THE COMMONSENSE WAY TO FINANCIAL SUCCESS
THE EVERY PERSON'S GUIDE TO SIMPLE MONEY MANAGEMENT
By Craig Lock
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INDEX
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PREFACE

     CHAPTER ONE .................Introduction

     CHAPTER TWO.................What is financial success and how do we apply good money managing skills

     CHAPTER THREE.............Why do most people not achieve financial success

     CHAPTER FOUR...............The concept of saving

     CHAPTER FIVE.................Selecting a savings programme

     CHAPTER SIX....................Investment

     CHAPTER SEVEN.............Planning for retirement

     CHAPTER EIGHT ..............Money managing hints

     CHAPTER NINE.................How we did it

     CHAPTER TEN..................The final message

     I was born in Cape Town, South Africa which Francs Drake called "the fairest Cape in the entire
circumference of the earth."

     I have been involve in the financial services industry (mainly life assurance), in various positions for about
twenty years. This makes me sound very boring however my career has been in South Africa, New Zealand
and Australia. I am presently in charge of a small team of agents in Gisborne on New Zealand's East Coast
(population 30,000) where I have for the past three years.

     My wife Marie, a New Zealand nurse and I have never earned a great deal, however we have managed
very well in traveling all over the world. We have an idyllic lifestyle with our twin boys, Gareth and Sean, out
of the rat race where we live in a beautiful house right on the beach at Makorori, just outside Gisborne. The
peaceful, tranquil life here has been very conducive and inspirational in writing this book

     My father Ray, a very successful insurance man in South Africa always preached the principles stated in
this book; however like many young people do, I disregarded his advice when I was younger. However I
learnt later in life that he was right all along and before it was too late I used my common sense and this is
the reason why we as a family have achieved what we have done. Our close friends are amazed at what we
have done on a shoestring and achieved our present millionaire-type lifestyle so I hope that this book is of
interest and helpful.

     I would like to thank my wife, Marie and my secretary, Pamela Francois for deciphering my writing and
typing the manuscript.

ADDITIONAL NOTE: Where R (South African Rand) is used,
Australian and New Zealand readers replace with $ (dollars).

     Every day we make decisions about money, yet we are doing very little to educate ourselves and our
children about good money management. I think it would be a good idea for school education systems to
include money management in their curricula as we have to learn by experience in daily living. Most people
endure unnecessary hardship and stress in their lives because they do not know how to manage their finances
and this is my reason for writing this book. I have generally found that books and articles about money are
written in a technical language which is difficult reading for the layman. I have tried to write this in simple 
words which can be easily understood by the average reader. There are no magic secrets to becoming
wealthy: most millionaires have followed common sense basic principles. The secret is following the simple
steps involved in good money management.

     Most of us are restricted by the need to earn an income from the drudgery of the forty hour week 
(unless we are fortunate enough to inherit a substantial amount of money or win a lottery).

     Few people could honestly say their lives would be unchanged if earning an income was not a factor 
in their lives.

     Growing rich or being financially independent is not simply a matter of greed but more a freedom to
choose the manner in which we wish to live our lives. It is simply a matter of attitude. If you are happy as
you are, you will remain that way. If you have the burning desire to do better, nothing will stop you. It doesn't
matter who or what you are - a lawyer or laborer. If you have high expectations as well as commitment and
determination, you will succeed. Rich people are just like the rest of us. Most were not born into wealth and
started out with nothing:- they don't have secret powers, but all have an absolute desire and commitment to
achieve their goals.

     Even in today's recessionary world, with motivation and perseverance anyone can become successful and
independent. With financial security you have the freedom to pursue a more balanced, purposeful and
enjoyable life. However money is not everything; a balanced life is all important. Money will not by happiness,
but neither does poverty. It is easier to be happy when you do not have to worry how you are going to pay
the next bill. Financial pressures are one of the biggest causes of family break up. Achieving financial
independence will take time, dedication and a lot of hard work. However making, saving and investing money
is not as difficult as some people assume. Most of us want to be financial successful, and have the freedom
and security to do those things we generally only dream about. It also gives us more choice in how we want
to live our lives as well as opportunities to earn life's luxuries such as overseas travel.

The Three Simple Principles of Financial Success Are:

     Making money + Saving it + Investing wisely = Financial Success

     These three money management steps - making money, saving money and investing wisely- can be 
likened to the three legs of a stool: each leg supports the individual :take away any one leg and financial
freedom will collapse.

     Although money itself will not bring happiness, it does give you the freedom to do the things that interest
you and to share your money with friends and family or travel. Make money fast and you lose it fast.

     Follow these three basic principles and you will attain financial independence.

"Annual income twenty pounds, annual expenditure nineteen six - result happiness.
"Annual income twenty pounds, annual expenditure twenty pounds nought and six - result, misery".
"David Copperfield" by Charles Dickens

     Success is the progressive realization of a worthy goal. Financial success involves establishing a 
measurable financial goal, i.e. sufficient capital to provide a desired standard of living within a specific time
frame. Once it has been done it is merely a matter of achieving it according to a pre-determined strategy.
This is not as difficult as it seems even though only five in one hundred people will become financially secure 
at retirement and only one of them will be rich. Sixty three out of the hundred people will be virtually 
penniless, dependent on family, friends, charity and the miserly income provided by the state pension. 
(Social Security).

     1. First decide what you really want out of life - you and your partner. In other words the ideal type of
lifestyle you want to achieve for the family; whether to live in big city, to live at the sea-side or in a country
village. It might be university education for your children. We chose to drop out at the seaside. This process
may take several days if properly done and is best achieved by getting together with your partner for a weekend
away from your normal surroundings. (A country retreat, walks in the mountains or at the beach perhaps.)

