A Guide To My Financial Plan

1. A Guide To My Financial Plan Presented by Daniel R Wessels November 2008

2. Roadmap What do I want out of life (goals) Achieving my life’s goals Financial success Financial failure • Deviate from budget • Delay your plan • Human fallibility • Lack of knowledge • Ask for advice • Start early in your life • Stick to your plan Must Have’s versus Nice to Have’s Financial Plan & Budget

3. Goals • Fulfil my potential • Be a role model for your children, family, community, society • Enjoy life, social security, have fun My Financial Plan Integrated with my lifestyle

4. My Financial Plan • Invest in myself • Education • Business • Invest in my financial well-being • Retirement and social security • Invest in my family / people • Donations & Charity • Relationships • Children’s education

5. Risks to my financial plan • Financing decisions • Life-changing events [trauma] • Investment decisions • Attitude & Behaviour • Ill-discipline • Greed (get-rich-quick schemes)

6. How do I overcome these risks? • Appropriate and responsible use of credit • We moved from “save now, spend later” to a generation of “spend now, save later” • We forgot the prudent lessons from the generations that lived through or grew up during the Great Depression of the 1930s

7. The Great Depression of the 1930s

8. The Great Depression of the 1930s

9. When to (not to) make use of credit • House • Vehicle • Furniture • Electronic equipment • Trendy clothing • Groceries • Holidays

10. Appropriate use of credit • Housing (mortgage) • Vehicle finance • Credit card • Personal loans • Overdraft Beware of “One Credit” Accounts!

11. Life-Changing Events • Disability & Loss of Income • Death of spouse • How much cover do I need? • Disability: 75% of annual income • Life cover: 3-5 times annual income • Check your pension plan benefits

12. Investment Decisions • Short-term needs (< 5 years): Predominantly Cash • Long-term needs: Predominantly equities & properties • Demographic shifts: We live longer now… • In the long run inflation is our enemy No 1 • Diminishing purchasing power of money • How much do I need to save for retirement?

13. The Eroding Effect of Inflation

14. How much do I need to save? • Less than 10% of all people will retire financially independent • Retirement Capital Target (age 65) • 15-20 times annual income needs to maintain living standards • See example

15. Saving for Retirement…

16. How long will my capital last after retirement?

17. How much do I need to save? • Age 25: 20% of gross income • Age 30: 25% of gross income • Age 35: 35% of gross income • Age 40: 45% (!) of gross income • NB: Start now, not later

18. Behavioural Mistakes • Not adhering to your budget • “Money is not everything in life…” • But without it you can’t make a difference to your or other people’s lives • Getting talked into quick-rich schemes, following hot tips • Redemption of your existing retirement fund when changing employer (withdrawal from retirement fund) • Working for yourself is a wonderful and gratifying accomplishment, but beware… • Retirement provision • Risk benefits (medical, disability & life)

19. Aid to my financial plan • Age & time on my side • Cheaper insurance cover • Principle of compounded interest • Wide range of investment choices • Consult experts and successful people • Budget

20. Comparative Quotes • Life & disability cover of R1 million each • Age 25: R335 p.m. • Age 40: R665 p.m.

21. The Principle of Compounding • When repaying your mortgage over 20 years, 80% of the loan is repaid over the last 10 years; or nearly 50% over the last 5 years! • The principle of investing is the same, but in reverse!

22. The Principle of Compounding • The exponential growth curve of investing over the long term

23. The Eighth Wonder of the World Compound Interest … “…the greatest mathematical discovery of all time!”

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

25. Einstein’s Eighth Wonder • Person B only starts at age 40, investing R10,000 p.a. until retirement at age 65 – thus a total contribution of R250,000. • Who will have the upper hand?

26. Einstein’s Eighth Wonder • Not even a close race… • Person A will have a retirement value double that of person B, even with 2.5 times less contributions… • …it’s all about the powerful effect of compounding!

27. Investment Choices • Unit trusts, endowment policies • Pros and Cons of each investment vehicle • Cost structures and complexities • Recurring premiums from R300 p.m.

28. Financial budget • Differentiate between must have’s and nice to have’s • Must Have’s • Donations / Charity • Retirement provision & Life/Disability cover • Rent / Mortgage (and vehicle finance) • Household expenses • Nice to Have’s • Dining out, theatres, state-of-the-art entertainment equipment…

29. Summary • What do I want to achieve and gain out of life? • Formulate a financial plan • My education, my financial independence, my social contribution • But life happens… • Disability, financial mistakes • Give yourself a fantastic chance… • Beware of too much & expensive credit • Never forget that time is your best friend, but don’t delay • Stick to a budget

30. THANK YOU! Questions? Presented by: Daniel R Wessels Martin Eksteen Jordaan Wessels cc Financial Advisors FSP 12406 2nd floor 5 St Georges St Georges Mall Cape Town 8001 021-4193134 drw@mweb.co.za