qei - key to your
        financial future

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Do you live: above the line in the 'black'?  or

below the line in the 'red'?

einstein-on-problems

If you plan to create wealth, you must

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don't help other
      people's money work for themThose who advance credit — banks, retail stores etc. — do so on the basis that they are making their money work for them.

They are taking a risk every time they lend money, and they minimise the risk by doing credit checks, by checking that you are employed and earn enough to make the repayments. They are not interested in whether you can actually afford to buy this item — although as responsible lenders they ought to!

This item you have purchased for 5,000 has probably made over 2,500 profit for the company. If you default on payments they do two things:

Then, when you are listed with credit bureaus, the only route to borrow money is through micro-lenders. They levy huge levels of interest, which means you are practically never able to repay them!

How and why to Get out of Debt?

Many families spend over 50% of their disposable income servicing debt (capital and interest repayments).

How does one break out of this trap?

There are a few key steps:

Having got out of debt - learn to live free of debt

live free of debt -
      make the decisionIt is necessary to make a conscious decision that you will not accept credit in any shape or form, because it is a trap and creates a financial hole that it is difficult to get out of.

Having made this conscious decision to delay gratification and only buy what you can afford (that is, already having the money set aside) you will experience enormous financial liberty.

Money now works for you!

YOU ARE NO LONGER ITS SLAVE!

Strike Lessons and debt issues

October 2012 - South Africa has been riddled with strike action. Particularly vicious was the miners' strike at Lonmin. It emerged that huge levels of debt were behind the need to get more income. It is a very common South African problem. We point fingers at others as the supposed cause of our problems. The miners were pointing fingers at the employers, "It is their fault that I have all this debt - they do not give me enough money!", forgetting that whenever you point a finger, three fingers point back at yourself. The miners do not understand how they land in such overwhelming debt nor how to avoid it in future. It is likely, as an onlooker, that the increases they have negotiated have already been spent to incur more debt, not to recover from the debt burden.

Understand how Credit works

Credit is provided by various financial service providers, such as (looking at personal credit only:

The body that provides credit does so on the understanding (contractual agreement) that the money will be repaid over the period specified. This is a calculated risk. Statistically only a tiny percentage will default on the repayments. When someone does default, the institution lending the money has certain remedies:

The inability to get more credit is actually a huge benefit, as it forces one to live free of debt. Obviously, in the short to medium term it is important to clear these outstanding debts and restore one's credit rating.

Is there a problem?

The negative listings with credit bureaux are perceived as a problem. 

That is not the problem. 

The problem is actually that we disobey the tenth commandment and covet things to own and possess. And we want to have them now - instant gratification. 

The opportunity this gives is to learn to live within one's income and plan and budget and save for the things one needs, and to delay gratification until they can be afforded.

Free Download — find out what your debts are / credit is actually costing you.

Eveyone has one - What does a mortgage bond cost?

Look at this illustration carefully:

mortgage
                amortisation - what a bond actually costsLook what's happening to your money:

Initially, almost all your money is going to pay interest (middle line), while the capital (dotted bottom line) has very little contribution until quite well through the life of the bond.

The total bond repayments are 2.3 times the capital amount, with nearly 750,000 in interest.

If you decide to repay the mortgage bond over ten years instead, the difference is considerable, with an additional monthly repayment of about 1,700. The capital amount paid remains the same, so the savings are in interest:



total repayments interest
20 Years
Interest payable
1,273,828
723,828
10 Years
Reduced Interest portion 872,195 322,194

Total Saving 401,633 401,633

CLICK HERE FOR FREE DOWNLOAD — CALCULATOR — TO SEE WHAT YOUR MORTAGE COSTS YOU.

Just to illustrate, the mortgage repayments to different interest rates (5%, 10% and 15%) and different durations (10, 20 and 30 years), the calculations on a bond of 550,000 are:

Interest
Rate
Period
Monthly
Repayment
Total
Repayment
Interest
5%
10 years
5,833.60
700,032
150,032
5%
20 years
3,629.76
871,142
321,142
5%
30 years
2,952.52
1,062,907
512,907
10%
10 years
7,268.29
872,195
322,194
10%
20 years
5,307,62
1,273,829
723,829
10%
30 years
4,826.64
1,737,592
1,187,592
15%
10 years
8,873.42
1,064,811
514,811
15%
20 years
7,242.34
1,738,162
1,188,162
15%
30 years
6,964.44
2,503,599
1,953,599

watch out for monkey tricks!Warning - Watch out for odd deals on mortgage bonds

There are two disturbing new ideas in the South African mortgage bond market (and presumably in other countries too).

  1. To enable people to be able to buy homes, their employers are encouraged to make the funds available in the employees pension fund as surety for the mortgage bond.
  2. Home loans are now available where over the full 20-year period of the bond, only the interest portion of the bond is repaid, thus apparently making the bond more affordable.

The implications of these are frightening — here are a few:

There are other scams - which look very tempting - watch out!

Temptation — Unlock Capital

A house bought on a mortgage bond is not yours until the bond has been fully repaid. (Just try not paying for a couple of months and see how quickly the bank takes it away from you!) 

Look again where the amortisation of a mortgage bond is shown.  

In the first year of the bond you repay 6 times as much interest as capital. 

In the fifth year interest is 5 times capital paid, 

and in the tenth year it is nearly 3 times the capital paid. Shown below:

Year Interest Capital Total Repaid
1   54,584.62   9,106.81  63,691.43
5  262,335.18 56,121.97  318,457.14
10  488,454.35  148,459.94  636,914.29

So, if you unlock capital — perhaps through a second mortgage or an 'access'-type bond — to help you when in a financial squeeze and pay off debts, you are incurring a huge interest burden. For example, after year 5 you draw 56,121 — you incur the same interest load again of 262,335, having effectively flushed that money down the toilet.

The only time it makes a little sense is when the economy is booming and interest rates are low — then draw the capital and invest it to earn a much higher interest rate than you are paying on the bond repayments.

Temptation: Get an Easy Loan. No Credit Checks. 20% Interest.

This is tempting when you feel you need money urgently and you have problems getting credit. Be warned. The interest rate quoted (between 12.5% and 20%) is not annual but monthly. Thus, if you borrow, say, R1000. In the first year you repay R1000. At the end of the year you will still owe R2400. If the next year you also repay R1000 you will still owe R7160. Avoid taking this sort of loan as it is impossible to repay it, and you will get landed with garnishee orders against you salary and other legal action before you know what has hit you.