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Jaco Fouché & Jaco Barnard

Copyright © 2018 Jaco Fouché & Jaco Barnard

Published by Jaco Fouché & Jaco Barnard Publishing at Smashwords

First edition 2018

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To the Reader

Are you also sick and tired of being STRESSED out, worried, or even embarrassed over your finances? Do you think you need to have a degree in finances to understand them? Do you feel that investments are ONLY for people with lots of money? Do you just HATE budgets, since they never work? Do you think you can NEVER be good at finances? Are you TIRED of being looked down on by financial institutions? Do you KNOW there should be more? There are too many people who get no satisfaction out of their personal financial situation. In many instances, this is because of a lack of knowledge and belief, or willpower, to change their situation.

This was the inspiration behind starting this book on managing personal finances. We have seen way too many not enjoying life because of financial problems. Every person should at least get the chance to live financially carefree, and it is possible for everyone – we would like to assist you along the way. It is unfortunately not necessarily going to be easy, and there is no talk of quick fixes. The rewards, however, are worth it – for you and the generations to come. To motivate you, we will start off by telling you our own stories:

Jaco Fouché

As I am writing this in 2017, I am a 43-year-old male, a chartered accountant, financial planner and academic, married to Susan, and we have four lovely children. I am passionate about financial wellbeing. But my story starts way back. My grandfather (on my mother’s side) worked for Spoornet, now called Transnet. He was a bus driver. My grandmother was a hairdresser who worked from home. When my grandfather retired, his pension was just above that of the Government’s Old Age Grant, which my grandmother later received. Still, I cannot recall them ever complaining about money, not a single day of their lives. They always had enough, even to help out others. My paternal grandfather also worked at Spoornet (until he retired because of health reasons) and my grandmother was a seamstress. They were both honest, hardworking people, but not wealthy in financial terms.

Both my parents had only grade 10 educations, since they had to start working to help support their families. My father started doing his apprenticeship as a mechanic and my mother had to start working again when I was in grade seven to help support our family of four children. From them, I learned to be a hard worker and to work in a respectful manner with money. Despite not having abundant money, they supported all four of their children and enabled them to study at university. I can honestly say that I am proud of them. I was able to attend university with the aid of a study loan, and did vacation work to pay for my books and have some pocket money.

During the last year as an article accounting clerk, I married my wife, Susan. I was earning a trainee accountant’s wage and she was still studying. At the end of that first year, we were broke. Our debt (overdraft, credit card and study loans) exceeded what we owned (which was more or less nothing). We were living in a one-bedroom flat, with a bed, washing-machine, fridge and living-room set from a discount chain store (no TV) and we had one car. When we moved into our first house, we had to close the doors on the empty rooms with no curtains.

My father-in-law introduced me to the stock market, where I made some small investments with my travelling allowance, before we bought our first house. My first real share investment was as part of an investment club in 2006, to which 16 friends and colleagues each contributed R 5 000. By 2016, this club had a portfolio of more than
R 2.7 million. My first property investment was when I bought a student house, along with my parents and in-laws. My wife and I had only a 5% interest, but it was a start. I had also tried my hand at a few businesses. Many of them failed and one was a huge disaster. Others are, after a few years, starting to pay off. I once read that overnight success takes about seven years to accomplish.

I would say my change in thought started in 1999, when I completed my Master’s degree with a dissertation on personal financial management. Since then, I have never stopped learning about managing personal finances and I constantly try to apply all that I have learned … and am still learning. Are there things that I would do differently today? For sure! We all make mistakes along the way. What is important is not to get discouraged and to continue in the direction of our goals. In this book, I will also share many of my mistakes, so that you won’t have to make the same ones in the pursuit of your goals.

Jaco Barnard

As I am writing this in 2017, I am a 38-year-old male, a chartered accountant, financial planner and academic, married to, no, not Susan, but Rika, and we have three children. My grandfather on my father’s side was a carpenter, who started a furniture factory, together with a family member. He became very ill with an unknown disease, which caused partial paralysis, and he landed up having to use a wheelchair. This resulted in him having to leave the business and incurring many medical expenses. Later, he recovered from the illness and started to work as a carpenter for other furniture factories. His wife did not work outside of the home. They never had a lot of money, but never complained, either, just worked harder. My grandfather even fished and sold his catches to earn additional income. My grandfather on my mother’s side was a teacher and his wife also did not work outside the home.

