1. Residential Property Global
Risks
2. Reading the Lags of Bricks and Mortar
3. Sell Property at your Peril
4. NHBRC’s New Code of Conduct
5. Allan Gray Hides Stocks
6. Save Young and Reap the Riches
7. The 7 'Deadly' Sins of Investing
8. How to Tackle Financial Adversity
9. Thought for the Month
Residential Property Global Risks - John Loos
Despite my optimism regarding residential property's performance over the rest of the decade, nothing is ever without risk. Many would point to the current "upside risk" to interest rates emanating from exogenous inflationary pressures. While this is a risk, I believe it to be a "lesser" one. The key risk may, perhaps ironically, involve a declining interest rate scenario. It emanates from the troubled US housing market which, if it experiences a collapse, could throw our global "soft landing" base case forecast out and send the world economy towards recession, along with significant slower economic growth in the domestic economy. This would probably be a low inflation scenario, offering the Reserve Bank (SARB) scope to reduce interest rates. The crucial question is would the SARB respond aggressively? Possibly not, given its concerns with local credit growth and a wide current account deficit. The combination of sharply lower economic growth and very slow interest rate cuts could be more problematic for the housing market than solid economic growth and further mild rate hiking.
THE KEY RISKS TO RESIDENTIAL PROPERTY ARE CURRENTLY FROM GLOBAL SOURCES
Much is made of rising interest rates and their potential negative impact on the residential property market, and to be sure we are seeing some negative impact from the latest cyclical hiking phase. Given the current "upside risks" to inflation and interest rates, it is natural that many people may act with caution in the residential property market at present.
However, I would contend that the key risk to the residential property market may ironically involve a declining interest rate phase.
Crucial to this view is, firstly, the fact that we have had a change in monetary policy from the 1990s policy that sometimes involved sharp hikes in interest rates in order to support the level of the rand. 1998's 725 basis points' worth of hikes in less than 2 months was a good example of what could happen those days, and the housing market was sent reeling. Today, however, official CPIX inflation targeting makes such shocks far less likely because the CPIX is a far less volatile variable than the rand. Indeed, the Reserve Bank has behaved in a far more stable way during the last two rate hiking cycles, despite a very severe rand crisis in 2001, supporting the notion that sharp and big interest rate moves are far less likely these days.
Therefore, even should our forecast of unchanged interest rates until well-into 2008 prove to be incorrect, and rates were to rise further, the pace of hiking is likely to be very moderate, and the negative impact on the overall housing market mild.
In addition, neither the South African household's debt service ratios, nor affordability in terms of the repayment value on an average priced house expressed as a percentage of average income, are particularly high. This also serves to reduce the risks involved with interest rate hikes.
The declining interest rate scenario that I refer to as a bigger risk
is one in which the troubled US housing market could play a major role.
The graph below shows the sorry state of the US housing market. The NAHB-Wells
Fargo surveys home builder confidence and they, similar to households,
have experienced a severe dent in confidence which is widely blamed on
the so-called sub-prime market.
The sub-prime market refers to that group of borrowers that do not normally qualify for prime financing due to low credit scores. They borrow from sub-prime lenders at higher interest rates, which are supposed to compensate for the higher risk of default on such loans. However, it is becoming apparent that some major lenders in this market did perhaps not get their pricing for risk right, bad debt risk is mounting, and lending policies are tightening.
Interest rate hikes were the key catalyst for the sub-prime problem. The US Fed raised its Fed Funds target rate from 1% around mid-2004 to 5.25% by 2006. This has had an impact on long bond yields, which also peaked above 5% in mid-2006, important for the strongly long-bond-linked US housing market. Since then, long bonds have come off their peak slightly, which may have helped slow the rot a little, but the situation still appears shaky.
The big danger to the US and global economy emanating from the US housing slump comes from the term "equity withdrawal". There is a widely held view that US households have neglected saving for some years due to the positive impact of housing values on their household balance sheets. If this is indeed the case, it could mean that should the housing market collapse and house prices decline sharply, households could raise their savings rates significantly to compensate for balance sheet deterioration, which could severely impact on consumer demand. Given the importance of consumer demand in driving the US economy, this could prove disastrous and recessionary, not only for the US but for the global economy too.
