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Wednesday, March 25, 2009

I'm taking a little time off...

This is just a short note to all of my readers: I am going to be on leave from Friday 27 March 09 to Monday 13 April, and will probably not be blogging much between those dates. I've been pulling 14 hour days at work this week - hence the low number of posts of late (sorry!).

To fill you in, I'm going on holiday to Asia! Hitting Singapore, Hong Kong, Macao and Bali (yes, I know, life can be hard) and looking forward to every minute of it. As I don't have too long in any one spot, it might prove difficult to find the time to sit down and write a decent blog post. I will be taking in absolutely everything I see, so look forward to some good insights and observations from the Far East when I get back!

Until then...

Friday, March 20, 2009

Finance Coach - Vol. 11

Finance tip: Utilities

Manage your air conditioner usage. Having been through an extremely hot patch of weather recently, I was reminded how many people rely on air conditioning to keep their homes and offices bearable. Air-cons are one of the biggest users of electricity, and can make a huge impact on your energy bills. To keep your costs down, make sure that the air-con unit doesn’t have to work harder than it needs to. If you have the unit on, keep windows closed (otherwise the air-con has to work harder to maintain a constant temperature in a fluctuating environment). Also be aware of doors being left open unnecessarily, as the cooled air can escape (and hot air enter) if they are left even slightly ajar. Also ask yourself whether you really need it set to freezing, or whether a slightly cooler temperature will suffice – the cooler the temperature it’s set to maintain, the more energy the unit uses.

Business tip: Organisational dynamics

Office planning. If you hold a management or executive position, and work in an environment where you have your own office, the way you utilise your office space can impact on your effectiveness. Firstly, have your door open as much as possible. This promotes an improved flow of communication and will improve the relationship you have with your staff as, even if they don’t make use of the opportunity, they will feel that you are more approachable, and will feel more at ease about coming to you with new ideas. Secondly, if you are having a meeting where you need the upper hand (for example, where negotiating with a supplier to reduce their prices), make sure that the other person will be sitting with their back to the door. The person facing the door has the stronger position in the room as, psychologically, the one with their back to the door will feel more exposed, and this will weaken their resolve.

Wednesday, March 18, 2009

Some do benefit from a property crunch...

As I'm sure you're all aware (unless you've been living under a rock somewhere) the world is going through a massive financial crisis. One of the major areas where this is playing out is in the property market. Over the last 12-18 months, there's been a significant drop-off in property values around the globe, and the ramifications have been widespread...

The reasons for the property-price tumble are many. One of the primary drivers has been the global credit crunch, where banks are lending less and less, and it becomes harder to get a mortgage. As fewer people get mortgages, the buyers pool for properties gets shallower. With less demand, prices of properties come down, as sellers have to drop their asking price to attract a buyer. Then there is also the argument that prices were rising at an unsustainable rate, and were due for a reality check (or a 'correction', as the experts say).

The negative repercussions have been thick on the ground: People have realised that property values don't necessarily climb automatically; some have lost their homes as banks have called in sub-prime mortgages; older people, who may have had much of their wealth tied up in their home, have taken a knock to the value of their biggest 'investment'; people who bought at the top of the boom now have a property worth substantialy less than what they owe on it, and are factually bankrupt, etc. etc.

But there is always a positive side to any downturn or bad news. I, for one, have been watching the cost of a home accelerate away from me in the last few years, and have felt sick to my stomach when calculating what it would cost me to get an average starter-home. Apparently, 10-20 years ago, the average person bought their first home at 24/25, whereas the equivalent age today is in the early 30's! Now, I am fortunate in that I am well ahead of the curve in terms of what someone my age (25) earns, and I'll probably be able to purchase a house in the next 2-3 years, but the way that prices were going, I was going to have to settle for 'student' accommodation on an 'executive' income. With prices coming off their highs, I may well now be able to get something something more along the lines of what I had in mind. And I know that many of my peers and friends feel the same way - it at least gives us a look in...

