Episode Details

MANAGE AND RESPECT YOUR MONEY

By the end of this module, you will learn how to manage and respect your money and make informed investment decisions to become a SMART MONEY MANAGER. 

You can’t manage your finances without the right financial information. 

Managing money, like managing your household, must be worked on throughout your life like exercise or washing. You cannot expect to stay in shape if you only exercise once a year!

What does managing your money mean? 

Managing could be defined as control, influence or taking charge. An example of managing finances well is having enough put aside to be able to pay your bills despite a job loss. 

Question

If you lost your job, for how long could you manage and pay your bills?

During a financial crisis or recession, millions of people lose their homes within months of being made redundant. 

They have no savings. Instead, they have rent or mortgage payments, credit cards, car lease payments and loans. In short, most people live on a knife edge and are no more than three salary payments from bankruptcy. 

Rainy-day money

You must have an emergency contingency fund so that you are not dependant on credit cards or instant payday loans when the car or washing machine breaks down.

Some well-known payday lenders charge as much as 91% APR (annualised percentage rate) for small unsecured loans, according to Payday UK’s website. 

Borrowers do not realise they are paying an annualised 91% because they are paying off the loan in less than a year.

Payday UK quotes the following example:

“Representative Example: Borrow £500 for 6 months. Interest: £160.27 - Interest rate: 65% per annum (fixed). Representative APR: 91% - Total amount payable: £660.27. Rates between 9.3% APR and 1294% APR”.

Even high street banks are charging as much as 40% for a temporary overdraught – 400 times the base rate!

UK base interest rates are 0.1%, the lowest it has ever been in history. 

If a lender is charging you 3% on your mortgage, that is 40 x the 0.1% the base lending rate on which they can borrow money from the markets and us depositors. I have never seen such a high margin.

Mortgages used to cost around 2% over base lending rates, so when the base rate was say 8%, you would typically pay 10% on a mortgage – or a margin of 1.25 over base lending rates.

Solution. 

Make sure you have a contingency fund for emergencies, so you don’t have to rely on loan sharks.

If you do need credit, search for cheaper alternatives online or try credit unions.

You should have reserves equivalent to 6 to 12 months’ salary in the bank in case you lose your job or source of income. Large companies, government and local authorities hold millions of reserves. They also have a ‘disaster recovery’ plan in place.

You cannot possibly manage or control your finances without data, which means knowing exactly how much money is coming in and going out. 

Managers cannot manage a company without accurate management information and your household is no different.

Think of yourself as a business or corporation even if you work for somebody. 

You are the CEO of your own business.

Hold monthly, quarterly and annual board meetings with your family, even you’re the only director!

Set up a system to keep a track of your revenue and costs. 

What does “respecting” m