Don't panic yet though. Having raised interest rates so significantly, the Federal Reserve does have substantial ammunition, in terms of considerable scope for cutting rates, with which to fight off a recession so the "soft landing"/slower but positive growth scenario for the US still remains a distinct reality.
What we are talking about here is still merely a risk scenario, where a US housing market collapse dents confidence to such an extent that the US Fed is not able to revive consumer spending even through cutting rates aggressively, resulting in a lengthy US and Global recession.
In such a "risk scenario", South Africa would struggle to escape unscathed. Global recession implies a drop in demand both for commodities and manufactured exports from this country, while if Fed rate cutting causes dollar weakening, the pressure on the domestic economy could conceivably be exacerbated by rand strengthening.
The net result could be a low inflation scenario, but a sharply lower economic growth scenario, and economic growth (which drives disposable income growth) is also crucial to the performance of residential property.
As to how sharply growth, and the residential market, slows, could to a certain extent be in the hands of the SARB. Does it cut rates (the other key driver of the residential market) aggressively to counter negative global forces or not? From an inflation point of view, and given the relatively high level of SA interest rates, there would probably be significant scope to cut rates aggressively. And past behaviour (2003) has shown that the SARB did lower rates aggressively.
However, the environment has changed since 2003. A higher level of household debt has increasingly become a SARB concern, as has a far wider current account deficit. Both of these variables could be exacerbated by sharp interest rate reduction which would stimulate domestic demand. So this time around, the SARB may be decidedly more cautious and far slower in the pace of reduction.
SO THE BOTTOM LINE IS…
Our base case scenario, based on a global "soft landing", of slower but still solid 4.5% real domestic GDP growth in both 2007 and 2008, accompanied by sideways interest rate moves for most of the period, is a fairly positive environment for the residential property market.
Even a mild interest rate hike, which would assumedly take place under a fairly healthy economic growth scenario, would not be too problematic for the property market.
But I believe that a global recession scenario, spurred on by a prolonged US housing slump and sharp "reverse equity withdrawal", is a far more serious risk for the local housing market. It could bring about significantly lower economic and middle class growth in South Africa compared with our base case forecast. Lower inflation in such a scenario would in theory be a positive, since it would theoretically allow the SARB more scope to cut interest rates and cushion the global blow to the local economy. But other considerations may restrict downward rate moves.
CONCLUSION
The residential property market, therefore, is not without its risks. But at present the major risks would appear to emanate from global economic factors, combined with the possible mild nature of the SARB response.
Local housing affordability issues that may arise from further mild interest
rate hiking seem to be less of a threat, in a market still very affordable,
with a household sector not overly indebted, and with a moderate modern-day
SARB.
Again though, I emphasise that the above is the risk scenario, and that
the most probable scenario is for solid economic growth in the years to
come, helped by a global "soft landing", and a residential market
bottoming in 2007 before beginning to strengthen gradually from 2008.
Reading the Lags of Bricks and Mortar - Gina Schoeman
I have been asked on numerous occasions: "What should I look for in order to gauge future values of houses?" and "how do you find out where house prices are going?" etc. etc. As tempted as I am at times to bring out my crystal ball, there are certain indicators that give us a clue as to what to expect from house prices in the future. When attempting to forecast the residential property market, a rather useful indicator to use is that of building statistics. This indicator is essentially the number of building plans that have been passed (in other words, approved) and the number of buildings that have been completed (in other words, ready to be sold).
One must keep in mind that the stock of residential property in South Africa is immensely large. At the same time, because land is a scarce resource, supply and demand creates volatile momentum in the market. For example, although there is a large amount of land available (supply) on the outskirts of Johannesburg, the residential property here is not near as much in demand as the property located within the more central region, of say, Bryanston. The demand for housing grows strongly in line with both population growth, and personal-empowerment growth. The gist of the indicator is that, if there is a limited supply of housing coming onto the market, one can expect that prices will climb (and vice versa).
The causality of the two statistics run as such: building plans passed provide an indication of how much infrastructure is to be built in the residential property market, while buildings completed will allow one to gauge the number of houses that are to be sold.