And while estate agents and developers are getting kicked in the nads, there are other businesses that are booming. Going for a run around my neighbourhood the other day (I hadn't done so for a good while), I couldn't help but realise that nearly every second house had done alterations! When you think about it, it makes perfect sense: People haven't been able to buy their dream house (because they couldn't sell their current one, or couldn't get a loan for the one they want), so they've had to do the next-best thing and upgrade what they have. This would mean that the associated industries - such as DIY stores, building supply warehouses, contractors, etc. - would all be noticing a nice uptick in business (or at least keeping the business ticking over while everyone around them is going bust). I noticed in the newspaper the other day that Massmart (the owners of Builder's Warehouse - a local building supply warehouse franchise) came out with relatively strong results, at a time when everyone's competing to report the biggest loss. Maybe companies like these could be a reasonably safe bet for investing, while everything else is tanking?

Oh, and if you have been living under a rock somewhere, don't feel bad - it probably hasn't lost as much value as a real house...

Sunday, March 15, 2009

Making money on the Web...

In a day and age when everyone could use a little extra coming in, I thought I’d share some of the research I’ve done into making money on the Web. There are obviously thousands of different ways of making money using the Internet but, for simplicity’s sake, I’m going to split them into two main streams, and then focus primarily on the one.


The first type of money-making avenue would be having an e-commerce site of some sort. This is where you offer a product or service, and you use the Web as a sales channel. Here, your customers would find your site, use it to make their selections and purchases, and often process their payment as well, all in one. This could be an extension of a business that has a physical presence in one or more countries (think of an online shopping site for your local supermarket); or it could be a stand-alone business, based solely on the Web (think Amazon or Yahoo!). I would refer to these as ‘active’ Web businesses – where the revenue is generated from the sales process, and is actively worked for.


The second type of income stream would be more of a ‘passive’ Web business – where income comes in, even without physical sales being processed or services rendered. This is the type that I’d like to focus on in this blog post. One of the most common (and easiest) ways to generate an income in this manner is through advertising on your site or blog. In my mind, the easiest program to use to do this is Google Adsense. Basically, what happens is that you would sign up with Google to have ads placed on your site (you get to choose what types, how many, where they’re placed, etc.) and they would provide you with the HTML code to embed into your pages. These ads will then come up and show on your site when others are accessing it. If a reader or customer clicks on one of these ads, you can then be paid for it. How much you are paid depends on how much the advertiser paid for the click, and sometimes whether the person who clicks through takes another step (such as signs up as a user, buys a product, etc.) Generally, you would make a few US cents per click, but this can add up if you have enough traffic on your site, clicking on ads.


You’ll notice that I have a few such ads floating around on this blog. To be completely honest, the reason for me starting a blog was two-fold. First and foremost, it was to give me a channel to share some of the hundreds of thoughts flowing through my mind at any one point in time, and to share some of what I have been fortunate enough to learn in my life so far. The second aim, tied to the first, was to try and generate an income stream from the Web. I thought that, if I can make the content of my site interesting enough so that it appeals to a wide audience, I could leverage off of that audience and make a little bit of extra cash. Hence the ads around the site. If I write an interesting post that attracts you to read it, and you then click on an ad, I should (in theory) make a little bit off of that.


To date, it has been a mild success. I have made a little bit of change here and there, but I’ll be the first to admit that I have not been the most dedictated of writers – I have tried to put up at least a couple of posts a week, but if I was seriously serious about building an audience, I should be posting nearly every day. Having spoken to some very experienced bloggers (notably Chris Mills of Imod – www.imod.co.za), they have all said the same thing: If you want to grow a successful blog, it’s all about content, content, content! Make sure that you always have something fresh and new on you site, and your readers will respond with their loyalty. Now I realise that it’s not completely ‘passive’ – if you don’t write anything, you have no readers, and thus no income from ads – but I hope you understand what I’m getting at.


What I can say is that I’ve realised that certain types of blog-posts definitely have a broader appeal. I’ve generally had people clicking on and reading every post that I’ve put up, but I had a tremendous response on the last one (“How to draw up a budget”). Nearly 5 times as many people clicked on it compared to the next most popular! Thus, as a blogger, you have to walk the fine line between posting what you want to write, and what people want to read. It’s not easy, and the Web is littered with stories of blogs that just never took off…


So, I’ve decided to re-frame my approach to this whole blogging thing. I’m going to make an effort to put up at least two to three posts a week (and keep them interesting, not just doing them for the sake of doing them). I’ve also added another weapon to my arsenal. You’ll notice that there is now a Google search-function at the top of the page. This is another product of the Adsense program, and acts as a conduit for readers to be able to access the full power of Google search without leaving the page. If one of you performs a search using the strip above, and clicks on a link in the search results page, I should – in theory – get paid (I think if the link had originally been paid for). It’s only been up for a day or two, so I’ll see how it goes!