After school, my father started working as an article clerk and, while studying part-time, completed his degree at the age of 35. He was an accountant for most of his life and my mother a teacher. My mother only started teaching again once all her children had completed primary school. We never had a lot of money and when I was 7 years old, we (a family of six) stayed in a rented, two-bedroom flat and my parents drove one car. But, in spite of this, my brothers, sister and I had the opportunity to study fulltime. I will forever be grateful to my parents for the opportunities that they gave me because of their hard work and sacrifices. During my school years, I delivered newspapers to earn pocket money and saved most of it (by investing it in my father’s mortgage bond).

I started working as a trainee accountant and was able to buy a car with my savings (from the newspaper deliveries and vacation-work undertaken during my studies) and a small loan. That was the last time I borrowed money to buy a car! I got married in my third year of articles (just as Jaco had!), but fortunately I did not have to incur any debt.

I joined the North-West University in 2004 as a lecturer and stayed in Potchefstroom for two years, before I bought my first property. What a stressful thing to do! After staying there for 5 years, I did what most people do - upgrade. Fortunately, during those 5 years I saved enough to be able to buy the new property without having to sell the first, resulting in it becoming my first investment property. I also decided to invest a bit of my income in shares, mainly using Satrix.

All income that I receive, other than my normal monthly salary, I try to save. I either put it into my mortgage bond, or investments. Although I am not yet financially independent, I am on my way, BUT I am living financially carefree, and am doing it with a normal salary!

You now know us a little better - ordinary people, living financially carefree. We have chosen the title of this book as “Living Financially Carefree”, with the subtitle “A Roadmap for the Journey” because, like a roadmap, it aims to give you some direction, although eventually you have to choose the route. What is our definition of financial freedom? Many books on personal finance may make you feel that you would never be able to accomplish financial freedom unless you became some kind of millionaire, had a huge share portfolio, a large number of properties or numerous business ventures. You may even think that you must have enough so that you do not need to work any more. We look at it differently. We divide the rest of your life into two sections, each with its own criteria and meaning, in our view, of financial freedom. This is explained below:

What we share in here is based on much research, reading and personal experience. It is also, according to us, the most comprehensive book we have seen on the topic of personal finance, covering financial literacy, wealth creation, financial institutions and legal aspects, as well as various sundry topics of financial planning. May this book be the start of your road trip to financial freedom...

The two Jacos


To the Reader

Chapter 1. A Balancing Act (The Racing Car Versus the Family Station Wagon)

Chapter 2. First Gear: Financial Literacy Principles

2.1. Personal Financial Risks

2.2. Consumer Spending

2.3. Basic Economic Principles

2.4. Understanding Debt and Credit

2.5. Financial Records and Financial Statements

2.6. Team of Advisors

Chapter 3. Second Gear: Wealth Creation

3.1. The Roof Over Your Head

3.2. Saving

3.3. Investments

Chapter 4. Third Gear: Doing Business with Financial Institutions

4.1. Banks

4.2. Insurance Companies

4.3. Investment Managers

Chapter 5. Fourth Gear: Financial Planning

5.1. A Personal Budget

5.2. Retirement Planning

5.3. Estate Planning

Chapter 6. Fifth Gear: Legal Aspects

6.1. Marriage

6.2. Consumer Protection and Scams

6.3. Tax

Chapter 7. Sixth Gear: Sundry Topics

7.1. Career-Planning

7.2. Your Own Business

7.3. Emigration

7.4. Involve the family




Chapter 1
A Balancing Act (The Racing Car Versus the Family Station Wagon)

The goal of this first chapter is to set the scene for the rest of the book. Hopefully, it will assist you to understand how you think about finances and encourage you to turn your financial choices into action. We also hope that it will encourage you to continue your own reading about personal finances once you have finished this book.

The current global financial crises and turmoil since 2007 have placed more emphasis on personal finances than anything else our generation has seen before. Even large organisations and financial institutions are realising the importance of dealing with financially-literate people. It is even acknowledged that the tragic happenings at Marikana in the North-West Province of South Africa, and the labour unrest associated with strikes, are due to people struggling to make ends meet. We have also seen the effect of poor financial decisions and rising costs in the “#Fees must fall” campaign regarding the tertiary education sector in South Africa. The question is, however, what should we make of all off this.

It has been said many times before that our financial decisions are influenced by mainly two emotions, namely fear and greed. If we are more motivated by greed, we will take more chances with our money (like spending what we do not have, or taking on too much debt, or going after reckless investments) and, if fear is stronger, we will be much more conservative (not being able to enjoy our money because we fear tomorrow, or making investments with such a low return that our money is actually worth less than it was before because we are not willing to make “riskier” investments). Often these emotions are informed by past experiences, current circumstances and personality.