     2. Establish a measurable financial goal or target to aim for. (Incidentally adults use the word "goal" 
where as children use the word "target" because they expect to hit it). This is the minimum lump of capital
(money) that will return a permanent flow of money (income) to satisfy your desired life style. Set your own
stop point and expect to hit it. You will then know the monetary level (in today's money ) at which your are
prepare to stop work and feed on the fruits of your investment. If you do this you will have all the options
choosing your ultimate lifestyle.

     3. Now you can work backwards and calculate how much you need to save to secure your financial
welfare. You will probably need to enlist the help of an insurance advisor or financial planner who will do
this for you on his financial calculator or lap-top computer. He or she will have to make certain assumptions
about future investment returns and inflation to reach your desired target . Place a specific time frame of
achievement or your wealth target. By when do you want to reach your goal so you can enjoy the lifestyle?

     4. Plan a strategy on how your goal is going to be achieved within in your time-frame. Most people don't
plan to fail but fail to plan. With the huge variety of investment plans on the market it is best to consult an
independent trusted professional.

     5. Progress in a steady manner towards achievement of this goal. Review your progress regularly to 
make sure that you are on track. Usually you need to do this at least once a year in consultation with your
financial advisor. If you are not meeting your commitments or investment returns are not as good as expected
or inflation is too severe, you might have to extend your savings target or increase your savings amount. Be
flexible in your attitude but stay committed. Even if things are not as easy as you expected you can still do it
if you want it badly enough.

     Most of us have to go out to work for forty hours (or more) to earn a salary to pay our bills and maintain
a reasonable standard of living. In addition to making income from work we can also make our money or
capital create additional income in the form of interest, or from luck (gambling, inheritance, lottery win). 
Ideally the income from interest should support your lifestyle for as long as you are alive, so that you don't 
have to worry about formal employment , Once this has been achieved you should not need to sell your
assets to realize cash as this will reduce your income stream which pays all the bills.

     We all have choices everyday: spending money now on unnecessary consumables and luxuries or 
investing it so that it will eventually produce an income stream that will work for us for the rest of lives. When
you have sufficient wealth to provide an income flow to support your desired life style then you could retire
and enjoy yourself by doing exactly what you want. The first Rand or Dollar saved is the hardest to make.
Achieving financial security is therefore a process of building up assets or assets that will generate an income
flow to provide a desired standard of living . That asset or assets may be an interest earning investment, rental
property, business, dividends, royalties and so on. In other words, achieving financial independence involves
making the transition from where we are 100% reliant on temporary income such as salary or business profits
(all temporary in that should we fall ill or lose our job we lose our income) to the situation where our income
does not depend on our active involvement; it will continue to work for us for the rest of our life - regardless
of what we may be doing or where we may be. It is making this transition from needing to work, to making
our capital work, that we need money management skills; how to recognize and take advantage of
money-making opportunities, how best to save that money once we have made it, and how to best to invest
that money once we have saved it. In other words we must learn to manage our money better.

     In the first instance, making money involves either increasing income or cutting down costs (living
expenses); either results in greater disposable income. Job promotion, seizing business opportunities, or
perhaps starting a part time business are examples of how to increase income. However,
the key to wealth is not earning more but managing your finances better.

How much is enough?

     The first step is setting a realistic wealth target that you can aim for. Be realistic and specific about your
long term and current goals. Be prepared to make sacrifices to achieve financial independence be giving up
some luxuries but only make a commitment to what you can easily afford to save.

To focus on that target you must establish two things:

1. The minimum income you need to maintain your current or desired standard of living.

2. The average investment return or interest rate you can expect over your savings period.

     Let us assume that you have decided on R50,000 as a minimum income level. You believe that this is
sufficient to support your life-style. Having considered the various investment options available, you believe
that a 10% per annum average return on your investment activities are realistic for the foreseeable future.

     Having now established these two factors, you would set your ultimate financial goal to be the 
accumulation of R500,000, since this amount of money invested at 10% would return the R50,000 per year
that is required. Assuming a 25% return on funds, a much smaller amount, R200,000 would need to be
accumulated in order to return the desired R50,000 per year cash flow. This illustration shows that the
expected rate of investment return as well as how long you save for are the critical factors in determining the
speed with which you can achieve financial independence. The more skillfully you are able to invest, the
quicker will be your accumulation of wealth and the better the cash flow from that wealth. Also , the earlier
a start is made the better. 

     Assume for example that two people each receive a salary of R50,000. The first is able to save half their
income be living simply. The second enjoys the luxuries of life and spends all but 5% of their annual income.
As the graph shows, the saver would reach his R600,000 after 13 years whereas it would take the spender
34 years to reach that level. (A 10% investment return has been assumed in each case). If you started saving
for retirement at age 25, a fixed R50 a month would accumulate to more than R1 million at 65.

     In these examples you would be living off the cash flow resulting from the interest earned and not eating
into the capital sum. You should be aware that from day one inflation is going to have a severe eroding effect
on the value of your income, especially the rampant inflation in South Africa. At 14% inflation the purchasing
power of your money is going to be reduce by half every five years. Your contributions should be increased
each year in line with inflation to limit the reduction in purchasing power that inflation has on your money . It
will help to know about various investment options which will give you a good return on our money and this
is the subject of a later chapter.

     Understanding the relationship between time and money is critical to understanding how wealth is
accumulated......the real issue is how long you save for. For example assume 35-year-old twins could afford
to save R3600 a year. One decided to save immediately, the other took two years to start. Both saved till
they were 65. Assume both of their investments earned 6% per annum (net). Remember the only difference
is one saved an extra 3600 a year for two years. Our early saver, however, would have a lump sum of
R284,609: Our late saver would have R246,741 - a difference of R37,908. The cost of delay for two years
was worth over ten years of saving. The lesson? The most valuable dollar you save is the first dollar you
save.......it's the one that has the longest time to work for you.