Now, this has been an extremely simplistic summary of the way I see it. I am definitely no IT-whiz, and am ready to stand corrected on anything I’ve mentioned here. But, if I can do it, anyone can!

Thursday, March 12, 2009

Finance Coach - Vol. 10


Here's a copy of the latest message from my Facebook Group - "Finance Coach (by Gareth Cotten)"...

Finance tip: Investing

Aim for real returns. When you invest money in a savings or investment account, the money that you make on your initial input (or capital) is known as the return. While most savings accounts will give you a return, and grow your money, you need to make sure that it’s a real return. You are getting a real return when the return is higher than the current rate of inflation. Inflation is the general price by which goods increase over a period and, because of it, your money is worth less in the future than it is today (because prices will generally increase over time, and you can thus buy less with the same amount of money). So, when measuring investment or savings opportunities, always aim to put your money in something where the return offered is higher than the inflation rate (which is roughly 11% in SA at the moment). If it’s not higher than the inflation rate, you may be earning interest, but you are theoretically losing money, due to the effects of inflation.

Business tip: Marketing

Have an ‘elevator pitch’. Whether you’re wanting to explain what you do, get potential investors involved in raising funds for growth, or just tell others about your business, create and perfect an elevator pitch. This is a short explanation which summarises the most important facets of your business into something no longer than 8-10 seconds. The name comes from business people who have pitched their ideas or businesses to others while traveling in an elevator – they only had a few seconds of the other person’s attention, and needed to get across a decent general idea, which would inspire the other person to want to find out more. Make sure that the pitch/summary is not too technical, but still gives the impression that you know what you are talking about. Also try to convey your passion in the short clip, as this will register with the listener more than facts and figures. Try it out on family, friends and colleagues, and ask them to give you an honest appraisal of whether they would get a good enough idea from just that short pitch if they’d never heard of you before.

Tuesday, March 10, 2009

How to draw up (and stick to) a budget...

When wanting to draw up a budget, there are essentially two main categories that one looks at: income and expenses. The idea behind a budget is to have a plan every month of what your income is and what your expenses are, and then make sure that expenses are less than income (I know this sounds a bit simplistic, but you’d be amazed at how some people struggle with the concept).


Generally, you would start with income, and then work out your expenses based on that. This is because, for most people, their income is defined and they have a fair idea of how much it will be for the month. For the entrepreneurs among you, it is quite possible to define your expenses first, and then set about earning the income required, but that’s an approach to write about another day!


So, here’s a step by step approach to drawing up a budget:


1. Pull out a piece of paper, and write down your income at the top of the page.

This is what you bring in every month, and what you spend has to come to less than this amount. If it doesn’t, you’re living in debt, and heading for bankruptcy down the line.


2. Underneath that, write down your monthly expenses.

Don’t write down any actual numbers yet, just take 10-15 minutes thinking of everything that you would spend money on in a month, and putting them down on the paper.


3. Categorise your expenses

This is an important step, and will help you decide when faced with decisions on what to spend your money on. Next to each expense written down in step 2, write down which of the following categories the expense falls into:

  • Basic human needs (what you need to physically survive – shelter, food, water, rest, etc.)
  • Basic ‘societal’ needs (what you would be paying for if you live in the real world – car/transport, fuel, insurance, retirement contributions, tax, electricity, basic clothes and toiletries, etc.)
  • Nice-to-haves (what makes life worth living or creates some sense of balance – basic entertainment, eating out, smart clothes, etc.)
  • Luxuries (always nice, and always a treat, but can easily live without them – expensive gadgets and accessories, holidays, luxury clothes, extra entertainment, expensive cars, etc.)


