer bully you into only one medical aid option. If you don’t like their option, you can insist on changing. Now you might lose the employer’s contribution in this case (if you’re a contractor you’re paying the full fee anyway), so take this into consideration.
It will take homework on your part to do these calculations – but do them anyway.
Defence (after-payslip deductions)/cost of going to work
So there will always be a cost of living that you’ll never get rid of. This includes shelter, food and clothing. On these aspects you do have leeway between where you live (high shelter costs, versus medium or lower costs), what you eat (caviar versus pap en wors), and what you wear (designer labels versus non-designer clothing).
The bottom line is that unless you do your homework on each of these costs, nothing will improve.
Here’s my favourite quote from Hannes Dreyer “do the calculation!!!”
So let’s see if we can shoot a few sacred cows:
You only need one! I’ve heard a story where pretty young ladies are employed by insurance companies to sell life insurance. They’ll go to various factories around lunch time and chat to the workers, convincing them to buy a policy. This came out when a labourer I heard about always needed a loan even within a week after payday, and his manager asked to see his finances. He had about 5 life policies! With a little bit of counsel and figuring out which policy gave him the best cover he needed, he was able to cancel the rest, which put him back in a positive Cashflow.
Buying on account (Furniture, clothing, TV’s etc)
It was during my research for this book that I’ve found out how some of these companies work. I’ve also found out, through this research that often, when mines hire new staff, loan sharks wait outside the mine gates to approach these people. Because now they have a job, they now qualify for a loan. Irrespective of the fact that these staff are contractors, and therefore their income situation can change within a month.
One of the companies I interviewed for this book is AvoVision. They do various training for new hires at various company sites. One of the modules they cover is “calculating the cost of hire purchase”. Hilton Johnson said to me “if you want to see grown men cry, join this module”. When the staff do the calculation, they’re convinced they’ve got the wrong answer… because their answer shows they’re paying 3 times more for an item than if they paid cash…. and when the realisation hits them that their answer is accurate… I get a knot in my stomach just thinking about it.
AvoVision teaches Financial Literacy in a 1 day course at a cost of R200 per person. Feedback from this course shows it to be life-changing.
How are these people so easily hoodwinked? If you think about it, the shop never shows it this way:
|Cash Price||Monthly Instalment||Duration||Instalment Price|
|R1000||R100per month||24 Months||R2400|
Cash Price R1000 or R100 over 24 months. That would be too easy to see that the payment plan works out to R2400.
Instead the shop marks it this way:
|Cash Price||Monthly Instalment||Duration||Instalment Price|
|R1195.97||R75.93per month||36 Months||R2733.48|
Price R1195.97 (which is why you could ask for a discount for cash), repayment R75.93 over 36 months.
We’ve probably all fallen into this trap at one time or another. But what happens when this contractor loses his job anytime during this 36 month repayment period and is unable to make payment? Not only would the item be repossessed, but he’d be blacklisted for LIFE. Would he ever be able to recover financially? And for what? A big screen TV??? He’s now worse off than he was before he got the job. Do the Calculation!
If you’re looking at this and thinking it’s a bit beyond you, perhaps a good place to start would be to improve your numeracy skills. The Numeracy Academy is your best option for this http://www.fromfantofortune.co.za/ABET
Don’t think you’re immune
When I was doing my banking exams back in the late 1980’s I learnt a concept called The Time Value of Money. Basically, it’s the effect of inflation. Back then the calculation showed that due to inflation, the buying power of your money halved every 5 years. This is why today we can look back at house prices in the 80’s of R34,000 and think “wow, and now I earn that per month”.
If the value of your money halves every 5 years, then R34,000 in 1980 would be the equivalent of R4,352,000 in 2015. And R34,000 in 2015 would have been the same as R266 in 1980.
Why is this important? If you are putting money away for retirement, your investment has to outperform this time-value of money. That’s why when your broker tells you that R1,000,000 in pension won’t be enough to retire on, they’re right! So right now… DO THE CALCULATION.
If you want to retire 20 years from now, and you want to retire on the equivalent of R50,000pm in today’s terms, understand that in 20 years time you’ll need R400,000pm just to maintain your current lifestyle. Now calculate how much you need to invest to give you that level of return.
Sorry, but it gets worse
The above is just on your own money – let’s look at the effect on government debt has on all of this.
National Debt clocks tracks how much debt each country owes (which changes by the second), and divides that by the number of people in the country. Obviously this figure is optimistic, because those under working age aren’t contributing to pay this off. Neither are those on pension. Or those who aren’t able to pay income tax (like immigrants who can’t get work permits, or become a citizen of our country).
Have a look at the World Debt website http://www.fromfantofortune.co.za/DebtClock
Knowing where you stand financially is liberating
While this post might seem somewhat depressing, it can actually be liberating. Once you know where you can improve, you have a course of action you can take. If your current situation doesn’t need improving, but you’re planning for the future, you now have an idea of how focused you need to be to achieve those goals.
A word on debt
It may well happen that while you’ve read this chapter you’ve realised that you’re in over your head in terms of debt. If this is the case, I strongly recommend you get debt counselling. NOW! Don’t wait. Don’t think you’ll do it later. The longer you leave it, the worse it will get – I’m prepared to guarantee this. Google Debt Counselling to find a debt counsellor close to you.
Always ask, what was my contribution to the problem – Cunning Gangeni
Originally posted 2016-10-11 08:08:03.