     It is absolutely fundamental and critical that the person serious about a secure retirement of financial
independence start saving early and continue throughout their life. Most people do not start a savings
programme until it is too late, so start saving early. The highest cost of all is the cost of waiting . As we have
seen, one years delay can make a huge difference in capital at the end. The first Rand saved is the hardest.

     Ninety five percent of the population will not be financially secure at retirement and only one will be rich,
because they do not save enough. Clearly everyone needs to save. No-one can achieve financial security
without saving and the more a person can save the quicker they will achieve financial success. If you are one
of the 95% then you must take corrective action - either earn more or spend less - simple. 10% of what you
earn should be yours to keep.

     This is the foundation of financial success. Take an example of a 20 year old who decides to save 10% of
his or her net income. Lets say that this is only R20 a week for the five years to 25, R40 for the ten years to
35, R80 from 35 to 45 and R100 from 45 to 65. If the funds were invested to return 10% after tax, at the
age of 60 a total of R1,609,600 would have accumulated.

     Now compare this with a person who does not start saving until the age of 45, but between the ages of
45 to 65, R100 a week is saved. Start saving early in life and you will achieve success. Delay and financial
success becomes much harder to achieve. Also the more a person can save the quicker they ill achieve
independence and a comfortable standard of living.

     Human nature being what it is, we all don't like having to part with our hard earned money. Insurance
salesmen and financial advisors have the hard and often thankless task of helping Joe Bloggs implement a
savings plan which will provide for the family's financial welfare in the future. In turn this helps and entire 
nation build up capital and instills a concept of saving on a national scale rather than unnecessary spending.

     Financial consultants have to use all their training skills in overcoming clients objections which are normally
stalls and put off rather than genuine objections because most people see that it makes sense to start a savings
programme as soon as possible.

     Reason One: Lack of knowledge: or more specifically, a lack of a desire to gain knowledge. Make the
effort to read to read about financial matters and you will learn. make your money work for you by using the
magic of compound interest a t 7% interest per year your money doubles after approximately 10 years and
at 10% interest after 7 years. Remember the rule of 72. Divide the interest into 72 to see how long it takes to
double your money (or reduce it because of inflation). So the sooner you get started the better. 
Many people don't know where to go for unbiased advise so they do nothing.

     Reason Two: Failure to set plans. Did you know that only 5% of the population sets goals and only 2%
have any form of written goals? Their actions have a sense of purpose - they are results oriented, they are
motivated, they are positive - they are life's winners. Where do you want to be in five years time? Without a
plan it is easy to drift aimlessly, and live from day to day. If you have set goals you will know what you want
to achieve. People fail to succeed because they never plan to succeed. It is not that they plan to fail, they fail
to plan . So set your financial goals (targets).

     Reason Three: Inefficient use of time and poor work habits. Time is like money - you can spend it or
invest it in building a better you by self-development. When you waste you are wasting yourself. Plan your
day - what do you really want to achieve today?

     Reason Four: Lack of foresight. Achievers have an ability to look beyond the immediate and into the
future. Although some may see your visions as dreams do not forget that you have to have a dream to make
a dream come true. Unless you are fortunate enough to be left a legacy, the only money you will ever have
working for you is that what you save from current income and invest. People with vision can multiply their
income by investing in growth investments. Work for your money then make your money work for you.

     Reason Five: The need to conform. Dare to be different which is why the majority of people are not
successful. Don't be afraid take calculated risks. Remember the people who make big money are the ones
who do the opposite of what everyone else does - sell when everyone else buys and vice versa.

     Reason Six: Poor debt management through excessive borrowing. Lack of discipline through poor
spending habits and having no budget. Borrowing for things that loose value, so that with interest payments
you pay much more the article than it cost initially. (Especially new cars, furniture etc.)

     Reason Seven: Lack of desire as a result of a poor attitude to acquiring wealth. Bad mental attitude 
has caused more personal problems than any thing else. What we expect to happen usually does.
Successful people are optimists while unsuccessful people have a pessimistic attitude . Block out
negative thoughts and stereotypes and mix with successful, positive people.

     Reason Eight: Inadequate protection against unforeseen events. It may be the loss of a home due to
natural disaster or the death or disablement of the bread winner. Adequate protection (insurance) against 
these events is vital to financial success. Not being properly covered has financially wiped out many
potentially successful people.

     Reason Nine: Lack of discipline. Most people find it difficult to save because they save- buy-save-buy,
while others simply buy. It is easier to say yes than no. Those who lack the discipline to say "no" will find
financial success an impossible achievement. The "must have it now" mentality - buy now what your can't
afford by charging it up in the hope that you can pay for it later. Most people are easily led by advertising
and the easy availability of credit.

     Reason Ten: Many people put off a savings programme until it is too late. Young people have a
wonderful opportunity and advantage because they have time on their side.

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     The reasons people give for not starting a savings programme are varied and many are genuine. They also
vary according to age. In their twenties they are just getting started in life with a first job and want to enjoy
themselves by spending on cars, stereos etc. In their thirties they have a young family and a mortgage to
support and no money. In there forties they say things are tough with kids to put through university and
unexpected medical expenses.................and in their fifties it is already too late with no time left to
accumulate capital through the magic of compound interest.

     Australians, New Zealanders and especially South Africans have very poor savings records, being 
amongst the lowest savings rates of any semi-civilized western economies . The Japanese have consistently
been the world's best savers, saving about 16% of income (after tax). This is one of the main reasons why
that country is one of the world's economic super-powers after its defeat in World War 11, as well as having
one of the highest living standards.

     Australians, New Zealanders and South Africans save less than 3% of their income and this is not enough
to provide for a secure retirement. These rates have reduced drastically from around 6% in recent years. For
the South Africans it is imperative to save substantial amounts for retirement as they do not enjoy the benefits
of any welfare system. They are also subject to the severe inflation bogey of a developing nation and they
should regularly update their savings as salaries increase.

