25 Basis points in perspective

Repo reduction

For those that follow the economical development around the country, you would have noticed the topic of the day is the reduction in the repo rate by the monetary committee of the bank of Namibia. This was met with excitement by many as lower interest rates means slightly improved disposal income. For my friends that do not really know what that mean, here is a little context on the issue.

The repo rate is that rate that allows the central banks of any country to control the flow of money in the economy. By adjusting this rate, you can either increase or decrease the “funds/money” in the economy. On the other hand, the prime rate is an index used for setting rates given for various consumer loans products. Both rates are set by the reserve bank and hence a decrease in the repo rate is likely to affect the prime lending rate.

How does this affect me and you?

Banks typically offer consumers products at a prime rate plus/minus a profit margin. This can be a fixed rate or can be a variable rate. If you are in a contract that state your interest rate is fixed, it means the bank probably did the calculation of what profit margin they want to make based on the prime rate at the time that you entered into the contract, and that will remain unchanged during the duration of the contract.

On the other hand, they could also give a variable rate loan. This means the margin is most probably fixed but the basis/ index on which that is set is likely to change. This is your typical home loan that are either set at prime plus or prime minus a % percentage.

What are the numbers? How material is the current reduction going to affect you? Looking at my home loan, I quickly punched the numbers in an amortization schedule. 25 basis points is equal to 0.25%. As such the interest that accrues on my loan will be less by 0.25% divided  by 12.  For me that translate into a  reduction of N$79 per month and roughly N$953 per year.

What is interesting to note though is that your monthly premium is also likely to reduce because you still need to service the loan over a your original term. If the bank does not adjust the monthly repayment term, your loan will early mature. All else remaining the same, the ideal will be the monthly repayment remaining the same and your capital reducing by N$79 per year so you can finish early.

The lesson from this is that 25 basis point reduction in your annual repayment does not mean anything without contextualizing it in the bigger scheme of things. Do you think it is worth taking on additional loan or could you just cut spending N$79 somewhere so you have more money in the bank at the end of the day?

Just a thought

Love

Dhalondoka

 

 

Lessons learnt from the last decade of curiosity.

Business ideas

To think that it is already mid February, this is indeed a fast year. If you have not yet started, please try your first attempt at budgeting by reading any of the following articles. With pay day just a few days away from now, it might help reviewing how far you’ve come with your expenses and see if you can do better with your second pay run:

One of the most frequent aspect I cover is business. This is because, personally I have explored a lot of business opportunities. Some ideas died before they can even materialize, some worked just to break even, some  I lost money whilst others have made me money. But when I think about all of these, I think driving school is probably the the best business that is really starting to pay off.

In the last 10 years, I have attempted a lot of things and here are some random lessons I have learnt from some businesses I was part of .

  • DMAS Global – This was a hoody business we ran with 4 other friends. The slogan of this business gave us purpose. “it has something to do with us”. Two of us were based in Cape town and the other three were based in Namibia. In Cape town we handled the relationship with the suppliers, whilst our partners in Namibia handled the customers. We dealt with large amounts of money but the input costs were too high. In the end we did not retain that much cash and hence ended up closing down. What I learnt from DMAS is that if you want to be successful, you will need good teaming and communication skills to run any business.
  • I also love reading so at some stage I wanted to start a bookshop of selling hand books for children. I searched for a second hand book supplier and eventually  found a shipment of books on gum tree. I sent the books down to Namibia to a friend’s place but I really do not know what happened to those books. So this is one of those where I basically wasted money. One lesson from this venture is that, if you are going to start a business, you’ll need a sustainable supply of whatever you will be selling. What is the probability that I was going to find another stack of second hand kiddies books?
  • For some odd reason, I have always been into motivational speaking and coaching content. But this is one of those things I just never got the courage to start. I remember at some stage I had written a whole magazine that I was hoping to launch to schools with various educational content but hey, it never took off. This is why I am blogging  eventually. The key lesson from this is that, if you never take steps towards actioning it, you’ll never know if it is worth your effort.
  • And there was chicken farming. This was a great business. Good market with the government banning import on chicken at some stage which protected the local economy. Things went well but I realized that I was not really retaining any cash out of this business and I regularly had to invest in the business. From this I learnt that you need to know when to cut your costs. If you have to put in more than you are making without prospect of recovery, it is time to quit.
  • Electricity,TV and Airtime reselling business – This is one of those essential business that comes at almost zero costs except the minimal cost of buying the vending machine. However because there is literally not much effort required from your side , there is also no much reward from it. From this I have learnt, with greater risk, comes great reward.
  • Finally, Driving school – This started off in May last year and I am proud to say that it has now become an established brand. Last year, the sales were ad hoc but it has grown steadily the first few months of 2020. It took hard work and dedication to get it to this stage. The one main lesson from this is, the beginning is always  hard, but once you have built a client based and trust, business will  find you.

