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Pop that balloon… or let it go

A balloon payment (also called a residual value) is quite simply an amount of money that is still due after you’ve finished paying your monthly instalments. The goal of structuring a loan with a balloon payment is to make it more affordable on your current cash flow, making it very attractive. 

They are ideal for both companies and private individuals who are facing a cash crunch in the short term but expect their liquidity to improve in the future. Essentially, a balloon payment allows you to make a lifestyle upgrade before your income can fully support it. There are many cases, then, where this approach can be highly beneficial; however, since the global economic crisis in ‘07 and ‘08, banks and borrowers have been a little more disinclined to simply blow up that balloon.

But, when you’re standing in that car lot, and a balloon option brings that nicer, fancier car within your monthly limit, it’s really hard to choose an option that won’t have a residual value in five, six or seven years. For this reason, many people are still driving around in cars that have a residual value looming.

Whilst we all hope our liquidity will improve within the next five years, it might actually decrease – especially with recent inflation increases. In some cases, we may lose our income altogether – making a balloon payment feel more like a noose than a pretty shiny thing, way off in the future.

If you’re sitting with a balloon payment, you should always have a plan to pay it off. Regardless of why you chose the structure, the sooner you can have a strategic approach to popping the balloon, or simply letting it go, the better.

Some people choose to trade-in their car every few years and work in the residual amount on their next finance plan through the trade-in. This is a helpful way to do it if you work towards taking a standard loan (without a balloon) on your next finance option, or if you start saving for a deposit.

If you’re working on that savings option, you might decide to use it to pay off your residual amount instead of trading in your car, which is also a helpful way to pop that balloon. If you find yourself with that increased liquidity, then you can use it to pay back the lifestyle upgrade sooner by increasing your monthly instalments.

At the end of the day, our financial products are becoming more complex in order to suit a wider variety of financial needs, but this makes it harder to know if we’re doing what’s best for our personal situation. If you need to review any recent or future financial choices, please feel free to get in touch!

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Visualisation and stress

Not all stress is bad. But, if left unmanaged and unchecked, stress can become quite unhealthy for us. We all know many causes of stress, but we don’t always slow down enough to think about the specifics that are causing stress in our own lives.

Money, health, family, friends, work, safety and security – are all prevalent triggers, and the sheer volume makes it difficult to intentionally focus on what’s causing us stress. One of the coping mechanisms that we can use is visualisation, a powerful technique that can help relieve the symptoms of stress and anxiety.

The technique involves using mental imagery to achieve a more relaxed mind. Similar to daydreaming, visualisation is accomplished through the use of your imagination. It is common practice for athletes to use imagery while they prepare for an event, practice a movement, or train while injured.

Swimmers mentally rehearse a perfect dolphin kick, and endurance runners imagine pulling extra miles from the depths of their mental and physical resources (Meijen, 2019; McCormick, Meijen, & Marcora, 2015). The mind offers a safe and flexible environment for practising a stressful task. Mentally rehearsing a daunting performance prepares the individual by asserting control over a (sometimes harmful) inner voice (Strycharczyk & Clough, 2015).

Focusing on positive mental images can favourably impact our mind and body and increase self-belief in our ability to cope with change. One study from 1995 took a group of sixty subjects and tested their levels of anxiety and depression before and after using visualisation techniques. After several sessions, all subjects showed vast improvement in stress reduction, lower anxiety, and decreased depression symptoms.

Visualisation can provide temporary relief from pain, tension, or problems. It requires creating images in your mind that are so captivating, so rich in detail, and so all-consuming that you get lost in the images your mind creates.

A recent article on betterhelp.com highlighted several types of visualisation that could help you explore this stress management technique a little further.

  1. Creative visualisation of a favourable outcome
  2. Visualisation as a diversion from stress
  3. Visualisation with deep breathing
  4. Guided imagery
  5. Happy memory visualisation
  6. Visualisation with the senses
  7. Visualisation for self-motivation

If you’re a fan of apps for your mobile, here are some great ideas too:

  1. Balance
  2. Breathe+
  3. Calm
  4. Headspace
  5. Waking Up

Coaches, therapists, psychologists and even early-childhood practitioners use visualisation to help calm overwhelming emotions and create a safe and happy healing space. This makes it a helpful tool to be used as a form of mindfulness and to manage stress.