     Most people have a "work and spend" lifestyle. Fortunately most people are recognizing these facts and
breaking the traditional spending cycle. They recognize that financial independence can be achieved. Once
we have earned money we have to make a commitment to saving a proportion of it regularly for the future.
The desired level of savings will depend on each individuals circumstances and the amount of disposal income.
As a rough guide everyone should aim at saving approximately 10% of their income for future needs.

     1. In the early years of our working lives we tend to spend relatively more than we earn. Cars, stereo
systems, overseas trips and other things deemed essential to the well-being of today's modern youth, usually
consume all and often more than their income. Young people buy items on credit on the assumption that 
there is plenty of time to pay the debts - spend now and pay later attitude.

     2. Marriage, the arrival of children and the apparent "necessity" for your own home and a second car.
The financial cost of children is often a burden on families as well as escalating health costs.

     3. Greater work experience and skills, and an increase in income - a second parent often returns to the
workforce as their children become less dependant.

     4. On retirement, wealth begins to be depleted as superannuating (state pension) becomes the only 
source of income and leisure becomes a major consideration. After working all your life you are entitled
to your leisure, but it all costs a lot more money than you think.

     By developing good savings habits EARLY in life financial success is assured. It is important to have
different savings programmes for your short term, medium term and long term needs. (see illustration).

PAY YOURSELF FIRST

     Here the guiding rule is "pay yourself first" (aim for 10% of income).

     Who is more important - you or your bank manager? The telephone company? Your grocer? Your
electricity supplier? You are of course, but who do you pay first? Yourself or the many people falling over
themselves for a share in your income? At the end of the week how much of what you earn stays in your
pocket? Somehow it seems to go to everyone else but you, yet it is you who spends most of your time
working. 

     Why not make the first cheque you write each week, a cheque to yourself? Paying yourself means literally
that. Each pay day, pay yourself before you pay anyone else. Actually write a cheque to yourself and deposit
into a savings or investment account or sign a debit order (bank authority) to have the money automatically
taken from your account and then paid to a financial institution. Spend the rest by all means but at least you
will be building up a reserve and be on the road to wealth.

     With the hundreds of savings plans and retirement plans being promoted in the media (by banks, finance
companies, insurance companies, unit trust or mutual funds and various other companies), how does Mr.
Average choose one to suit his particular needs? The consumer is bombarded daily with advertising 
promoting the merits of the various savings mediums. He or she really needs good impartial advice from a
trusted professional.

WHAT SAVINGS PROGRAMME SHOULD I HAVE IN PLACE?

     There are two basic paths that can be followed. The first is to make regular contributions into a structured
savings scheme where you make a contractual commitment with a financial institution to make payments for a
certain period. The fund manager is usually an insurance company, finance company or building society who
administers and invests your savings for you, taking care of the worry and responsibility in exchange for a fee.

     The second approach is to establish your own savings plan programme by doing it yourself.

     Each method has its own merits and disadvantages and both approaches should be carefully considered.

STRUCTURED (CONTRACTUAL) SAVINGS SCHEMES

     Here a wide array of financial institutions operate in an extremely competitive market with hundreds of
agents and brokers (not tied to any particular company) promoting the benefits of saving. It is important to
select a scheme that is appropriate for your particular needs . Some schemes are better than others so you
should be fully aware of all the facts before committing yourself to a lifetime of savings with a particular
company. The areas to look at in planning savings plan are:

     * The flexibility of the plan and access to your to your funds in an emergency( and at what cost) - 
        can you increase and decrease contributions.

     * The security of the company managing your investments.

     * The areas in which your savings are being invested.

     * The cost attached to each scheme. (setting up fees as well as ongoing management charges.)

     * The effect of tax - look for tax-free returns.

     Almost all savings schemes promoted today are flexible in that contributions may be increased,
decreased or suspended at any time as your circumstances change.

     Most things have a cost, so agents make their income from commissions on the financial products they
sell; (they are providing a service for the entire period of your savings and should be rewarded for it.)
However, there can be quite a difference in the amount charged between different institutions. On top of this
the company administrating your savings scheme will make annual management charges, either as a 
percentage of the funds invested or as a fixed annual charge (or even both ). 

     These costs are paid by you the customer, and these charges have a significant effect on the end result
of your many years of saving. Normally it is better to have the charges taken out in the early years (called
front-end loading) rather than a flat percentage of the final point. This is because of the roll-up effect of
compound interest over the investment period. 

     The cost of each scheme is reflected in the "payback"" period which shows how long it would take the
investor to receive their money back if they withdrew from the plan. It is important to consider this because
changing circumstances may necessitate changes not only to how much is saved, but also to the savings
approach adopted. It is therefore important to consider the payback period before you commit yourself to
a structured savings scheme.

     Unit Trusts (or Mutual Funds) are a convenient and efficient means of investing for the smaller investor.
Setting up fees are normally lower than plans offered by insurance companies. Payments can be made on a
regular monthly basis or single contributions can be paid in, on an " an and when" basis. Investors buy units
in a pooled fund with a spread of investments which is managed by the financial institution.

     N.B. Remember that most people cancel their savings scheme after seven to eight years. If you run into
financial difficulty or your circumstances change, you might wonder what to do: continue paying into the plan,
suspend or reduce payments or cash in the plan. In the early years the value may be far less than the
contributions made, therefore it is probably best to temporarily suspend payments rather than outright
cancellation.

     Another critical area to consider with a structured scheme is: "where are my funds being invested?"
Some funds take a relatively low risk approach by investing mainly in fixed deposits like cash on call and
Government Stock. Other funds have a greater proportion invested in more volatile areas such as property
and shares. The average investor should normally invest in a balanced fund comprised of an even spread of
investment types, rather than investing in one sector. This approach reduces the investment risk.

