Want to break the legacy of bad financial planning?
What can we learn as we emerge from the legacy of state capture?
The UBF’s Victoria Campbell-Gillies spoke to Business Advisor Ailsa Moffat about the legacy of bad spending habits in the wake of an economic meltdown.
Whether you’ve spiralled into bad spending habits, or have been dragged down by severe debt or a costly event, whatever the cause of instability, we look at how you can become financially stable.
YOUR PERSONAL FINANCIAL PLAN
The first question Moffat urges you to ask yourself is, “What does it mean to carve your own path in the economically unfriendly climate into which South African has emerged in the last 20 years?”
Engaging as members of the financially responsible sector means asking ourselves vitally important questions regarding spending and saving. While many have taken knocks that might seem insurmountable, recovery is all about having a plan and sticking to a water-tight budget.
“The first step in your plan is saving money. Whether you have debt to pay or another financial requirement, first look at where you can cut down, whether it’s R15 per month or R100 per month,” she adds.
Do you drink and smoke? Quit! Do you spend on luxuries? Quit and save it so you can pay off your debt. If you’re unsure of where to start, The SMART model is an effective guide for defining objectives that are:
Specific – so that you know exactly what you are aiming for and how you are going to get there;
Measurable – enabling you to keep track of your progress and assess how closely you have really met your goal;
Achievable – so that you can take on the challenge with confidence and not become overwhelmed by a task that is too ambitious;
Relevant – it is easy to come up with an array of good, creative objectives in a free brainstorm, but all of them may not get you to your desired end goal; and
Time-bound – deadlines place healthy pressure on you to succeed.
VARIED INCOME STREAMS
The two biggest lessons as South Africa emerges (hopefully) out of this habitually bad market is that it’s not just the youth, but everyone who must secure multiple income streams and enter the property market.
“The days of a single, secure source of income are in the past as corporate employers turn to alternative means of securing services. The opportunity, and demand, for independent contractors and micro businesses has grown, opening the door to opportunities for self-employment. In this arena, he who dares wins, and the person best able to promote themselves and deliver on their promises is sure to prosper,” says Moffat.
“As contractual work is subject to the vagaries of market demand, secondary and even tertiary income streams are essential to ensure financial security. Online shops and the offer of remote services to the international market provide excellent avenues by which the objective of financial independence can be reached.
“With regard to entering the property market, the boom experienced in the early 2000’s has driven the price of even entry level properties out of the reach of the average 20 to 30 year old. More young people are living at home – it’s becoming less of an oddity and more the norm – for longer in order to acquire the deposit required to get one’s foot in the door.
“It is imperative for financial security to make the foray into property ownership as soon and as risk free as possible. Patience is the name of the game. A first, investment property in an emerging area, into which a reliable tenant can be placed while one still stays at home is a good way of building the required credit rating and experience before branching out into an own-to-occupy property.
As Bob Dylan said, the times they are a changing!
Q: Which property should we buy and where?
A: My advice would be to buy the worst property in the best area to the limit of your comfortable means. Any property that has the potential to improve in value with a little TLC is always going to afford a better return, as will a property that offers mixed use or multiple tenants (without becoming a slum lord).
Area is crucial within a city and is probably more important than the city itself. Starter flats are always in rental demand. Relating this to Durban, a purchase under R 1 million in either mid to upper Glenwood or lower Morningside is a good place to start. The areas service either academic or employment hubs both of which provide a steady stream of potential tenants. The process of screening tenants, etc, is the subject for another article altogether, but it’s an absolutely critical part of ensuring the success of your investment. Rather stand empty for a few months, waiting for the right person than accept a questionable tenant and face late or non-payment of rental, which incurs additional expenses by way of lawyers’ fees, etc.
Q: Should one buy in Joburg, Cape Town or Durban?
A: It’s usually advisable to buy property in the city in which you live, especially at the outset. The hassles of outsourced, remote maintenance can leave you vulnerable to substandard service and poor workmanship.
The ideal is to purchase a property in which you can live and from which you can derive an income, either by running a business or by accepting tenants. The closer to home, the better until one understands the pitfalls and challenges of property ownership.
Q: Emerging micro businesses owned and managed by 20 or 30 somethings have varying specialised skills, some amazing products and are brilliant in terms of flexibility, and personalised service. Often they collaborate with other specialised firms to provide on point, bespoke packages. What can big business learn from micro-business?
A: The micro business has the advantage of quick response. In a world where technology (which essentially underpins the majority of economic enterprises – whether it be in affording better systems, identifying greater efficiencies or actual product) is changing daily if not hourly, the person quickest on the uptake and first to market has the greatest chance of success. Conventional business models mired in bureaucracy and administration are hampered in their ability to adapt at the speed required by the world today. A lean, mean, light on its feet enterprise can turn on its own axis while the cumbersome corporates are still giving the instructions to change direction.
The immediacy of information available on the internet and the youth’s habit of remaining always in contact, in touch and up to date, gives young entrepreneurs a huge advantage over the more conventional methods of big business. Big business will always play a vital role in the global economy – the new world forces are more likely to be Corporate Enterprises rather than individual countries or political philosophies, but small business has all the tools required to become an increasingly important player on a local, regional and to some extent, national level.
Q: What is the future for businesses? Is the world going back to smaller businesses? Will larger businesses become less and less relevant?
A: Yes, I do see a reversion to the days when the baker lived above the bakery and serviced his community. Or the modern equivalent to that. A single person with great skills can collaborate with multiple parties to offer a huge range of services. And I do think there’s a shift in the middle to upper sector of the economy to embrace this culture.
Q: When faced with investing in either property or a micro business, which is the better option?
A: If you only have reserves sufficient to follow one of the paths advised, I’d have to say that buying a property while formally employed is much easier than if one is a sole proprietor or small business owner. I’d put my money into a starter home while having a job, augmented by a second income stream. Once the second income stream becomes a viable business and the stability of your property and its tenants are well understood, take the plunge and give your energy over to building your brand.
About Ailsa Moffat
Leaving University in 1988 with a BA in English and Drama Studies with minors in Law, Ailsa entered the business world through Events Management before moving into her family’s businesses in the Clothing and Textile Sector.
After 20 years as an entrepreneur working in the SMME sector of the economy, Ailsa parlayed her experience into a consultancy that provides advice, support and services to businesses at the smaller end of the spectrum.
The Company Collective affords micro- and small enterprises the benefits of a business partner without the loss of autonomy or risks associated with employing high value staff. The range of services cover all aspects of analytics, administration and accounting. In its five years existence, the Company Collective has consulted in the IT, design, events, manufacturing, automotive, alternative energy, clothing, horticulture and hospitality industries.
Ailsa can be contacted at firstname.lastname@example.org