Without curiosity, you’ll never know what will make you the most. At times we look at business owners and wonder how they get there?  They also just started somewhere!

As I end off, I hope you share what you learnt from  your last or best business attempt.

Love

Dhalondoka.

Facing and dealing with expectations/Perceptions

Airport

I am finally back home after 34 nights of being away. The food in the hotel was nice, the gym was free but after night 25 I was literally counting every second of the day. Waking up to the fresh smell of fog in the morning as I left home this morning reminded me that no matter where you go, home will always be home.

It’s been great coming back. I found a whole bunch of spinach that I shared with family, neighbors and friends and I am yet to see how that next harvest will go.

Anyhow, back to the article of the day. Yesterday I was asked a two questions that got me thinking. After church I went for choir rehearsal and someone saw my engagement ring. They have been looking at me for sometimes, seeing me for the first time so it probably took them longer to ask. Eventually she came up to me and said “so you are a big lady” . Surprised, I responded, “It depends on what big is to you”. She later asked me how old I was to which I gladly replied saying I am 27. Off we continued singing.

After that I went to drop spinach at a friend’s house and she also saw the ring to which she congratulated me and said “so soon you’ll be leaving us”. A little surprised I asked for clarity and to which she said she just assumed we will move to my husbands to-be place. Me being typical about money, I then replied saying “It does not make sense to start renting whilst I have a house’. She then responded to say would my man want to move in my house?’

None of these situations are unique to me and they occur in the society that we live in. These has been formed over the years and passed onto generations by those who raised us. But as we grow old we need to learn the spirit of discernment. We need to be able to choose what of those came down due to a mentality of colonization, due to culture and sometimes even due to inferiority dilemmas.

Here is a few things you need to know if you are going to intentional about your money and your related goals:

  • People will assume certain things about you but only you know the truth. Just because I am wearing a ring, I must be very old . By the same token, because you are using public transport does not mean you are poor. Think about it.
  • Just because your kids go with bread to school everyday does not mean you are stingy parents. You might be working on something very important at the moment and are just trying to cut certain costs.
  • Just because you are now married does not mean you need to buy a family car. The polo you have can still fit you and your kids for a few years. Besides it’s not that you do family travel needing a bigger car right away.

Again, these are perceptions that people have about us and our financial standings, which unfortunately may or may not be close to the truth. At the end of the day, only you know the numbers and what they can do for you!

Love

Dhalondoka

Recovering from financial injuries

 

socce

A little over 5 years ago, I actually learnt that there is such a thing called  “financial injuries”. I had just started working, was excited about earning my own salary and getting a place to rent. In the process of finding a place to rent, I made a mistake of walking out of a signed lease agreement . I found something better after signing an agreement and as such had to cancel the first one. In the end, I ended up having to pay two rental deposit ( one for the place I just cancelled last minute) plus 1 month of rent before moving in the new one .

Fresh out of university, I had no savings to lean back on. My budget for the month was all of a sudden not feasible anymore. What will I do? I thought long and hard about the situation and eventually I realized that the only way out of this was to recognized I was financially injured and ask for help.

Starting a job with no family to stay with, I was taken in by a generous “family” that saw how “poor” I was and tried to help me financially. They offered me a place to stay for free for two month while I save up money for a  deposit, rent and a bed for my apartment. They did not know me nor my family but they were moved by an answer I gave them to a personal question they had asked me  ( This is a separate blog on its own).

Back to my financial injuries situation, I could not ask my mother for this money, it was going to worry her a lot. I also did not think my siblings will be in position to help. At that stage, they had already done a lot of me ,so asking them was also out of the question. I also did not have much of a history to even consider applying for a personal loan . My last option was to ask the “family” that had already provided me free rent for two months to give me a loan. I gathered my courage and asked if they can pay for me the second deposit of N$2000 and I will pay them back  in two installments ( interest free). To my surprise they assisted.

With their loan, I was able to heal over a two month period before my budget could resume to normal.

Financial injuries can come from many sources. Unlike my instance, they commonly come from:

  • An unexpected death in the family of someone that did not have funeral cover
  • An accident that can cause an outflow of money on top of what the insurance can cover
  • An illness that was not covered by medical aid
  • A last minute loan to fix something that got broken and cannot be left unattended
  • A reckless spending on your credit card due to impulsive holiday plans
  • Etc

These are just some of the instances that can leave you broken. These situation leave you with  an amount of debt that lead to your expenses exceed your income or that threaten the amount that you can put away in savings. They can also leave you with regrets as well as potentially broken relationships.