     Remember that generally the greater the possible risk, the greater the potential return to the investor.
Normally you should invest in a fund with an investment mix that best suits you and has a similar investment
philosophy to you, depending on how you view various markets. If you are going to place your life savings
(and therefore financial future) in the hands of a funds manager then there must be absolutely no doubt about
the security of that company. Look for companies with a proven track record.

     Here you are responsible for your own investment / savings programme. You set aside money each month
from your pay and make your own investment decisions. If you are one of those rare breed of people who
have the discipline and commitment to put away money away for yourself on a regular basis, you can avoid
some establishment charges by running your own savings programme. Rather than leaving your savings under
the management of a financial institution, you can take your funds out of your savings account and make
investments according to the opportunities available at the time. Paying off your mortgage is an option which
is covered later, as well as investing in your own business, property shares, fixed interest investments etc.

     Developing one's own savings and investment programme avoids some of the costs of saving via a
structured scheme but places the responsibility squarely on the shoulders of the investor. Therefore I 
would not normally recommend this approach to the average person.

     It is important to remember that effective management of your money is the key to growing rich and the
most effective and painless way of saving is having payments automatically debited from your bank account.

     "In investing money the amount of interest you want should depend on whether you want to eat well or
sleep well". When we talk of investments there are those who would say: "That's the last thing I'm concerned
about, all I want to do is to survive". A question that is frequently asked is: "Where do I invest my money?"

     Basically there are only three types of investment that you can make.

     1. You can give your money to someone else and receive interest and/or capital appreciation. Here there
is a huge variety of possible investment choices.

     2. You can put your money into your own business or someone else's such as through the share market 
or by investing directly in a business.

     3. You can invest in property and receive rents, or invest in a property trust (a pool of investor's money
which is put into mainly commercial properties). Also Participation mortgages.

     Before we can do this we need a good deal of knowledge. There is so little tuition on financial matters
and investment . We have been taught to be income earners but not how to become income spenders and
savers. Saving for the short term is a necessity but saving for the long term is a bore (because people haven't
been taught to see the long term benefits). Too many people think short term rather than long term. We have
seen the third consideration to financial success is to invest your money wisely once your have saved it.

INVEST WITH AN OBJECTIVE AND TAKE A LONG TERM APPROACH

FIXED INTEREST:

     1. Money on call and short term bank deposits, government securities and local body stock (bonds),
bank bills and company debentures.

     2. Property: Mainly commercial which can provide income in the form of rentals or you can buy your
own property (properties) or invest in a pooled property trust.

     3. Shares: Where the investor buys a stake (equity) in mostly listed "blue chip" companies. The share 
price is quoted daily in newspapers and fluctuates depending on supply and demand.

     You should match the type of investment with your own objectives to determine your own investment
strategy: fixed interest investments offer the greatest security whereas shares are more exposed and offer
possibly greater yields in the long term. Investments can also be made in collectibles such as gold, jewelery,
antiques, art, and classic cars.

TIPS ON INVESTING.

     Firstly ask yourself what is your long term investment objective? Your investment objectives have several
dimensions.

     1. How long is your investment horizon? Are you making an investment only for a short period of say a
few months or years, or are your investments long term, to provide for your retirement in 20 years time?

     2. How much annual income do you need from your investments? Are you relying on income earned from
your investments to supplement your current spending power, or have you already got enough income from
employment to meet your current spending and hence do not need to eat in income in the meantime?

     3. If you need to earn income now, do you need income later or do you need the income to grow annually
to offset inflation?

     4. Can you afford for the value of your investment to decline even in the short term? Do you need to
know that your investment is always going to be worth at least what you paid for it.

     5. Do you need the capital value of your investment to grow to offset inflation and/or increase your wealth?

     6. How important is it that you are able to sell your investments at any time for a fair market value? Or do
you think you will always be able to wait until market conditions are favorable to you as the seller?

     7. Are there any taxation considerations that will influence your investments? For example, if you are a
superannuating (pensioner) you may wish to minimize surcharge tax (New Zealand).

     Therefore the factors to look at are:

     1. Income and income growth.

2. Capital growth and certainty of capital value. 
(whether to look for a capital guaranteed investment).

3. Marketability of the investment.

4. Taxation considerations i.e. the effects of tax on income and /or capital growth
- look at the most tax efficient investments for your circumstances.

     If there is any one golden rule of investment , it must be that your investment portfolio should be diversified
or, more simply that you shouldn't "have all your eggs in the one basket". What this means is the success or
failure of your investment strategy should not depend on the success or failure of a single investment. Many
people who lost heavily in the share market in the last part of the eighties lost because all their investments
were in the share market (and often on borrowed funds) and also because they invested in only a few
companies.

     This is the reason why I would usually recommend having your savings invested with a professional fund
manager in a balanced portfolio which has a spread of investments in various companies in a range of
investment sectors e.g. industrial, finance, motor etc. A downturn in one particular industry will then not 
have a severe impact on your investment.

     Attitude and careful investing for the long term should be determined by each individuals tolerance to risk
(or risk profile). Bear in mind also that investment markets are cyclical - investments are good at particular
times and not at others. The important thing is the timing of your investment - when you buy into certain
markets. The easiest way to make money is to buy right, the easiest way to lose money is to buy wrong.

     "Wise" investing is a process that begins by establishing appropriate investment mix parameters. For
example , it is inappropriate for a retired person to have the bulk of their wealth in the more volatile 
investment markets, such as the share market or an equity trust. On the other hand a young person with 
many years of earning ahead of them may be quite comfortable with a more balanced spread of shares,
property and fixed interest investments. These weightings should be "fine tuned" according to the current
conditions prevailing in each of the markets. Down-trending markets should be under weighted until 
conditions improve, since it does not make a great deal of sense to invest in the share market, for example,
while capital is flowing out of a market and prices falling . (Bear market as opposed a rising bull market.)

