Wednesday, 30 January 2008

How to get out of debt

Eliminating debt from your life can be the same as doubling your income! Being free from debt is guaranteed to turn your life around and reduce the level of stress that you and your family have to face.

Credit is both useful and dangerous. Freely available credit allows us to buy today what we can't afford today. But easy access to credit often leads to large amounts of debt. With large amounts of debt people discover that they are in trouble. Their income no longer covers the expenses and there seems to be no end in sight.

Many articles about getting out of debt suggest a debt consolidation loan. This may help in the sort term, but remember: debt consolidation does not get rid of the debt problem! It combines all your debt into one. It turns short term debt into long term debt. It may ease the budget, but the benefits are purely temporary.

If you are in real trouble where your debt exceeds your assets, then sequestration or bankruptcy may be the answer. You will be starting again with severe restrictions on your financial independence. Once rehabilitated, you will own nothing but be debt free! Do this if you have to, but only when you have tried everything else.

For most people, the solution lies in setting up a debt elimination plan. The plan is simple to follow but will require some difficult short-term lifestyle sacrifices. However, the debt elimination plan will ensure that you will be living debt free relatively soon!

STEP 1: LIST YOUR DEBTS

Identify how much you owe and what you spend each month to repay debt.

Make a list of every debt repayment that you have. Include the mortgage, car finance, personal loans, credit cards, store cards, companies and people that you owe. Include payments that are in arrears. If the rent is in arrears, then it too becomes a debt.
For each debt, List the current repayment, the rate of interest charged, the outstanding term, payments that are in arrears.

Get the total monthly repayments and the total amount owing.

Knowledge is power! Knowing the extent of the problem is the first step towards fixing it.

STEP 2: REVIEW YOUR BUDGET

Now review the total household budget.

If you don't know where your money is going then carry a notepad with you for the next month. Write down every payment that you make. The more detail you record, the better.

Make a list of everything that you spend and pay on a monthly basis. Include all repayments.

Total your monthly expenditure items to get a grand total.
List your total household income in a separate column. Compare the total of this to your total expenditure.

STEP 3: SCRUTINISE YOUR SPENDING PATTERN

Involve the entire household in reviewing the budget. Review each item. Ignore fixed costs for now. Identify any spending that you could easily do without.

Look for luxuries or spending that can be cut. Use the detailed list that you created over the past month. Keep reviewing the budget to see if there are any areas where spending can be reduced.

If you cannot reduce your spending plan this way, then look at your debt and investment portfolio.

It may be prudent to suspend monthly investments for now. Once you are debt free, there will be much more available for investment. Don't stop life insurance premiums or retirement contributions unless this can be done without penalties.

Finally, look at your debts. Make arrangements with the bank to pay interest only on your mortgage (and perhaps on other longer term debt) for the next few months. Try to negotiate a lower rate of interest on your credit card, home-loan and overdraft.

STEP 4: CREATE A NEW SPENDING PLAN

We will call your new budget a spending plan. There should now be a surplus of income over expenditure. If there is no surplus, then go through the previous steps again. Perhaps look at ways to earn extra income.

STEP 5: THE DEBT ELIMINATION ACTION PLAN

The action plan involves targeting your debts one at a time. Go back to your list of debts. The usual advice is to target the debt with the highest rate of interest. It is more effective to target the smallest debt first. The reason for this is to free-up funds as quickly as possible to pay off more debt more quickly.

Take the debt with the shortest remaining term. Add the surplus that you created in Step 4 to the normal repayment. Pay the additional amount each month until the debt is paid.

The total enhanced repayment of the first debt has been freed. Once again select the debt with the shortest remaining term. Add the freed-up funds from the paid-up debt to the normal repayment. You will be able to pay off this debt much more quickly!

Each time a debt is repaid, more funds become available. Repeat the process until you should have repaid everything but the car and home-loan.

During this phase of the plan, all available funds are used to eliminate debt. Each time a debt is paid up, more funds are available to pay off the next debt. You are becoming one step closer to living a debt-free life!

STEP 6: WHAT ABOUT THE HOUSE AND THE CAR?

The same principle may be applied to the car finance, but check that you will save by repaying early. If you will be charged the full-term interest there is little point in repaying it now.

If you apply all of the freed-up funds to your home-loan, you could reduce the repayment term by 50% to 75%. Pay off your home in five years rather than twenty, and save a fortune on interest.

You will be living in a paid-up house with a paid-up car and no debt. You should have enough cash flow to buy major items with cash.
However, you may decide that it is time for a reward. Increase your mortgage repayments, but allow some extra for yourselves.