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Seeing the light.

There are many reasons for our increased stress levels – the use of technology and how it has changed our communication with each other and the world around us is complex and deeply integrated with our wellbeing. But where we used to follow seasons and the flow of the natural world around us, we have now created new rhythms and patterns and this has disrupted our Circadian Rhythm.

The term Circadian Rhythm refers to our body’s biological clock. This clock is observed across bird, reptile, and mammal species and is key for directing daily and seasonal behaviour patterns such as hibernation, eating and breeding. The light/dark cycle of the sun has a powerful effect on the circadian clock, sleep, and alertness. Our circadian clock responds to light, as a signal to be awake, and dark, as a signal to fall asleep. Increased light equals increased alertness, which equals increased stress.

Incandescent light bulbs were introduced in the late 19th century and since then our world has become awash in bright lights. Not only have artificial lights become a staple of our evening and early morning activities – we stare into backlit screens for several hours during the day too. From lamps that light up every street and city skyline all the way to constant mobile device use.

Our Circadian Rhythm is responsible for biological processes like brain wave patterns, hormone production and cell regulation. Studies show that the circadian cycle controls 10-15% of our genes.

Exposure to artificial light disrupts our internal clock regulation and has been linked to:

– Depression

– Insomnia

– Cardiovascular disease

– Cancer

– Immunity/Stress Response

All these conditions are quite clearly linked to our overall wellbeing. Your pineal gland releases the highest levels of melatonin when there’s darkness and decreases melatonin production when you’re exposed to light.

Melatonin triggers a host of biological activities, possibly including a nocturnal reduction in the body’s production of oestrogen. Sleep pattern disruption is thought to interfere with cancer suppression genes, leading to an increased risk of breast, prostate, gastric, and lung cancers.

Whilst things like financial stress, relationship tension, loss of a loved one and dealing with a global pandemic are all obvious causes of stress, a simple imbalance of our waking and sleeping lives can be equally harmful to our wellbeing. If you want to improve your quality of life, it’s not just about earning more money, or eating healthily, it’s about finding the right integration and balance of everything in your life.

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Inflation & Interest Rates

Typically, inflation and interest rates are in an “inverse” relationship: When rates are low, inflation tends to rise. And when rates are high, inflation tends to fall.

Moneyweb recently wrote “increasing the cost of credit will reduce the demand for it and therefore slow down the pace of ‘new money’ entering the economy via credit channels. This slowdown of funds entering the economy via credit channels will slow down the inflation rate as less money chases the same amount of goods.”

But, despite the logical and logarithmic reasons, hikes in interest rates in the country are a bitter pill for many who already have financial burdens. The grassroots reality is that whilst a higher interest rate may ensure a better return on our hard-earned investments, inflation can have an opposite devastating impact on one’s savings and investments.

This is because inflation is not just about the increased cost of fuel, utilities, bread and milk; it is the rate at which your money depreciates over time as the cost of living increases. The immediate impact of inflation is what we feel everytime we tap our card or phone at the check out, the delayed effect is felt when our long-term investments are no longer sufficient to support our lifestyles.

Three time-honoured strategies to help with the long-term impact of inflation and increased interest rates are dollar-cost averaging, taking a long-term approach and diversification (including alternatives that are not market-linked).

Cedrick Pila, regional manager at Allan Gray, recently said that if you want to achieve real capital growth that takes inflation into account then consider different alternatives rather than just putting your money in the bank.

However we look at this, we need to fundamentally look at our behaviours and make changes where needed. In the immediate environment, we need to look at how we are earning and spending our money. For many of us, we can’t simply keep things as they are; we either need to cut back on spending, or generate additional income.

For the future, we need to work closely with our trusted financial adviser in order to tweak and adjust our diversified investment portfolio according to our personal needs and event horizons. 