THE EFFECT OF INFLATION

     "Inflation means that your can live in a more expensive house without having to move". It is a process
whereby the amount of money in circulation is increasing so that the value or purchasing power of the Rand
(dollar) is dropping over a period of time. But inflation is not bad for everybody - for every person who
loses by inflation, another will gain.

     For example: the value of the average family home rises by 12% due to inflation. The winners are the
present home owners who see the value of their asset increase. The losers are those who have not yet
bought, as it now costs them more to buy.

     So it is clear that in times of inflation it is sound strategy to keep the major part of your assets in a form
which should increase in value, and only a very small part in banks, finance companies, building societies
and other areas where it is losing value every day.

THE RULE OF 72

     This is a simple way to calculate the effects of inflation. There is a magical number, 72, which can as a
simple financial calculator. If we take the number 72 and divide it by the expected inflation rate, the answer
will be the number of years for money in cash form to lose HALF of its purchasing power or assets to
DOUBLE in value.

     If inflation is 8%, every nine (i.e. 72/8) years an asset such as an income-producing property should
DOUBLE on price , and the money you have left sitting as interest-bearing deposits or debentures will now
buy HALF the products it would have bought nine years ago. If inflation runs at 12% this doubling of 
halving will occur every six years (72/12).

     Remember that it is important to obtain a real return on your investment. In other words the yield after
tax should be greater than the inflation rate otherwise your money is going backwards.

     After the 1987 share market crash many investors are now curious, especially in Australia and New
Zealand, shunning growth investments such as property and shares and leaving most of their investments in
bank deposits and other "safe" fixed interest investments. Just because you once received a shock does not
mean that your have to stop using electricity! Just like you see a doctor when you are sick or a lawyer for
legal advice, you should consult a professional for investment advice.

     Generally the greater the return, the greater the risk. The more speculative the investment with the best
payout to you, the more risk you have of losing all your money. That is why bank deposits are such a low
risk investment.

     For most young people when you are footloose and fancy-free, retirement seems like light-years away
and is definitely the last thing on your mind. However it comes up far sooner than we think so the sooner
we start planning for it the better.

     As the saying goes: "Nobody plans to fail, but most of us fail to plan." If that failure affects your family's
long term security including retirement, it can have serious results. The primary investment goal for most
people after owning their own home is to be assured of a comfortable retirement. Yet many fail to achieve
that ultimate goal.

     The key to avoiding future problems is to plan well ahead with a financial plan that addresses what your
future life-style goals and needs are, and the best use of your current and future resources to attain these goals.

The main areas that affect us over our lives include:

* buying a home

* choosing a mortgage

* choosing appropriate life insurance and income protection cover

* medical cover

* children's education

* budgeting

* planning for lifestyle goals (e.g. holiday, new home)

* replacement of consumer items (e.g. motor vehicle, washing machine).

* retirement planning

* investment planning

* estate planning (for wealthy people)

* professional services (e.g. legal services)

     Of all these areas, planning for and ensuring an adequate retirement income is probably the most important.
Surely after 40 years of work, we owe ourselves the reward of an enjoyable retirement. A successful
retirement is one where we have the financial resources and time to pursue many of the things that the
commitment of work and a career have previously restricted. But such enjoyment is often expensive.
Although the amount of money we have accumulated by the time we retire may seem enormous, the
accumulate effects of maintaining our life style, taxes and inflation, mean that it is possible to run out of money.

     An "average" retired couple today has an excellent chance of sharing at least 15 years of retirement
together. Of men who reach 60, well over half will live on past the age of 75, and in the case of women, well
over half will make it to 80. This means that some of us will spend up to a third of our adult lives in retirement.
The question is how do we fund our retirement years?

N.B. THE MAIN MESSAGE IS TO ESTABLISH CLEARLY DEFINED FINANCIAL GOALS.

     One obvious conclusion from all of this is that a good retirement plan should start from the day we
commence employment and be flexible enough to cope with the uncertainties and changes in our lives.

     THE KEY TO GOOD RETIREMENT PLANNING is structuring your investments and personal (and
company) pensions so that you have a predictable stream of income to meet your needs. In addition, your
investments must also show some real return - that is a return after tax and inflation - that can be reinvested
to ensure your income in future years keeps pace with inflation.

     When it comes to investment these days we are faced with a huge array of choices. Providing for their 
own retirement income can be a daunting task for first time investors. Once the decision has been made to
invest savings long term the nest step is to decide which of the money saving products is most suitable.

For example:

Retirement annuities
 (South American personal retirement plans)

Unit trusts (or Mutual Funds)

Shares

Endowment policies

Property Trusts

Property

Participation Mortgage Bonds

     The best investment strategies are based around long term trends and a few basic rules which may be
summarized as follows:

INVEST IN SIMPLE THINGS

     Don't invest in things you don't understand. If you are attracted to new investments, learn about them first.

PUT YOUR EGGS IN SEVERAL BASKETS

     Diversification is definitely the key to security. Gone are the days when you can invest money and then sit
back and enjoy the returns for the next few years.

     Different investment sectors can move at different times and it is impossible to predict which will perform
well next. It is therefore makes sense to have a mixture of investments such as fixed interest, property and
shares (often referred to as equities). Diversification applies not only to different investment types, shares and
property, but also to different countries (not South Africa) and different fund managers. 

     Recent studies have confirmed that the decision you make at this stage, i.e., what investment classes you
will invest in, will determine up to 90% of the total return that your portfolio produces. The actual investments
you buy, i.e. the actual shares, the actual houses or buildings, or the actual fixed interest deposits you make,
only have a marginal effect on the total outcome.

ESTABLISH WHAT LEVEL OF RISK YOU ARE PREPARED TO LIVE WITH.