STEP 7 MAINTAINING WHAT YOU HAVE ACHIEVED.

Having achieved this step, it is important to maintain the new status quo. With the exception of a home purchase and perhaps a car, pay for everything with cash. Buy it when you can afford it. Spend only what you can pay for.

Set aside ten to fifteen percent of your disposable income for investments.

You have taken the first step to achieving financial independence. The journey may involve some sacrifices but the rewards are huge.

DOES THE PLAN ALLOW FOR FLEXIBILITY?


If followed to the letter, debt can be eliminated relatively quickly achieving massive long-term savings on interest.

Be flexible if you must it is your choice. Reward yourself each time a debt becomes paid-up. Add a portion of the freed-up cash to improve your living standard. It will take a little longer, but perhaps you need to feel the rewards as they occur.

Thursday, 24 January 2008

Power crisis in South Africa – Electricity supplier cannot meet demand

South Africa is in the midst of its worst ever power crisis. Eskom, the country’s electricity supplier – Eskom - has failed to make provision for economic growth and the need for additional power generation capacity.

The government is equally at fault. Warned ten years ago that additional investment would be required, the government decided to do nothing. In the meantime, the government’s silence has been deafening.

While South Africa struggles to live with daily power cuts and grid-locked traffic, Eskom has warned that it will take between five and seven years of infrastructure development to provide the required capacity. It has asked that no major industrial investment take place in South Africa for the next five years. A recipe for economic disaster.

Apart from the inconvenience factor (which is significant) businesses are being crippled by frequent power outages or ‘load shedding’. The situation is tantamount to a national emergency and warrants urgent interventions. Solutions must be found.

Eskom is looking at alternative energy sources. In a country where sunshine is available in abundance, solar power is the first and obvious choice. Eskom has initiated a program to encourage the use of solar heating panels to largely replace the use of electricity for hot water. Eskom will offer a subsidy on the purchase and installation of equipment as well as other incentives to consumers.

The basic idea is sound. Solar powered water heating has the potential to reduce our electricity demand substantially. But there is a major drawback.

Even with the subsidy, the purchase and installation of these units will involve major expenditure by consumers. Take-up of the offer is likely to be much slower than Eskom anticipates.

The root of the problem is therefore in the funding and the rate of take-up of the offer.

If we are serious about finding at least a partial solution to the crisis, then more drastic action is needed.

What if the government were to fund the purchase and installation of solar panels? The options are thereafter to treat the cost as a loan from Eskom to the consumer. The loan can be charged against the electricity bill. A second option is for Eskom to retain ownership of the units and charge a monthly rental to recover some of the cost. While this will represent a major capital outlay by the government which could negatively impact on the budget deficit, the cost of not doing this is horrendous.

A major investment in solar power would be the first step towards finding a short term solution to the crisis. The cost of taking no action is yet to be calculated, but expected outcomes are:
 Reduced economic growth. Maybe economic decline?
 Putting a strain on the tourist industry
 Jeopardising the 2010 World Cup
 Higher unemployment
 Severe social impact of a declining economy

Sometimes a situation warrants drastic action. This is exactly what is called for here.

Barry

Wednesday, 23 January 2008

Talking and driving - Hands free cell phone kits

Driving onto the highway a couple of weeks ago, I was pulled-up by the Metro Police. I had answered an urgent call on my cell-phone. My hands free cell phone kit was not in the car. I was in for a hefty fine! By some stroke of luck, I was let off. But this served as a graphic reminder of a recent article that I wrote about cell phones, hands free kits and driving!

Cell phones used by the driver of a vehicle while driving presents a danger on the roads. Even when a hands-free device is used a phone conversation is distracting.

Many drivers are aware of the danger, but are unable to let a ringing phone ring. Others are the totally unaware. In their minds they are able to not only conduct a full conversation on their hand-held phone while driving, but they can read, write and send text messages at the same time. They can multi-task - or so they think.

The problem with multitasking is that 60% of the attention goes to the call, 40% to driving. Have you ever tried to conduct a conversation with a multi tasker who is busy completing and signing contracts or marking exams?

The first problem with cell-phone driving is that one hand is occupied holding the phone to the ear. The other hand has the responsibility of steering, changing gears and signalling.

The physical constraint is not the only danger. When conducting a conversation over a phone our attention is drawn away from the driving towards the conversation.

Minimum driver reaction times are roughly one second. This reaction time is increased - multiplied - by fatique, alcohol and drugs even in minimal quantities. At 120 KM per hour a car travels 33.3 meters per second. In three seconds the car travels 100 meters. A cell-phone presents a similar danger and will slow reaction times.