Inflation and interest rates will always affect the value of our money, we cannot afford to close our eyes and hope for the best. If you’d like to connect and chat some more about this, please feel free to reach out and let’s set up a meeting.

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Recognise. Interrupt. Change.

“We cannot change what we are not aware of, and once we are aware, we cannot help but change.” – Sheryl Sandberg

The foundation of most of our ongoing frustrations can be traced back to our habits, and the challenge with habits is we often aren’t even aware of them. When the world went into COVID lockdown, there was an increased awareness of face-touching, hand-washing and social distancing.

All of a sudden, we became aware that we could be touching our faces as much as three times every minute. We became aware of how close we would stand to people and how long we would wash our hands. This awareness, and knowledge of the implications, caused us to interrupt our regular routines and habits and change our behaviour.

Imagine how powerfully we could impact other areas in our lives where we feel stuck and frustrated with limited thinking and unhealthy habits!

When we constantly feel guilty for the money we have or regularly feel the stress of not having enough, we can start to recognise the habits accompanying those feelings. We might habitually be grumpy with loved ones because of finances or spend everything we have the minute it arrives in our account.

Recognising these patterns is the first step to connecting the habit to a desired or undesirable outcome – and we can interrupt that pattern. Even if we simply pause and take a mental note of what we’re doing, we’re already starting to alter our behaviour. Think about the first weeks of the global pandemic; there was so much happening that we would often forget our masks at home and would have to figure out how to work around it. Some of us kept spares in the car, our handbags and desk drawers.

We didn’t change overnight, but our habits and thinking patterns were interrupted enough to slowly spark the change.

If you’re sitting with some blindspots and can’t see the roots of some of your habits, perhaps we could connect and chat through your frustrations. We can’t see our own blindspots, and when we’re unaware of them, we cannot change them. Having a financial adviser or coach work with you can help you recognise, interrupt and change the habits that keep you in an unhealthy space.

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Rewriting retirement rules of thumb

At the end of any retirement planning conversation, we should always end with how our plan is unique to our own situations. But at the beginning, during the exploratory stage, it’s helpful to have some basic guidelines for where we can begin, or how we can craft our own benchmarks.

In the same way that a baby may start to walk anywhere between 8 and 18 months, we all start saving and investing at different stages in life. For an 8-month-old, 18 months is more than double their age. So someone could start planning for retirement at 20, whilst others may only just be getting there at 45 – and that’s okay.

What’s important is that you start as soon as you realise that you need to prepare for life after work!

In a recent article on IOL, they spoke about two common rules of thumb:

The Rule of 120 is a calculation that uses your age to determine the supposedly appropriate asset allocation for your investments: The formula suggests subtracting your age from 120 to discover the percentage of equities you should hold. For many, this may make sense, given that the older you get, the lower your capacity to take on risk.

Then there is the 4% Rule. Since the mid-90s, this has been applied universally as a rule of thumb to determine the appropriate drawdown rate and asset allocation for retirees. It suggests that if you withdraw 4% of your capital in the first year of retirement and only adjust for inflation each year thereafter – and provided that you maintain a minimum 50% allocation to equities – the risk of outliving your retirement savings over a 30-year period is substantially reduced.

But this can feel very technical and detached for many who are unfamiliar with the financial lingo. Also – a notable flaw of rules of thumb is that they cannot account for everyone’s unique circumstances. This is why it’s the starting point, not the ending point. Sometimes, we don’t even bring them up at all.

Ideally, we want to spark and sustain conversations that build awareness that life is changing and these changes affect and impact our financial wellbeing. Traditionally, we’ve been told that retirement is a stage of life that will happen around our 60s and that it will be accompanied by a slowing down and cutting back of work and responsibilities. But this is no longer the case, and certainly won’t be the case in the decades to come. 

Whilst we still need to invest and plan, by changing our motivations and dreams of what life can look like in 10, 20 or 40 years is proving to be considerably more helpful for our mental health, our financial behaviours and our investment portfolios.