     Generally the rule is that to get high return you need to take a correspondingly high risk. On the other hand,
too low a risk may mean that you expose your portfolio to the danger of falling behind inflation in the
performance stakes and thereby risk compromising your future lifestyle and security. Growth investments such
as shares and property, play an essential role in protecting the purchasing power of your investment capital.

DON'T BE TAX DRIVEN

     Although there are ways to make tax savings and methods that allow you to reduce your tax, don't 
become obsessed with saving on tax at the expense of making a profitable return.

WATCH EXPENSES

     Make sure that when you pay fees and commissions to fund mangers and sales people that you are getting
value for your money.

AVOID ECONOMIC LOSS

     It is far better to ensure the return of your investment capital (inflation adjusted) than to focus on your
capital. The last ten years before retirement are extremely important and you can not afford to make mistakes
at this stage. You should attempt to build up as much capital as possible in a tax-efficient manner. It is 
essential to research options thoroughly before making decisions.

     Unless you are one of the very few who have the knowledge, the time, the temperament and the resources
to do this, you will need professional advice. Using the services of a financial planner or advisor can be very
good value for money. A good planner has the ability to extract a client's personal and financial goals and
then design a practical and flexible plan to achieve them.

     Good financial planners also encourage their clients to be involved in the planning process and make a
strong effort to understand and direct where they are going. As to finding a good planner, as with any
professional, a referral is often the best advertisement. The best sources of referrals are satisfied customers
and other professionals. Don't forget to also assess their usefulness to you. Ask about their background and
education, what services they offer, are they independent or tied to a major institution and finally what is the
breakdown of their charges - do they charge fees or do they earn a commission by selling you a product?

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ACKNOWLEDGEMENT

Note: In this chapter I have quoted extensively from an article by JORDI GARCIA which appeared in
 THE SUNDAY STAR in AUCKLAND, NEW ZEALAND. I found it to be excellent and 
the best article on the subject (including books) that I have come across.

     2. Avoid excessive borrowing and do not borrow to buy consumable or luxury items such as cars and
holidays. Rather implement a savings plan to pay cash for those items in the future - make them financial
goals. Credit cards can be useful but use them sparingly as the exception and not as the rule.

     3. Borrow from the most cost efficient source - get your mortgage from the bank or building society
offering the lowest interest rate. Also be alert to alternative cheaper forms of finance. You will not achieve
financial success if you borrow money to buy an asset that is not rising in value. The financial return from the
asset must be more than the interest cost of the debt. If an asset fails to return at least the cost of financing
its purchase sell it.

     4. Speculation. There are time's in a man's life when he should not speculate. "When he can't afford it
and when he can". (Mark Twain) There is nothing wrong with financial speculation as long as it is done
with money you can afford to lose and as long as the odds are in your favor. However don't gamble on the 
horses or other high risk games of chance. Treat them purely as entertainment and not the way to make a
fortune, Investing in the share market is not really gambling at the odds are in your favor long term.

     5. Opportunities. Opportunities are everywhere so look out for them like going into business for yourself.
Create your own by looking at a situation from a different point of view. Remember that change is an
opportunity in disguise. Problems are not insurmountable but a challenge. Obstacles present opportunities
to find new paths.

     6. Gain Knowledge.  Investing without knowledge is perilous so expand your knowledge and insight by
reading, listening and thinking about financial matters. When in doubt seek advice from an independent
financial consultant - as Ronald Reagan said "Trust but verify". With knowledge and discipline you will be
financially successful.

     Finally a most important factor in good money management is a positive outlook towards the future. You
should also have a positive mental attitude towards yourself but at the same time recognize your strengths 
and weaknesses. With a belief in your self and with commitment to your goals you will be a successful 
money manager. 

     Have courage to take the tough financial decisions that sometimes have to be made, like selling the family
home or downgrading the car to free up capital . Do not fear failure. Project a positive image and market
yourself as a person who enjoys the challenge of achievement. Most of these proposals are common sense
but many people ignore these basic rules.

USE YOUR IMAGINATION

     The following are miscellaneous tips on making the most of your money. The most important basic 
principle is to live within your means and a penny saved is a penny earned. (In fact a cent saved is worth
nearly two cents earned because of the effect of tax on your earnings). Treat yourself occasionally but don't
live extravagantly unless your can afford it and still save. This is fundamental to good money management
yet many people don't follow this principle.

     Firstly evaluate where you are now by drawing up a statement of your assets (e.g. house, car, furniture,
etc.) and liabilities (mortgage, personal loans, overdraft, hire purchase, credit cards etc.)  From this you can
draw up a budget of income and expenditure. Look at your outgoings and make a commitment to live within
that budget. Meet those goals on a weekly basis and monitor your progress regularly. Sometimes it is
necessary to get help from budget advisors if you have a severe problem that you cannot manage yourself

WHAT DO YOU DO IF YOU CAN'T MEET YOUR DEBTS AND MAKE ENDS MEET?

     The best advice is admit it and try and to come to some arrangement with your lender.

     1. Draw up a budget of income and expenditure - cut down on expenses, household and personal .
Also consider part time employment.

     2. List your debts outstanding including payments still to be made.

     3. List your assets for possible sale.

     4. Approach lenders to see if you can negotiate lower repayments over a longer period to repay the
         amount.

     5. Attempt to reorganize borrowings into one loan, perhaps at a lower rate over a longer term.

     You can also improve your financial position without receiving a dollar (Rand) more in income by not
spending it.  Most families spend money inefficiently and could live more economically by cutting costs in
housing, car expenses, entertainment or hobbies. A person smoking two packets of cigarettes a day would
spend over R3,000 a year which is about 10% of the average wage. The golden rules to spending less are
paying off debts as quickly as you can - interest is the killer of your financial health. The other is saving a
nest egg fund for emergencies such as unexpected medical expenses.

HAVING FINANCIAL DISCIPLINE

     * An inability to save is usually due to bad spending habits.