Interestingly, conversations with passengers in the car have been demonstrated to slow reaction times. But an in-car conversation can pause when hazardous conditions occur or manouvers are required. The person at the other end of the cell-phone conversation has no idea of the driving conditions and no pause is possible. Poor signal quality may demand extra attention from the driver to follow the conversation.

The danger is at its worst when these elements are combined. The driver's attention is elsewhere and only one hand is available to manage to vehicle.

Hands-free devices do not totally solve the problem. The driver may still be distracted, but will at least have two hands available to cotrol the vehicle. Although illegal to use a hand held cell-phone while driving in many countries, thousands continue to talk and drive. It will never be possible to ban cell phones from cars, but a mandatory hands-free kit in every vehicle would go a long way towards reducing this problem.

Which brings us to the next problem. Shouldn't all cell-phones be able to connect to a standard hands-free device in a car?

Monday, 21 January 2008

Recession

Today the international stock markets collectively took quite a dive. Bears dominated the markets. Fears of a US led global recession are gripping the planet! Expectations are running rife of a full blown market recession. Perhaps a major stock market crash!

And all of this because a number of ‘highly intelligent’ investors invested without brains!

While on the subject of the sub-prime crisis, the simple fact is that it should never have happened! It defies logic. Why would anyone invest $1 million to something that is only worth $100,000? The only possible reason is a promise of disproportionate returns. Does anyone remember the dotcom boom – and crash? A simple case of widespread greed as investors chased easy money. If you haven’t seen the John Bird and John Fortune explanation, then click here to see it now. Hilarious but true.

Back to the impending recession.

John Smith is a rep for a large company. His first appointment for the week is with Samantha Froggins. Samantha usually places a substantial order from John. Today the order is for less. Much less.

"I'm being cautious" she says. "I heard that we’re going into recession. I don’t want to be saddled with dead stock. The reports are very worrying. I'm not sure that I've cut enough".

Not all of John's clients have cut back, but there are enough to cause concern.

At 4:00 p.m. John finally arrives at the BMW dealership. Fred is there to meet him. The papers are ready for John’s new 5 series BMW. The commission is substantial, and in anticipation Fred has booked a table at the exclusive La Vie en Rose.

Fred can't believe what he hears next. "Fred, we are moving into a recession. I have had three cancelled orders today and another five were reduced. I'm really sorry, but we'll have to put the car on hold. The Golf will have to do for another year."

Fred is devastated. If ever there was a done deal, this was it. He calls the restaurant and cancels his booking.

Soon La Vie en Rose will be laying-off staff. And so the cycle goes.

For a recession to happen, there have to be participants. No participates - no recession. As they say, markets, and the economy, are driven by sentiment.

Barry

Sunday, 20 January 2008

Wild bird tamed after near drowning

video

This morning I found a little bird in the pool.

Its entire body was submerged under water while its feet clung to the hose of the pool cleaner. Only its head was above water.

I got the bird out with a net. It was very fragile. I picked it up and it clung to my fingers. It would not leave me. I picked a fig from the tree and it ate a few drops of the sap.

Gradually the sun dried out the feathers and the bird regained its strength. I managed to transfer the bird to a glove. It flew into the fig tree and perched on one of the branches. It did not fly away when I approached it and it perched on my hand once again. Only when I put it down did it fly away this time back to its nest.

Wild birds usually stay far away from us, but being close to death caused this little creature to put its trust in me completely.

Friday, 18 January 2008

Powerless about Power by Candlelight

The latest joke doing the rounds in South Africa is "What did we have before candles?"

Interestingly, if we compare electricity prices in South Africa to the rest of the world we are cheap. But this is cold comfort when there is a 2 hour power cut every day. It is called load shedding.

The electricity supplier - Eskom - failed to invest in new power stations over the years. In 1990, a number of stations were decommissioned due to excess capacity. It will now take time and major investment to get these up and running again. Years of under-investment and poor maintenance of equipment has led to Eskom's inability to fulfil the demand for power. The growing economy has generated a growing demand for power.

Living in London in the seventies, the country reverted to a three day week. This was the result of a major miner's strike. Coal supplies had to be conserved. Through the mists of time I recall power being cut at various times each week. That was over 30 years ago.

In South Africa of 2008 we do not have a miner's strike. What we have is a failure to plan.

How are people coping? Traffic nightmares abound. Traffic lights stop when the power stops. Shopping centres stop trading. Businesses come to a standstill.