4. Put down your ideal spending allocations

In a perfect world, this is how your income would be split. This will vary from person to person, but there are basic guidelines which are generally regarded as prudent. For example, spending more than 25-30% of your income on accommodation (rent/mortgage payments) could be seen as excessive. Likewise, spending more than 20-25% of your income on car payments or transport is not smart either, if you can help it. In my mind (and this is just my opinion) my ideal after-tax allocations would look something like this, in this order:

  • Savings/retirement contributions: 10-20%
  • Accommodation: 15-25%
  • Food: 10-15%
  • Transport: 10-20%
  • Insurance/utilities: 10-20%
  • Entertainment: 5-10%
  • Other nice-to-haves: 5-10%
  • Luxuries: 5-10%


5. Now write down what you ACTUALLY spend

This can be a difficult one, as you may not have an exact idea of what you spend month-to-month. To get a firm idea, carry a small notebook with you at all times, and write down everything you spend on a day-to-day basis. When I say everything, I mean EVERYTHING – from the groceries, to fuel for your car, to those drinks you had with your friends, to your morning coffee, to the small change you put in that charity box. Another way to achieve this is to keep the slips every time you spend money on something – still keep the notebook, but just for those things you don’t get slips for. Then, after doing this for a month, go through your bank statement and add all of your monthly expenses (such as loan repayments, insurance, pension deductions, etc.) to this list.


6. Compare what you actually spend to your ideal spending allocations

I’m sure you’ll be unpleasantly surprised! Identify how much of your income is being spent on nice-to-haves and luxuries. If you’re battling to pay your rent, but you’ve gone out with your friends twice a week, you’ve got your priorities wrong. Or if you have no provision for savings and retirement, but you’re driving the latest model car, you’re also setting yourself up for a problem. Have a long, hard look at the differences between what you should be allocating your money to and what you actually do.


7. Put savings into your budget

If you’re not putting aside any money for savings, for a rainy day, or for your retirement, the best time to start is now. Today. You’ll notice that in my budget breakdown, it’s the first item on the list. I believe firmly in paying myself first – I’m essentially making provision for my future before I spend a cent on anything else. As fit and healthy as you feel today, you won’t always be able to work, and you’ll need an income to live off of when you can’t. The alternatives are working forever, sponging off your family, or living off the state – none of which are terribly appealing.


8. Write down what your goals are

Once you’ve written up a budget (see the next step), you’re going to need a reason to stick to it. Many people draw up budgets, but fail to stick to them, and quickly fall back into their old ways. To stick to your budget, you need to have a goal – a reason for wanting to do it. It could be anything: you want to start providing for retirement; you want to pay off your debt; you want to stop the sleepless nights worrying about your finances; you want to save up for that amazing holiday/car/TV/mail-order bride. Whatever your goal is, write it (or as many as there are) down on the paper with your budget. Every time you start to feel despondent or restricted, pull out that piece of paper, and remind yourself of why you’re doing it. Picture yourself enjoying the rewards of your discipline (cruising down the coast in a convertible in your retirement, or watching a movie on your massive flat-screen a year from now), and you’ll bring yourself back in line.


9. Now write down what your budget will be from now on

You’ve had a look at what you spend your money, and where you should spend less. Now write up a budget that’s realistic, is in line with your goals, and applies your income to your basic needs first, steadily escalating up to nice-to-haves and luxuries if there is any money left over. Take your time, you don’t need to rush it. Chat to your family, friends, and colleagues, and ask them whether they have one, what criteria they use, and how it’s working for them. Ultimately, you want to have a solid idea of what you make every month, what you should be spending, and what’s left over. Then relax and give yourself a pat on the back, safe in the knowledge that you’ve taken some more control over your finances!


10. Check and update it regularly

As your circumstances change, so will your budget. Commit to checking your budget regularly, and comparing it to your current spending levels. It’s a flexible tool, and can be updated whenever the need arises. Personally, I go back to mine every 6 months, but how often you do it is up to you…


Good luck!

Monday, March 9, 2009

Finance Coach - Vol. 9


Finance tip: Insurance

Consider paying your insurance upfront. Most people are under the impression that you can only pay your insurance monthly. What they don't realise is that you actually have the option of paying upfront for the year, it's just not that well communicated by the brokers/insurers. When you choose to pay monthly, most insurance companies charge a built-in interest charge into your premiums - anywhere from 8-20%. So you actually pay for the privilege of paying monthly! Check with your broker or direct insurer, and if this is the case, weigh up the option of paying upfront for the year. Yes, your cashflow will initially be affected (this is what the insurers bank on), but you'll be paying a pretty fair amount less for your cover. If you've got some cash tucked away, and you're earning less in interest from it than you'd save, it's the smart thing to do!