* There is more to be gained by cutting spending than receiving a salary increase
(because of the effect of tax).

* Aim to save at least 10% of your income even if it means cutting your costs to achieve this.

     But all this is unsound if the potential investor is heavily mortgaged.  The fastest route to financial freedom
is to pay off debts.  "Knock your mortgage on the head as soon as possible". It does not make a great deal 
of sense to invest spare cash on one hand at 12% (and be taxed on that income) while at the same time 
you're paying a mortgage at 16% after income tax.

     Perhaps you could take on a boarder or do some repairs yourself, if you are technically minded . This is
what I do. Also sell under-utilized assets like boats and caravans. Some items can be bought second-hand
and will not lose there value as quickly as new ones. Enlist the help of family members for housework and
gardening (in places like South Africa.)

     I was privileged to be brought up in an upper middle class environment in Cape Town, South Africa, in
the heydays of rigid apartheid. My father and mother who worked very hard gave both my sister, Glenda 
and I a university education which I probably did not fully utilize and appreciate at the time.

     As an extremely successful insurance agent my father took out children's education plans for us at a
very young age. (Old Mutual Whole Life policies ). When I took over ownership and payment of these policies
once I started work, thy came in very useful on numerous occasions. Firstly as a deposit or full payment 
(I can't remember which) on my first car, a Morris Mini Minor. These loans were repaid quickly and the
policies were used again and again for bigger and better cars like a Cortina then a real 
Alfa Romeo Berlina - the ultimate car!

     Once again the loans were repaid and then borrowed on to travel overseas on my Big Overseas
Experience. All the time although the premiums were very small. the values were rapidly building up with
bonuses.

     On returning home, they came in useful once again to supplement the deposit on my first house, an
old British Army barracks in Lansdowne which was later declared an historical monument. The cost was 
R14,000 which my wife Marie and I then sold two years later for R36,000. We were soon our way to
"fortune" and nearly all our best investments came from buying property and redecorating. I think saving for
the deposit on a house, then buying one at a young age is the best investment any young person can make.
We repeated this process three times improving our house and area each time until we even crossed the line
(snobbish Cape Town's barrier to social acceptability), living happily in Wynberg.

     Around this time we also discovered a lucrative hobby which became a lot of fun. We wanted to replace
a carpet so decided to sell it. This was the start of selling off many unwanted items and we progressed to flea
markets to sell items on behalf of friends. Our children now do this to save up for what they want. Second
hand sales and renovating old furniture have earned us several thousands of dollars in South Africa, Australia,
and New Zealand. Also we paid cash for everything. We saved rather than using credit, bought, then later
sold items to upgrade. If we could not afford new goods, we bought second hand and later upgraded them.

     We used conventional methods of saving as well as a few dabbles on the share market. In South Africa
when Lifegro shares were listed I was fortunate to be allocated quite a number and made R4000 virtually
overnight. This was pure luck and not due to skill on my part. Since then I have left share marketing investing
to the experts.

     In addition, we have also tried to reduce our mortgages as quickly as possible. A working wife like Marie,
a registered nurse is a great help here. Fortunately I now have the time (and my wife has the energy) to try
new ideas and ventures which brings in a bit of extra cash. Also instead of paying tradesmen I always have a
bash myself first even if the job turns out like Frank Spencer's efforts in the comedy
"Some Mothers Do Have 'Em".

     So we have done well financially by a mixture of conventional and unconventional means. I suppose my
main message is HAVE A GO. Be resourceful and innovative. You don't have to have a top job and earn a
fortune but be bold and use your imagination.

     Look at the ladder you will see that there are 10 steps to becoming a millionaire. Most people look at the
million Rand, decide it is out of all comprehension and give up. Yet it is only 10 steps and no step is harder
than any other - as they become larger they take longer.

     Make your first goal the bottom rung of R2,000 and don't think about any other steps until you have
achieved that one. Now aim at the $4,000 step. You already know how to make R2000 so it is only a matter
of doing it again. But now you have the earnings of R2,000 to help you, so it should be quicker than reaching
the first R2,000 and so you go on climbing the rugs of the ladder, just like the marathon runner breaks his
goals down. He doesn't think of finishing but just getting to the nearest drink stop or lamp post.

The Ten Step Plan to Wealth

STEP ONE

     Accept that you can achieve financial success and make a commitment to yourself to attain it Success is
defined as the progressive realization of a worthy goal. Believe in yourself and the power of saving and that it
can be done then do it.

STEP TWO

     Set written financial goals or wealth targets and dedicate yourself to achieve them. You must want to be
financially free. Goals are dreams which come true and they should excite you. Goals should have a specific
time frame for achieving them according to a pre-determined strategy. Know where you want to be in 5 years
time. Do you want a new house, your own business, holiday home, retirement fund, an education fund for 
your children? Your goals could even be debt-free home, a job promotion or imagine a new career. Most
people don't plan to fail but fail to plan.

STEP THREE

     Diagnose where you are now and how you got there. Assess your current financial position by doing a
budget of income inflow and outflow, then make a commitment to live within your means.

STEP FOUR

     Develop an action plan and set a time limit. Decide on a strategy that is going to move you closer to the
achievement of your financial goals: Remember the 10 reasons why most people fail to achieve financial
success.

GOOD MONEY MANAGERS VS. POOR MONEY MANAGERS - Which one are you?

  Summary
A good money manager has the following qualities:

* A desire to learn
* A positive attitude
* A willingness to make an effort
* A desire to achieve goals
* Moderation in their spending
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Total Section "A" = $................................... Total Section "B" = $.......................................
bring answer to weekly amount by multiplying Divide answer by 52 equals

MINUS (-) TOTAL OUTGOINGS = $.........................................................

WHATEVER YOU DO...
DECIDE ON A PLAN
AND STICK TO IT!
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Copyright ©  Craig Lock   back to the top