We would, however, like to add another dimension to this – our level of financial literacy. Research has shown that higher levels of financial literacy support better financial decision-making. With this added to the equation, we can see that financial literacy will help us to balance our emotions and assist us in making better financial decisions.

It is therefore not so important what emotion drives our behaviour, but rather how that emotion is balanced by our financial literacy. It is due to this complexity that we will first have a look at our emotions, which are generated by the way that we think about money. In the rest of the book, we will focus on how you, the reader, can gain better financial literacy so as to ensure that you are able to make the best possible decisions despite your emotions.

Understanding the way you think about money

Before we can continue, it is essential that you understand your approach to dealing with money matters. This has to do with your past experiences, what you have been taught and how you view money. As stated earlier, all people differ with regard to their level of financial literacy, but they also differ in their approach to dealing with finances. Perhaps in reading the earlier section on fear and greed, you have already wondered or decided where you fit in.

It is important that we acknowledge that our upbringing will have had a large influence on how we view our finances. People growing up in difficult financial times or circumstances will often be more conservative, as they have seen and experienced financial hardship first-hand and would like to avoid that by making less risky decisions. But that is not all; we are also born with a certain personality that makes us more likely to take more risky decisions or not. Yes, we are complex human beings and this also reflects on our financial decisions.

You should now go to Circuit 1 (at the end of this chapter) and answer the questionnaire.

It is important for you to understand that your experiences as a child will influence how you deal with money (in a good or bad way). It is important that you identify these issues and, if you have a partner, understand each other’s approach.

In the second part of Circuit 1, you have to determine your money personality. You just need to select all the words in the four columns that best describe you (not how you would like to be). Add up your total score for each column and identify your personal finance-money personality, based on your highest-scoring column.

Table 1, at the end of the chapter, provides a description of the different money personalities. Once you understand your own money personality, you can build on your strengths and watch out for your weaknesses. We are going to address the money personalities again in many of the chapters to follow, so do not skip this step. If you know your strengths and weaknesses, you can balance these with better financial literacy and, eventually, make much better financial decisions. You will notice that we have set out four money personalities: CEO, Manager, Steward and Entrepreneur. Going back to our fear versus greed illustration, we could probably arrange them as follows:

You need to remember, however, that these are generalisations and we human beings are complex and don’t just fit perfectly into only one category. The different money categories do, however, provide us with a starting-point to think about our emotions.

Understanding financial literacy

Financial literacy has three elements:

• Knowledge;

• Skills; and

• Attitude.

You can obtain knowledge from books and workshops. As times change, you will have to keep updating your knowledge and at least accept that you will probably never know all there is to know. In managing your personal finances, you will need to be a lifelong learner. But do not despair – this can become a lot of fun, once you see the benefits of implementing what you have learned and not repeating the mistakes you have made. Skills will only be gained through practising what you have learned. From our own experience, it takes about three years to really become comfortable with preparing budgets and making a good habit of managing your personal finances. No matter the level of your knowledge and skill, if your attitude regarding doing something about your financial position is negative, you will not be able to change a thing. But since you are reading this book, you probably have made the right choice already – congratulations! All three of these elements are necessary to master your personal finances. The best intentions will only be dreams if you do not put them into action. Plans will result in dismal failure if they have not been prepared correctly or have been based on wrong information. Think about our driving metaphor in this book. If you are thinking of driving to the sea, but you do not get into your car, you will never get there. If you plan to go to the sea but cannot read the map or use the GPS or know in which direction to drive, you will not get there. And if you hadn’t decided to go to the sea to begin with – well, you wouldn’t have got there, either.

The need for improved financial literacy

It is becoming more important for households to acquire financial knowledge. Despite this, we see widespread financial illiteracy all over the world. Most frightening is that people do not know what they don’t know, and this is being exploited. When you do not have the necessary knowledge, it becomes very easy for others to take advantage of your emotions of fear and greed. Not being familiar with basic economic and money management concepts can have a number of serious implications, including:

• Being unable to interpret financial information in contracts, advertisements, bank statements, etc.;

• Being over-confident about your current and future financial situation and your ability to control it;

• Being susceptible to manipulation based on your emotions;

• Making the same financial mistakes over and over again;

• Over-indebtedness and not saving, without recognising the seriousness or effect thereof;

• Outliving your money after retirement;

• The development of financial stress and other related relationship problems;

• A lack of planning for the future, or events that may negatively affect your finances; and

• Eventually these things may even lead to bankruptcy.