Whatever the case may be, the most important thing to do is to acknowledge that you are financial injured and you possibly need to start a healing process. This healing process need to be one that is carefully thought of as well as informed. Trying to ignore that you are injured can lead to unintended consequences such as:

  • Missing scheduled debt commitment
  • Messing up your savings strategy
  • Incurring more debt to try and pay other debts
  • Spending more to avoid the giving an impression that you are broke.

These actions do not do anything to your financial health other than worsening your injuries. If you realize that you are in anyway injured , here is the step by step process to start your healing:

  • Be honest with yourself and  identify the root cause of your financial injuries.
  • Assess if it is a problem that you can solve yourself or seek advise before deciding  on the next step.
  • Consult relevant parties affected. This could be coming clean with your spouse or children about the financial standing . It could also mean approaching your creditor and see if you can reach some sort of agreement. This could include asking for a grace period ( a payment holiday) or a reduced premium. Cash is king and people will listen if you they see you are trying to meet your commitment rather than just not making effort to pay at all.
  • Come up with a time frame on how long it will take before your financial situation improves. With this, you will need patience as your recovery time is most likely going to depend how deep/serious your injury is.

Trust the process, healing does not happen overnight. Lastly, during this  phase you will begin to notice a lot of get rich quick schemes ( read it here), but I urge you to keep away from this. You might just be throwing your last chance of recovery!

Love

Dhalondoka

 

Save your marriage by handling your money matters well.

 

WeddingThe development of the fishrot scandal along the coastal town of Namibia is resulting in negative unintended consequences. Last week , I read an article of how the 100 stranded fishermrn that were left wondering by one of the vessels implicated in scandal were “apparently receiving” an incentive equivalent to a two week’s pay. For many of these people , this is at least under a N$1000 .

Majority of these guys are husbands, fathers, elder brothers as well as breadwinners for their families. Loosing a job is one of those situations that can cause tremendous stress for many especially when there is family involved. Today I also read an post of Facebook about a lady complaining about how she feels like giving up,  her husband lost his job 2 months before their wedding in 2018. She was hoping for things to get better but what she thought was temporary has become her day to day struggle.

Sometimes last year, I also heard of a lady who moved out of home because of the fact that her husband lost his job and is now trying to provide for their home by becoming a taxi driver. The lady clearly did not appreciate this and was considering separation.

With this is mind, I just thought I would write a few things about family finances. Since mid- January, I have been working with a newly wedded couple to sort out a few of their finances. It actually makes me wonder how many of the young people consider finances as an important aspect of marriage preparation. My overriding principle  when I advise married couple on money related matters, is for them to be able to live on one spouse’s disposable income.

If you are married and both earn a monthly income, try by all means to manage your living expenses so that it will be able to fit in one person’s income. This will not be possible from day one if you both come into marriage with debt commitment and fixed costs, but over time, the aim must be to reduce those to manageable expenses.

I have seen this work well for someone close to me who was able to do this even if she was not earning that much and the husband’s income was also not stable as he was doing seasonal business. They were able to pay the  fixed costs with the wife’s income and save the husband seasonable income. With the husband’s income, they occasionally added extra into their home loan to accelerate paying off their home loan as that was the biggest expense that threatened them living on one salary.

What worries me is also seeing married people struggle to fund their lifestyles when they do not even have any child. It makes me wonder what will happen when others costs such as school fees, medical costs kick in? Or what if a tragic event were to happen to a close relative and were left with no choice other than taking in an orphan on top of caring for your children? Think about it.

When you get married:

  • You need to start looking your finances together. Be transparent with each other and work as a team
  • Consider the possibility of joint accounts or spending accounts.
  • Consider saving one person’s income  and only use those funds in case of emergency.
  • Manage family contribution and black tax in the context of a marriage. Not how you would previously when you  were dating or single
  • This is obviously in the context of whether you are married in or out of community of property.

Most importantly if you do not have much knowledge on finances , reach out to someone that can help you. Handling your finances well could be the difference between being happy in your marriage or filling for divorce.

Love

Dhalondoka ( Loosely translated ” he who is warned in advance is always ready for the battle”)

 

 

 

Are you ready for that business ?

Earings

This week I saw our Guest on The Wave upload pictures of earrings that she started making. She already has a nail business and I think she is looking for ways to expand her business in other complementary products. What was meant to be advertisements ended up in being business advise.

She is venturing in a new business and has done a bit of research possibly on the potential market for her products as well as her pricing. However like any exciting new idea one can end up overlooking important factors.

I had bought similar hand crafted earrings before from different designers as I love earing’s. However my experience is that certain materials tends to fade and wear off quickly especially those that “gold” in nature or have a fancy fur on. In some instances, I have also gotten an allergic reaction from certain products used in this earrings. Seeing that she was using the same products that I had experience with, I offered her advise on which materials she should consider introducing to her collections in order to encourage repeat business.