Business tip: Marketing

Carry your business cards everywhere. I mean EVERYWHERE. The thing about networking is that you never know when you might meet someone who could bring something positive to your business. How many times have you been out somewhere, and thought "This person would be great to chat to again, if only I had my cards on me"? The proactive among you would have at least scribbled your name on some scrap paper, but having your cards ready at all times is much more professional. And hand them out liberally - that guy you chat to at the coffee shop might seem like a nobody, but he could have some serious connections. The point is, you never know, so always be prepared. Invest in a little card-holder that you can take everywhere and anywhere, and make sure it's the first thing that goes in your briefcase/luggage/suit pocket/jeans/gym bag...

Sunday, March 1, 2009

COPEing at the rugby...

While watching a Super 14 rugby match yesterday - the Lions vs Bulls game to be precise - I couldn't help but notice that COPE (the new political party, Congress of the People) had banners and adverts all over the stadium. This piqued my interest as, in the nearly 20 years that I've been watching rugby, I can safely say that I have never seen a political party advertising so blatantly at a sports stadium. But, looking past that initial surprise, there's a fair amount that can be read into it...

By them choosing to dedicate a decent chunk of their marketing-spend on ads at the rugby, it shows who one of their main target audiences is. Before getting into the politics of it, one must remember that advertising at a sports ground or stadium is actually a two-dimensional marketing angle. Obviously, the supporters at the actual stadium itself are exposed to your advertising message, but smart marketers realise that you can actually target a much wider audience - being those people watching the game on their TV. Depending on where your ad is placed in relation to the actual playing field, TV viewers can have your message in their field of vision for most of the game as well. This is why you may see ads for SA companies on the advertising boards at a cricket match in Australia, for example - the advertisers realise that the pictures are being streamed around the world, and there will be plenty of interested SA supporters watching the game in their own country.

To give a little bit of political background, COPE was only formed in the last few months, and is generally seen as a break-away from the ruling ANC. Initially dismissed by the ANC as a bunch of no-hopers, COPE is now seen as a force to be reckoned with, with some high-level defections from the ANC and other parties, as well as a groundswell of support from the business community and general public (thanks in part to the huge media hype about them). While they may be a bit thin on policy, their general appeal lies in the fact that they are an alternative to the ANC, with a broad-based appeal that the other 'minority' parties lack. While these other 'minority' parties have a uphill battle to prove that they don't only have the interests of one particular group in mind (the DA is perceived as somewhat of a 'white' party, the 'ID' as a 'coloured' party, the IFP as a 'Zulu' party, the FF as an 'Afrikaans' party), COPE has the advantage of not having any historical perceptions to overcome. They have managed to unite people on the simple basis that they are disillusioned with the ruling party, and fed-up with the way things are being run at the moment. While this may not be the strongest message to run a campaign on, it seems to be working, with South Africans from all races and walks of life saying that they would consider voting for COPE in the upcoming general elections.

Now, let's get back to the adverts that sparked this train of thought. For those who were under the impression that COPE was only targeting the majority black vote - essentially looking at stealing votes from the ANC - I feel that this set of adverts has blown that impression out of the water. Historically in SA, rugby has been a bit of a 'white' sport (I know I'm generalising a bit here, and dipping into the race debate, but bear with me for the sake of argument). It has come on in leaps and bounds in terms of attracting supporters from across the spectrum, and has a massive coloured following in the Western Cape, but it doesn't yet have the same appeal to black viewers as soccer does. So when COPE decided to advertise at a rugby game, I feel that they made their intentions quite clear in terms of attracting the white (and coloured) vote. What struck me even more was the fact that they were advertising in Johannesburg, at a a game where the two teams playing are based in Johannesburg and Pretoria respectively. Now, these two locations could be seen as bastions of conservatism, with a strong leaning towards white (and often Afrikaans) supporters. The way I see it, COPE has basically stated that they want a decent portion of the white, conservative, Afrikaans vote. For a party that could be seen as a spin-off from the party most reviled by this group of voters (the ANC), this seems pretty bold to me.

This is just my opinion on the matter and, for now, all I can say is good luck to them. Seeing their ads has obviously made an impression on me, and I hope that their marketing analysts have done their homework, but I guess only time will tell...

(On a side note, I went to the Stormers game (playing the Blues from NZ), and had to sit through possibly the most frustrating performance I have ever seen. If they carry on playing the way they are at the moment, I'm going to apply for a trading licence at the stadium. If it gets approved, not only will you be able to buy cooldrinks, chips, and hot chocolate in the stands, but also hair plugs - to replace the piles that you pulled out watching them spill the ball every time they got possession.)