It is clear that a huge need exists for people to become more financially literate. We can also see that there are various advantages to being financially literate. The question is: are you up for the challenge to take control over your own personal finances? You will have to make the commitment to make it worthwhile. You do not need to be part of the statistics. Think of the positive spin-offs that can result from this:

Less stress and better sleep;

• Better relationships; and a

Brighter financial future.

You owe it to yourself and your dependants to gain knowledge and skills in managing your personal finances.

What great authors have had to say about managing personal finances

We have found and studied many good books and other tools on personal financial matters and would like to give a short overview here. It would be beneficial for you also to read them to improve your own financial knowledge. To take responsibility for gathering knowledge and skills on personal finances is the first step towards financial freedom. You do not need to do it all at once. Pick one book a year.

Rich Dad, Poor Dad - Robert Kiyosaki

This was one of the first books we studied, and it changed a few of the ways we had been thinking about money. Although there has been some criticism levelled against the book, the following is worth noting:

• The value of enhancing your knowledge of financial matters is stressed;

• The importance of investing (in shares, property and businesses), rather than spending, is explained;

• To be financially independent, you need to build passive income (income for which you do not work directly) that covers your expenses; and

• An academic qualification is not a prerequisite to be financially successful.

Why We Want You To Be Rich - Donald Trump & Robert Kiyosaki

In this book, the authors again point out the importance of enhancing your own knowledge about the economy and so forth. They believe that this financial education will enable you to take control over your own finances. The message of the book is clear: if you are rich, you will be an asset to your country and contribute to its economy.

Nine Steps To Financial Freedom – Suzy Orman

From this book you learn that:

• You must understand how you feel and react to money matters and why;

• You need to replace your fears with a positive attitude;

• You must be honest about your current financial situation and you have to decide on your priorities;

• You must be responsible by addressing matters such as wills, insurance, etc.;

• You must be comfortable with where you invest;

• It will make you feel good to also give a portion of your money to others;

• You need to understand the cycles of money and that some days are better than others; and

• Recognise what constitutes true wealth in life, as money on its own will not make you happy.

In the book, Suzy also gives the following pointers:

• You should surround yourself with people who have good money habits;

• The longer you can invest, the better it will be for you;

• You will have to take some risks;

• You need to be careful about debt, as it is a heavy burden; and

• You must deal with your money in a respectful manner.

The Richest Man In Babylon - GS Glason

The following is taught in this book:

• There are a few laws about money that are applicable to everybody:

◦ If you save and have money, it makes you feel good;

◦ You must have assets that generate income;

◦ You need to safeguard your assets; and

◦ You must improve your potential to earn money.

◦ Those who are “lucky” are those who use their opportunities;

Wealth come to those who save;

◦ Keep your dignity by always paying your debt; and

◦ Make “doing an honourable day's good work” your motto.

The Millionaire Next Door - TJ Stanley & WD Danko

This is one of the latest books we have read. There are some mind-changing insights from studies about millionaires’ behaviour in the USA. Did you know that you will probably not be able to recognise the average millionaire in a crowd? The average millionaire drives an average family car, lives in a middle-class neighbourhood and dresses in an ordinary way. Most average millionaires did not inherit their wealth and are not supported by their parents – actually, most of them are first-generation millionaires, who became wealthy by living below their means and saving at least 15% of their income. They also spent - and continue to spend - a considerable amount of time on wealth creation and financial planning.

The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money – Carl Richards

Carl addresses the financial mistakes people make, based on their emotions, like buying high, selling low, spending money on things that don’t matter, and losing money.

From these books, the following non-negotiable principles which we apply in this book stand out:

• It is your responsibility to continuously educate yourself on personal finance matters;

• You need to plan for unforeseen events;

• You need to live within your means, so that you can save;

• You need to invest your savings, as you will not become financially independent from earning only a salary;

• You may need to take some risk and use your opportunities; and

• It will take some degree of effort.

How this book works

You need to address your financial situation holistically. Only then will all the pieces start to fit together. For this reason, this book covers various topics in order to make it comprehensive. Each section of each chapter consists of the following:

• An introduction to show you the importance of the topic;

• A short overview of the theory behind the topic called “passing your learner’s”;

• A section where you can practically participate, called “going for a spin”;

• A reference to the relevant step in the financial roadmap that you need to complete; and

• A summary of what was learned called “rear view mirror”.