Of course there are romantic candle-lit dinners. Those that have gas can even eat hot food. The art of conversation is being revived. People are finding resources within themselves - a realisation that technology isn’t everything.

But out of the darkness comes light. There are positive signs. Consumer subsidies for solar heating panels are on the cards. Alternatives to fossil fuel electricity generation are being investigated. Solar powered traffic lights are on the way - perhaps to be extended to street lighting.

Perhaps a crisis was needed to force us to adjust our carbon footprint.

Tuesday, 15 January 2008

Hatzollah Saved My Life!

In the previous post, I told the story of my near-death experience as I went into anaphylactic shock following a bee sting.

Without the help of Hatzollah, I don't think that I would be here today to tell the tale.

Hatzollah are a medical emergency response group manned entirely by practicing orthodox Jewish doctors and paramedics. They operate on an entirely voluntary basis, and cover costs purely by means of donations. They are based in the north-eastern suburbs of Johannesburg which is where they are most active.

They are in the business of saving lives. Saving a life is the greatest 'mitzvah' of all. To save a life is to save the world. Saving a life takes precedence over all the laws of the Sabbath or any other Jewish holiday.

It was my son that called Hatzollah. They were at the house within three minutes. I was taken into the ambulance and put straight onto oxygen and taken straight into the hospital emergency wing where the staff and doctors had already been primed.

The dedication and efficiency of this group must be highly commended. Late on a Saturday night, the emergency services are very busy. There would have been little chance of getting that kind of response anywhere else.

I didn't get a chance to thank them then. I am belatedly thanking them now.

Sunday, 13 January 2008

Life & Death - A Close Call, but Still Alive!

One beautiful summer evening last year had me cooking a salmon over the coals on my patio. It had been raining, and the patio was rather wet. The salads and potatoes were ready and the salmon was just about there. As I took a step back I felt a pain on the sole of my foot. A bee had got itself wet and was unable to fly away.

My son helped me to remove the sting. We tried to scrape it off but it would not budge. Eventually a pair of tweezers did the job.

Within 30 seconds my vision started to blur. My speech began to slur. I blacked out for a while and was sick. The ambulance got me to the hospital's trauma unit. Adrenalin was administered. I was wired up to all sorts of machines. My blood pressure dropped to almost nothing. I began shivering. I was in anaphylactic shock. A wonderful doctor looked after me all night as I gradually regained my strength. A year later, she has joined my GP's practice. We were both excited to see each other again! The experience had caused us to bond.

I got to have a second chance in life. Sometime during that night I lost my fear of death. I still want to live I want to live more than ever. But I no longer find prospect of dying something frightening. I have generally become more positive and am able to appreciate life more than ever.

What is more, I'm still not afraid of bees. I carry adrenalin at all times and wear a Medic Alert bracelet. I treat bees with respect. I don't go out barefoot. But I don't take any lengths to avoid them. If they want to buzz around my flowers and trees that is fine. They mean no harm.

Wednesday, 09 January 2008

Are the benefits of life insurance worth the high premiums?

Life insurance can be expensive but it is an absolute necessity. There are a number of options available to manage that cost. One of these is low cost term life insurance. Other options may include finding the best deal by arranging for a variety of life insurance quotes and negotiating a lower commission from your broker.

John and Myra were in their early thirties with a three year old son and a one year old daughter. They had bought a new house and are building their lives. John's career is beginning to take-off and Myra is a stay at home mum. She has some part-time work that provides a little extra. She plans to resume her career when the children are a little bigger.

One evening Myra hears the door bell ringing. It rings again. It is the police. Myra hears the bad news. John has been killed by a hit and run driver in heavy rain on his way back from work. She is devastated. The family rally round.

After the funeral it slowly dawns on Myra that she has no resources with which to carry on. Even the funeral costs will be a drain on her limited resources. The mortgage repayments alone will take up more than her salary. She has been dealt a double blow. The life insurance that was deemed too expensive just a few months ago would have kept the family on their feet. Now what?

Over the next few years Myra may be able to overcome the financial blow. In the short term funds are required.

Life insurance is similar to pouring money into an empty hole until something happens to justify the cost.

Life insurance should be only a part of a balanced financial portfolio. The portfolio should include investments and savings. If you cannot afford the cover recommended by the broker then take less. As the investments grow, the need for life insurance diminishes.

One solution which minimizes the amount spent on life cover is a life policy that includes an investment portion. A variable universal life policy is a good example. As the investment grows, the amount of life cover reduces. The policy allows flexibility - additional funds may be invested to boost the investment, or the premium reduced to cover only the risk when times are tough. After a few years the policy provides a useful cash value.