The issue with an unhappy clients most of the time is, they will never complain to tell you that your product is poor or your service was bad, they will just switched and go buy else where.  And with that thought in mind, I was glad she actually listened to my advise and is willing to put it into action.

Many of us do not start entirely new businesses, we often copy from a business idea we have seen a friend doing. However, because of the way we are not really engaged in money related matters and fearing competition, we do not ask those that are in the same business to at least tell us if it worth venturing into. At least to just assess whether the industry is profitable, what the risks are, what the requirements are etc. At the end of the day, we plough our capital in , just to realize that it is actually not working for us.

My personal believe is that you do not have to be innovative to get into a specific business but at least reach out to people you know.  What is the worst that could happen?  They possibly do not answer you.

For example:

  • I got into the electricity, DSTV, airtime business because it was recommended by my fiancé’s friend. She started it and thought it might be profitable for me. I had no clue how the business works  but at least I had her to teach me tricks on how to save on bank charges as this is the only costs attached to this business. Had I not done this, I would be donating literally every 20% of my sale to the bank in bank charges
  • Before we ventured to do driving school, we asked around how insurance work for driving school and we actually learnt that insurance companies do not insure driving school cars. Imagine I pay insurance on the car just for my claim to be refused because I did not disclosed the fact that it is a driving school. I also sought advise from friend who had a friend who has a driving school. Sometimes if you are not close to that person, you can ask indirectly.
  • And lastly running a business should not be a secrete. If you are doing business be proud of it. At the end of the day, you started that business for a reason and you need to fulfil that.

The moral of the story is, do not just do business because everyone is doing it. Some people do it as a hobby. Some people are making losses but they do not know it. Others are actually loosing money on a daily basis but are afraid of quitting because of the shame that comes with closing down.  Get information from whatever source you need to , but do not just do business because everyone else is doing it.

Love

Dhalondoka

 

 

 

Variance analysis – Budgeting

part 3

As we enjoy the first fruit of our labor in January of 2020 ( first pay check  for us that earn a salary), I would like to remind you one key thing to get your budgeting process work for you. Just like with the review of goals we covered sunday, one also need to reflect on the budget that was set. This process in business as well a personal finance is called, variance analysis.

A variance is simply the difference the between what you thought you would get and what you ended up getting or what you thought you would spend and what you ended up spending.

Today my last debit order went off and most of my fixed costs were settled and hence I thought it was a good point in time to do this analysis. If I received more money than expected or spend less money than budgeted, the difference “variance” is favorable. If I received less than I expected or spent more than budgeted, then the difference is unfavorable.

Part 4

Here is the summary from my exercise:

  • The salary that came in was slightly higher than anticipated as we received a short term incentive bonus which I was not expecting. This is a favorable ( good) variance.
  • I was budgeting to collect money owed by a friend which I have not yet received as of to date. This could be because out of sight out of mind. So I am short hence unfavorable Better luck next month else I am writing it off.
  • My municipal account was higher than planned but luckily I had a credit from other months. This could be because I started a bigger garden the last few month of the year so I should have considered this. With the credit from the previous month, I only went over budget with  N$30.
  • At this stage, the Jeep is still in the garage and  I have only paid half the costs and hence although still within budget, I am expecting more money to go out.
  • Then I kind of bought something that I always wanted  but hardly found at home so I have a new category of “shopping” that was not in the budget. N$661 unfavorable,
  • I also had to pay for DSTV that was not in the original budget , that is also  unfavorable. This I was hoping to defer to the end of Feb but now I have people at home so I needed to bring this forward.
  • I however saved on money that I was budgeting for my sister’s allowance however she did not need the money this month. Favorable
  • There is still a fair amount of money from my daily allowance as I now set a limit instead of just going with whatever I feel like eating that day. So I might end up in a favorable position here.
  • lastly,  my pension contribution was N$50 more than planned as my annual escalation is in January. This I completely forgot despite getting a notice from Old Mutual that it is due for an increase.

That is my story , how is yours looking? Things will not necessary be the same but some of the key principles hold:

  • Assess where you are standing at least after the peak spending season is over. This can range from a week to two for many people. For some it is even just a few days after pay day.
  • Look at what expenses were not in the budget that came up ,that you should either consider postponing or including in the budget next month.
  • Also consider to save more if you get more money than expected. It is easier to find an additional expense than to save more.
  • Keep in mind annual escalations and non recurring costs. My Jeep’s roadworthy disc is due for renewal in Feb and that is something that was not in my January budget that need to be in my  February budget.

Your budget is only effective as you make it to be. If you never go back to it will remain just that, a plan! Take charge of your finances by facing the harsh reality, it is the only way to find where your money is going.

Love

Dhalodoka