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Finding the healthy positive

Everything we know, believe, and feel is based on our internal thoughts. Positive thinking gives us extraordinary power over our thinking and ourselves (Strycharczyk & Clough, 2015).

Some people are exceptional; they always seem to remain positive regardless of what lemons are tossed their way. You know the type, the every-cloud-has-a-silver-lining, glass-half-full, things-will-get-better type of people. We love to have them around when we need their support, but we can also envy their seemingly relentless positive energy.

But – if our positivity is superficial and never permeates deep into our psyche, it can become unhealthy for us. It’s essential to make space in our lives for all the emotions we need to feel to avoid suppressing emotions and potentially becoming ill (dis-eased). This kind of surface happiness can be a little too nonchalant and detach us from what’s really going on in our lives.

It’s less about having positive feelings and more about choosing a positive attitude to whatever we feel. We cannot control our emotions; we can decide how to behave with those emotions – this is when we start to tap into that extraordinary power. Smiling is a proven way to physically start changing our attitude to uncomfortable emotions.

Smiling offers a mood boost and helps our bodies release cortisol and endorphins that provide numerous health benefits, including reduced blood pressure, stress and pain, and increased endurance and a strengthened immune system.

There is also growing evidence that the use of positive self-talk (following on from our smile and going a little deeper) can significantly improve how we tackle a challenge or approach a situation. Talk to yourself as though a friend, coach, or supportive colleague is offering you positive advice. This means that we don’t push out the emotions that we’d rather avoid, but instead, we approach them with a healthier attitude.

We must avoid feeling bad for feeling unfocused, bored, tired, overwhelmed, inadequate, excluded, exposed, anxious (and tons of other feelings!). Instead, we can internally acknowledge them and say to ourselves: “I know you’re feeling overwhelmed and tired, but you can do this. Rest if you need to, and start again a little later.” This creates space for discomfort whilst holding a healthy, positive attitude.

At the end of each day, we can reflect on our successes and achievements rather than dwelling on disappointments or perceived failures. Whether it’s in how we spoke with our family, landed a project at work, or even managed to achieve a finance, fitness or food goal – this practice helps us find the healthy positive.

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Ready and Willing

Here’s the thing about financial planning: we don’t plan out of fear; we plan so that we can extend our peace of mind. This is why wills form such a key role in our planning. However, engaging in this process can be clumsy, confusing, and a little hairy, and as Ricky Gervais once said, where there’s a will – there’s a relative!

We need to talk about wills and estate planning so that we can remove the stigmas that stifle our engagement with drafting our will. 

As Mvuzo Notyesi, president of the Law Society of South Africa, says, “If you are a parent, a breadwinner, a homeowner and generally want to ensure that your affairs are in order, it is important that you have a valid will drafted by an attorney.”

Global panic in early-to-mid 2020 us all to think about these documents, and requests for them to be drawn up or updated were aplenty. The risk of creating these documents under duress is that we can make mistakes, sometimes in what they cover and other times in their legitimacy when official procedures are overlooked (or not available as in hard lockdown). Being ready and willing when you’re in a time of clearer, lucid thinking is a much better approach.

Drafting a will on your own or by using a web-sourced template can sometimes be sufficient, but these will not be applicable if you are residing outside of your country or origin, if you have young children, if you have assets in different countries, if you are part of a blended family, or if you are likely to inherit money yourself. These are just a few of the factors that would not be covered by a DIY basic will.

We can connect you with qualified professionals who can establish your needs and offer professional advice on any problems that may arise, before forming your estate plan and drafting your will. You need to have access to the necessary legal knowledge and professionals with the experience to ensure that your will not only complies with your wishes, but is also valid and meets the requirements of the law.

Vague wording like “I leave my cars to my sons” is typical of a DIY will, and may be disputed –  turning into an expensive and lengthy legal battle. What if the one car is worth R80,000 and another is worth R300,000?  What if someone arrives, claiming to be a son? Words like ‘descendants’, ‘my business’ or ‘personal items’ are also legally vague; pitfalls and loopholes are hard to spot if you’re not a trained lawyer.