The main objection to this type of policy are the expenses associated with it. This includes hefty commission. What it does ensure though is that the funds cannot easily be drawn in the early stages - a problem with most investments.

An alternative is to take term insurance. This should be coupled with a separate investment and the discipline to maintain the investment.

Life cover is expensive. One of the reasons for this are the high commissions paid to the sales-people. But life insurance is necessary. Shop around and find an affordable option. Even if you cannot afford the cover you need, remember that some cover is better than none.

Sunday, 06 January 2008

2008: War? Chaos? Turmoil? Hope?

2008 has already started with some disturbing news items. In Kenya, the election has resulted in murder and bloodshed. Chaos in the streets. Democracy not working.

South Africa faces a strong future marred by events surrounding the new president of the ANC - the ruling party. He now faces corruption charges. Although the statement has been withdrawn, a Trade Union spokesman has threatened "blood on the streets" if the trial goes ahead.

The situation in Iraq continues to fester, and although the US is hoping to withdraw soon, there seems to be little hope of a speedy resolution.

Pakistani elections have been postponed following the assassination of the leader of the opposition.

The Israeli Palestinian conflict shows little hope of resolution, as many on the 'left' support the fascist Hamas as a liberation movement.

Is there hope for the world in 2008? More and more people seem to be seeing and turning to violence as a means of solving disputes.

As the contest for the US Democratic party nominations hot up, I can't help wondering about the likelihood of a Democratic candidate becoming the next US president. Will the American public likely to vote on issues - or will race and/or gender cloud the issues?

Then there is the much talked about possible recession in the US.

What does 2008 have in store for us and for the world?

Post a comment giving your view.

Thursday, 03 January 2008

The Concept of Time

A New Year has arrived. Not for the first time! The cycle repeats itself over and over. Yet year after year, time after time. As the clock strikes midnight, the world fills with with the sounds of joy and celebration.

In our concept of time, a year is an entity in itself. What may in reality be a human construct, an arbitrary demarcation in the eternal scheme of things, becomes a great reality to us. Time for a new start. Time to put the dissapointments of the last year behind us. "Maybe this year will be better than the last" is the hope permeating mankind.

The concept of time is one that encompases the very nature of the world and the universe. We measure time in seconds, minutes, hours, days, weeks, months, years, decades, centuries and milleniums. But even without measurement, the world keeps on turning. The new replaces the old. That time is relative is not in question. On a different planet time may move more slowly. To G-d, a thousand years may be like a second, but our concept of time is governed by the way we experience it.

In the words of Mick Jagger and Keith Richards "Time waits for no one and it won't wait for me" (the Rolling Stones, 1974).

Our universe is bound by time. We can never stop the hands of time from moving on, taking us through the journey of life. Everything happens in time. The world will turn, the seasons will change. New life is born, grows and eventually dies. People change, countries change, governments change. It happens in time.

An ancient story is told about King Solomon. He sought out a ring that would be able to affect the very spiritual being of man. A ring that would be able to make a happy man sad and a sad man happy. Eventually, a ring was brought. There were three Hebrew letters engraved upon it - G, Z and Y. King Solomon saw the letters and instantly grasped the meaning. The letters signified the Hebrew words Gam Ze Yaavor - This Too Shall Pass. When reaping the rewards of success, it reminds us that this too shall pass. When success eludes us and we are suffering in the depths of despair, again we are reminded that this too shall pass.

This reveals one of the greatest truths. The circular nature of life and time. Look at the ring in good times. Look at it in bad times. At all times we must realise that this too must pass. Success, failure, pleasure and suffering. All are transitory. All will pass. Time will move on and even catastrophic events will disappear in history.

In Judaism, round apples are dipped in honey to symbolise the circularity of time at the New Year. Round foods are eaten after a funeral to remind us of the circular nature if life.

Since the most ancient times, man has found ways of measuring time. The rotation of the earth and our annual journey around the sun provide us with days and years. The moon has provided months. We divide the day into hours, minutes and seconds. Sunset to sunset. Sunrise to sunrise.

We have created calendars to chart the passage of time. We have the time clockThe calendar is filled with special dates that we can remember. Dates that signify events, birthdays, anniversaries and deaths. Dates that signify the passing of years, festivals, political and religious holidays.

Everything in life can change. We journey through time through the seasons of life. There is no destination. Time continues to move on. Everything happens in time. Opportunity, luck, disaster, success and failure can only happen in time. Once it has passed there is no going back. "If only I had known ... " is a common refrain. But there is only one way and that is forward. Forward through time.