Source: Statistics SA
The graph above shows the smoothed year-on-year growth of both building plans passed and buildings completed. What is interesting to note is the lag between the passed date and the completed date. Take for example the spike in plans passed in December 2002: catching onto the rise in the house price boom, many developers appear to have taken the bait, and a large number of plans were passed for future residential buildings. The next large spike, seen roughly around July 2004 may indeed indicate that the bulk of plans passed were ready to be sold approximately 1½ years later (according to the developers I have spoken to, this is a sufficient average for how long it generally takes). And in turn, once the largest bulk of housing was completed in mid-2004, it was about six months later that the peak of the housing boom became apparent and thereafter, house price growth began to decline steadily.
Analysis of the graph below shows that since mid-2006, the trend in year-on-year growth for building plans passed is down. And this is supported by factors such as higher interest rates, declines in house price growth and over-indebtedness of the South African consumer.
Source: Statistics SA
Plans passed thus gives insight as to what to expect in the future. The declining trend in plans passed, especially in smaller housing (such as houses less than 80 square metres in size, together with flats and townhouses) indicates that we can expect the housing stock of this type to shrink roughly 1-1 ½ years from now.
And so, one must keep in mind that 'bricks and mortar' play an important role in the future of residential housing stock. The more housing planned for the market should usually signify that a larger supply will soon be available, and if there is not a sufficient level of demand to meet this, prices will indeed slow down; the opposite applies with a decline in plans. This brings a comforting aspect to the table: if there is a limited supply of smaller houses in the future, and if prices increase as economic theory states they should, the market may well open up for the buy-to-let market, or the first-time homebuyer, once again.
Sell Property at your Peril - Jackie Cameron
Beware: the new National Credit Act (NCA) has just made it a whole lot harder to trade up – or buy a property for investment purposes.
Whatever you own now with the help of a bank loan, you should keep if you can. Only make a move to swap a property if you have established you’ll get a loan for the next one.
This was the message Moneyweb got when we went on an undercover investigation shopping for loans.
We visited the “big four” – Absa, Standard Bank, Nedbank and FNB – and found that it’s very tough for people who want to borrow money these days.
Banks have been declining many loans’ applications in recent weeks as the NCA is implemented.
Perhaps the dust needs to settle as bank employees find their way around the new system. So far, however, things don’t look good for bank clients who require credit, bank employees who rely on commissions from selling loans – or bank shareholders, who will lose out from a slump in business.
Asking for a modest R5 000 loan, we were politely discouraged from applying
by every bank. And that was without the banks knowing details of credit
records, assets or income.
As a Nedbank loans’ employee pointed out: even if I had been a client
for 28 years, self-employment status means it’s unlikely I’ll
get an unsecured loan. For the employed, meanwhile, interest rates on
debt have shot up as banks move to take advantage of the new law.
We also made inquiries about mortgages. We didn’t submit formal applications, however the talk from bank employees on this score is that it is going to be much harder to get a home loan for everyone, not just the self-employed.
In the past, a bank would look at your gross income – that’s before tax and deductions – and would generally lend you a figure based on repayments of up to 30% of that amount.
Now the bank will look at your net income, said bank employees. That means it will tally up all your bills and see what you have left over at the end of the month. Whatever remains is what they will assume you have available to repay a loan.
What’s more, in the past your bank wasn’t overly concerned about what you owed other banks and credit providers.
Now it will take all your debts into account, including credit cards and store cards when gauging whether you can afford to repay a home loan. You need proof of your claims, like statements from accountants and other documents.
The theory is great: the NCA is making the bank take more responsibility for the financial trouble we can get into through borrowing money. But in reality, many of us spend to our limits and trim back to make way for more pressing needs as our aspirations change.
So where we might have been loading up on clothes or luxury extras, our spending pattern changes when the first home loan repayment is due. A loan application may not reflect our willingness, or ability, to juggle our commitments.
If you want a mortgage, cut unnecessary spending and reshuffle your finances before you apply. The bank clerk doesn’t want to decline your application, but there are people in a back office looking at your form from a “worst-case scenario” perspective.
For buy-to-let investors, including people who put down deposits on new developments and then hope to secure a tenant and a mortgage later, it will be much harder to score finance.
You’ve always needed to show that you have the cash flow ability to keep up all loan repayments. But most banks have been fairly relaxed about the details of who will be repaying your mortgage. Now, however, the bank would like to see proof that you have a tenant, before it grants you the loan.
That’s going to be very tricky, unless you buy where there’s a tenant with no plans to leave for some time, say bank staff.