Throughout, we also share our stories and experiences. Furthermore, we have only included matters in the book that we ourselves believe in, and which we have tried and tested. Our aim with this is to put you on the right track to be able to live financially carefree. This is done in a step-by-step way in this book. When you have worked through this book, you will have a financial roadmap (included at the back of the book) to financial freedom. The roadmap and all circuits are also available on our webpage



Section A

You need to understand your current thinking about money, therefore please answer the following questions:

What is the first feeling that comes to mind when you think about personal finances and money?

When, during your childhood, did your experience this feeling about money?

What was your parents’ attitude toward money and personal finances?

Answer the first part of the roadmap now (Step 1). Then come back and do section B.

Chapter 2
First Gear: Financial Literacy Principles

This section deals with matters that enhance your financial literacy knowledge. It includes personal financial risks, consumer spending, basic economic principles, debt and credit, financial records and your team of advisors. We start with this section because of the importance of understanding the basic terminology and ground rules for managing personal finances. You also need to know how the financial world works. It would not make sense to try and prepare a budget if you did not know what the end product ought to look like, or what ought to be considered in preparing a budget. You can compare this to understanding the layout of a map and the rules of the road.

Who can achieve financial freedom? In Chapter 1, it was made apparent that anyone is capable of obtaining the knowledge and skills that they require for financial freedom! However, to be able to learn about it, you first have to understand the language of finances.

Have you ever met a Scotsmen? Did he speak English? Of course he did. But did you understand everything he said? Probably not. So, although both of you understood English, your dialects differed so much that you struggled to understand each other. It’s the same with the dialect of finances. Although the words are English, you may initially have problems understanding them. You have to learn a new dialect, so this section will look at the most important terms and concepts that you need to know in order to be able to learn the dialect of finances. It is a skill that can be learned if you just apply your mind. Expand your boundaries and what you are comfortable with by starting to read portions of the financial sections of newspapers. If you come across a term that you don’t know, look it up on the Internet, or find it in this book.

Another way to gain knowledge is to ask your knowledgeable friends, financial advisor and accountant as many questions as you can, and even when you open bank accounts. The rest of this section will form the foundation for the decisions you will need to make later on.


2.1. Personal Financial Risks

Reality check

We have mentioned before that you need to plan for unforeseen events. We regard this as the first aspect to address in living financially carefree. After we have addressed this, we can start to save and invest. Risk - the chance of something going wrong, or not going as expected - is part of everyday life. You can try to avoid risk by staying in bed, but then you have the risk of getting bedsores, or risk the chance of missing an opportunity. This just proves that it is really difficult to avoid risk altogether; however, although we can’t avoid it, we can manage it.

There is a saying that the devil you know is better than the devil you don’t know. Risk can be a devil, but it is better to know it and be prepared for it than not knowing, not being prepared, and ending up being caught off guard. Although you can’t avoid risk altogether, you can manage it in the various ways that we describe below. This can, however, only happen if you are aware of what should be managed.

Passing your learner’s

There are a number of risks to which every person is exposed and that have financial implications for our lives. They can be categorised as follows:

• Risk of losing your wealth (possessions);

• Risk of losing your health;

• Risk of losing your ability to generate income; and

• Risk of losing your life.

The first risk is external and the next three have to do with you as a person. Many people do not think about these risks, as they believe these things only happen to others. Just have a look at the following, which also includes some statistics:

We do not want to bring fear over you – but these risks are real. Acting like an ostrich and putting your head in the ground will not make it disappear. If you do proper planning, you should, however, not have sleepless nights.

Managing financial risks

There are different ways that one can manage these risks. Each of the risks above can be managed by one of, or a combination of, the following ways:

• Avoid the risk;

• Protect yourself against the risk (physically or by budgeting for it); and

• Outsource the financial obligations linked to the risk to someone else, by obtaining insurance.

The table below practically illustrates how to choose between the ways to manage risk, based on the probability of occurrence, and the severity of the impact of the risk on your financial wellbeing.

Table 2 – Dealing with risk

Let us have a look at each of the risks individually.

Risk of losing your wealth (possessions)

Most of us work very hard to be able to buy our precious possessions: our house, car, boat, caravan, television, home-theatre system, and all the other things that are valuable to us. You may even work hard just to have a few extra rands in the bank, or as an investment. But as hard as it was to accumulate all these possession, they can just as easily be lost, stolen or damaged. There may also be unexpected expenses that could wipe out your savings.

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