Legal terminology like “bequest of the residue” are terms you may have never heard of and would certainly not put in your Last Will and Testament – all the more reason to hire a professional and save your family the additional heartache and stress later.

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Messy, not perfect

It’s hard not to become fixated on getting things perfect. It may not be in all areas of our lives, but for almost all of us, we have skills, relationships and responsibilities where we want to show up as perfect. As Dave and Hester Vaughan (yourjourneyforlife.com) often say, “Messy, not perfect!”

This is a great reminder that we mustn’t fall into the perfectionism trap. If we do, we will find piles and piles of frustration. As the Economist wrote in a recent article (by Josh Cohen), society bombards us with instructions to be happier, fitter and richer. Why have we become so dissatisfied with being ordinary?

As a result, we’ve become fixated with ‘never enough’. We never seem to have enough money, time or material possessions, and we feel like we can’t start big projects because we’re not ready.

From Emerson’s provocative defence of “self-reliance” in 1841 to the rise of the self-help industry in the 1930s and the emergence of our own selfie culture, selfhood was regarded as our highest value and the object of our striving. Educational, aesthetic and financial betterment and the need for validation from others are the elements that form the perfectionist air we all now breathe.

Cohen writes that perfectionism “makes for a thin life, lived for what it isn’t rather than what it is”.

The imperative toward perfection remains as potent and pervasive as ever. In an article in 2017, two British psychologists, Thomas Curran and Andrew Hill, ascribed an exponential rise in perfectionism among the younger generation to the “increasingly demanding social and economic parameters” within which they struggled to make their lives. They also blamed “increasingly anxious and controlling parental practices”.

Social media creates additional pressure to construct a perfect public image, exacerbating our feelings of inadequacy.

This impacts how we make and communicate financial decisions. If we don’t look to understand the emotions and meaning behind our money, we will never be able to uncover the truth of messy, not perfect. Instead of embracing our true values and passions (called “ordinary” by the world), we perpetuate a culture where we are likely to grow dissatisfied with what we have and who we are. 

Managing our money and integrating it with a happy life requires us to recognise and accept that a happy life is messy, not perfect. Remember, the kid with the muddy clothes is the one who had the most fun.

[Find the original Economist article here.]

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Cruise through a cost-of-living crisis

No one likes to plan for a time when we might not have enough money to make ends meet. Often, when we plan or make financial decisions, we assume that our future self will have enough money to pay for the decisions we make today. Sometimes this turns out to be accurate, but sometimes it doesn’t.

And, if the economy slumps and we have a cost-of-living crisis, the pressure on our finances can be debilitating.

Before we look at how to cruise through a cost-of-living crisis, it’s helpful to remember this…

It doesn’t matter how much money you have, what savings you have or how frugal you can be; inflation affects everyone. Every. One.

The first thing we need to do in a situation like this is to acknowledge that we’re not alone. We are pressured to make certain purchases and live a particular lifestyle because we think everyone else is managing and coping fine. But, truth be told, most of us have to make serious adjustments to our budgets and financial decisions when times are tight. If you feel you can no longer afford your bills, there’s a good chance that you’re not alone.

This is helpful when we need to look at other strategies to reduce spending or realign our finances to weather the stormy volatility of increased living costs. Everyone needs to think differently in order to spend and live differently under a strained economy.

The upside to this is that necessity breeds innovation. We learn to make do with what we have. But, it’s not just about making ends meet. In hard times, people unite in extraordinary ways to support and encourage each other. Relationships are forged, communities are strengthened, and our stories are coloured with wonderful, unexpected experiences.

Downgrading a home, moving in with others, selling a car or changing schools are hard things to do, but they can create memories that we will cherish forever. And, it all comes down to our attitude.

This is how we cruise through a crisis; by adopting the right mindset.

Sure, we can scrutinise spending, scale back on expenses, renegotiate debt repayments and look for savings, but ultimately, it’s how we allow challenges and changes to grow us and make us better people. You’re not alone. Let’s chat.

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