Your success is usually measured by your net asset value and whether you have become richer or poorer in recent years.

Are you worth more than last year? Has your net asset value, or the difference between your assets and liabilities, increased by a rate more than inflation through the year and have you, therefore, become more prosperous?

To answer this question, you need to determine your net asset value by deducting your debts from your assets. (To get a true picture of the value of your assets, it is advisable to use the market values of assets like property, which can be done by calling on an estate agent to get a valuation.)

Do not automatically include your salary as part of your assets, as it can only become an asset if you invest part of it for financial growth.

The key to growing wealth is building your assets over time and setting a financial plan and goals which you aim to achieve at specific points in your life. Commit to a budget and keep track of exactly where your money is going. Monitor the progress of your investments on a monthly basis.

Never live above your means and be aware that luxury homes or cars which you cannot afford will most certainly bring down your net asset value, if not destroy it entirely. This is particularly true because cars depreciate in value, so after you have spent a great deal of money paying them off, they are worth less than their value when you bought them. As you can see, expensive cars will affect your net worth and wealth creation quite severely.

THE FAST AND THE SPURIOUS

Although residential property typically does rise in value over the years, wealthy people are aware of the fact that paying off a mortgage you can barely afford leaves you with little disposable income to invest in other assets, which creates a kind of “concentration risk” – you may be investing in a growth asset, but if all your money goes into that single asset and it doesn’t grow at a rate faster than inflation, you are actually shooting yourself in the foot.

Famous successful investors like Warren Buffet maintained their lifestyle while living in a modest home and driving a regular car. An inappropriately high lifestyle to impress others is like having a home without a foundation. At some point it will collapse. In the worst-case scenario, if you can’t afford your mortgage payments, you will end up in serious debt and the interest on it will surely hurt you. By contrast, you will thrive if you ensure your money works for you, rather than for financial institutions.

People who become wealthy rarely speculate (which is basically gambling on an outcome). They stick to investments with proven growth track records. You don’t have to earn a fat salary or income to create wealth. Anyone with an ordinary salary can become wealthy by being proactive and sticking to their strategy of building assets.

Time is more important in your life than money in itself. Your value cannot be measured by your bank balance alone. It is about the quality of your life and here it is important how you value yourself.

HERE’S SOME ADVICE

Use that bonus or repayment from the tax man to pay off your debts and don’t succumb to the pitfall of withdrawing and spending your pension when you change jobs and employers.

THE VALUE OF GOODWILL ON YOUR BALANCE SHEET

Besides money, there are two other criteria which also apply in assessing what you are worth in a broader context. They may seem like something companies would classify as “intangibles”, but they really do add to your worth. Think about it: if a company values you more than someone else, who will be retained in tough economic times and who is more likely to be promoted and earn more in later years?

First, how many people value you and to what extent? How highly do people regard you? Does your employer value your input and to what extent will you be indispensable to the company in question?

Second is your inherent value. You are your most precious asset and it is important to manage yourself as effectively as your finances.

What you are worth is more than the circles of friends in which you move, more than the size of your home or the car and more the number of followers you may have on Facebook.

This is just as true of individuals as it is for companies, whose book value can increase beyond the sum of their assets simply because they have a great reputation among customers in the marketplace. This is known as “goodwill”.

You determine your own value. If it is determined from the outside, you cannot control it and you become a victim of the approval of others. A person with good self-esteem will not allow other people’s opinions or criticism to dictate what is financially good or bad for him or her.

The day you know your own worth is when you are able to live to your best potential. You will also be able to help others follow the same path by discovering themselves.

No one will argue that you need money to achieve your goals. But money should be only a means to an end, to achieve your goals. If money in itself is your goal, you may miss out on having a balanced and meaningful life, such as spending time with your family and friends, doing sports, reading, listening to music, and fully expressing yourself.

Indeed, your life can not be measured in Rands and cents. Your real value lies in how much you are worth, even if you were to lose all your money.

It may surprise you to discover how much you are actually worth.

 

WHICH PRODUCT SUITS ME?

Are you living only for today, or are you also making provision for the future, such as saving for your children’s education and of course your retirement? If you are also living for tomorrow, are you investing your hard-earned money into the most suitable financial products?

This can be a tough decision, and there is no simple answer. What is suitable for one person does not necessarily fit the circumstances of another.

Financial products differ and the market is full of advertising, advice, sales agents and financial advisors who promote their personal choices (often with an ulterior motive beyond what is good for you). Which of these would be best for you? How do you sift through the confusing range of possibilities?

Financial products are tools which help you save, invest, protect your loved ones in times of need, pay your bills in the event of your becoming ill or disabled and provide you with an income upon retirement. It is essential that you continually monitor the suitability of your investment products if you want to ensure financial independence in any of these situations. A product which suits your needs today will not necessarily be your best option in another phase of your life.

We quite naturally make comparisons when it comes to store products or other tangible commodities like cars. We get quotes from different service providers before we make a choice. But when it comes to financial products, there seems to be a hesitation to do so, even though the right choice could make the difference between future wealth or poverty.

Protect yourself and your family by doing your homework, even if it costs you time and effort. It is worth it, since it can ensure that you will be cared for and be financially independent one day.

The big five products we cannot go without are an emergency fund, medical aid and gap cover, life insurance, retirement provision and income protection.

Only when you have these five in place can you start investing in any other product which suits your needs, goals and budget.

Everyone needs expert professional guidance to choose the right financial product. You could buy one directly from a call centre where guidance will be limited, or you could consult with representatives of financial companies who will offer only their own products. But it might be wiser to use independent financial advisers/planners who present you with a wide range of products, explaining their advantages and disadvantages.

This will save you time, because you get a glimpse of a wide range of products from one advisor and do not need to contact the product companies individually. However, you must choose between a financial advisor who will address a specific need at a specific time and a financial planner who will draw up a comprehensive financial plan for you.

The planner will make a written needs and risk analysis of you and your circumstances and then propose goals and products for the various stages of your life. A good planner is worth their weight in gold and may just determine if you will end up in a squatter camp or a comfortable retirement village one day.

Financial planners merely make suggestions, however, so it is important that the discussion flows both ways. Ask the right questions. Are the benefits feasible so that you can believe they will materialise? What are the costs and how do they change over time and are there hidden costs? How long are the investment terms? Can you afford to invest over a long period of time and can you withdraw (without substantial penalties) before the end of the term? Can you expect good service delivery, regular statements and newsletters?

Play open cards with your planner and ask for the drawbacks of the product to be spelt out as well. The standards in the industry differ and there are actuaries and advocates of product suppliers who make adjustments every year, among other things, in life products. So make sure you know when the nature of your coverage might change.

In 2020, Ecsponent Wealth plans to explain specific financial products in its monthly Product Newsletter. The composition and characteristics of each product will be reviewed extensively.

In February, for example, the focus will be on retirement annuities, where both the benefits and pitfalls will be pointed out. The confusing difference between a life annuity and a living annuity will be clarified and you will learn how a retirement annuity can play an important role in a well-considered investment plan.

In March, several income products will be compared. For example, we will discuss the option to make an investment via preference shares, where dividend withholding tax is deducted. This will be compared to an investment in bonds where interest is paid tax-free and the investor is liable for the tax him/herself.

Later in the year, we will look at structured products which combine an endowment policy and an annuity, pay a monthly income and do not reduce your annual income tax exemption.

Contact one of Ecsponent Wealth’s financial or wealth planners who will not only do a risk and need analysis for you free of charge, but will also propose various Ecsponent products and other products from suitable product providers.

Our contact number is 087 808 0100.