NHBRC’s New Code of Conduct - Denise Simpson
The NHBRC (National Home Builder's Registration Council) has been mandated by Section 7 of the Housing Consumer Protection Measures Act 95 of 1998 to protect consumers against unscrupulous Builders, Contractors and Developers. The new Code of Conduct for Home Builders makes provision for the warrant against poor workmanship, resulting in structural defects. All newly built residential dwellings are to be enrolled with the NHBRC by:
- Developer
- Contractor
- Prospective Homeowner
The Builder, Developer and Homeowner need to be registered with NHBRC, as does the dwelling, regardless of funding, whether cash or Mortgage bond. A financial institution may not give a home loan if the above has not been initiated.
NHBRC applies to the following:
- Full Title Houses
- Town Houses
- Sectional Title Flats and Gated Communities
- Real Right Developments
The warranty scheme only applies to new houses built by home builders registered with NHBRC and the enrolment provided by the registered home builder is transferred automatically to anyone who buys the house during the 5 year warranty period.
Defects and poor workmanship must be recorded formally (in writing) to the Developer or Contractor as well as NHBRC within 3 months from date of occupation. Roof leaks attributable to poor workmanship and materials must also be recorded formally (in writing) to the Developer or Contractor as well as the NHBRC within 12 months from date of occupation.
The NHBRC warranty takes effect from date of occupation by the Homeowner of the newly built dwelling, providing that the dwelling was enrolled with NHBRC and that the NHBRC did not issue a formal letter of non-compliance in accordance with NHBRC technical requirements.
Significant and far reaching changes came into effect on 16th March 2007, and have been put into place to offer more protection to the end user who is contracting with home builders for the construction of residential homes. Dave Warmback of Durban law firm, Shepstone and Wiley, summarises the changes as follows:
- Home building contracts may now only be concluded once the housing consumer has had 30 Calendar days to view the contract. There are far reaching consequences for Developer/Agent, as it could hold up the process of sales.
- Restrictions on clauses in contracts, which have the effect of taking away consumers' common law or statutory rights.
- Restricting deposits to no more than 10% of contract price of a fixed cost building contract.
- Minimum clauses that must be included in a building contract, and an obligation that a home builder must retain a copy of the contract and all records relating thereto, for a period of at least six years;
- A home builder may not accept final payment under a building contract unless the bank, NHBRC or competent person has certified in writing that the work has been completed according to NHBRC's prescribed minimum standards and guidelines.
According to Warmback, "the National Home Builders Registration Council, acting in terms of Section 7 of the Housing Consumer Protection Measures Act 95 of 1998 ("the Act"), have drawn up and published the Code, which is intended to provide minimum standards to be maintained by all NHBRC Home Builders."
He goes on to state, "A Home Builder is defined in the Act as a person who carries on the business of a home builder and importantly, while the Code is no doubt aimed to target the smaller home builder (against whom most protection is needed for consumers), it will also be applicable to larger residential developers, developing and selling residential dwellings, whether freehold or sectional title. Home builders are obliged to register with NHBRC and are obliged to enroll a particular home or development with the Council, submit information relating to a development and pay a prescribed fee."
On the 5th April 2007 the Government Gazette published a draft of the new NHBRC grading system, which makes provision for the establishment of grading categories in order to encourage good building practices.
The grading system will be categorised as follows:
- Responsiveness to housing consumers' complaints
- Timeous enrolments of homes
- Compliance with the NHBRC Technical Requirements
- High quality in building homes
Changes to the above will be made as the need arises.
The Grading system will be used to determine the fees the Builder or Developer will be charged by the NHBRC. The performance score shall be calculated in accordance with the new formula, which can be obtained from the Government Gazette published on 5th April (Vol. 502, number 29747).
Failure by home builders to comply with the NHBRC Code of Conduct could result in serious consequences. The NHBRC is entitled to withdraw the registration of a home builder found guilty of contravening the Code.
There is little doubt that consumers will be better off when the Code is adhered to. End users will finally have recourse against home builders who are guilty of bad building practices.
For more comprehensive information, visit the NHBRC website at www.nhbrc.org
Allan Gray Hides Stocks - Jackie Cameron
Allan Gray, the asset management company others love to mimic, has decided to close its curtains.
Most unit trust funds disclose full portfolios after the end of each quarter, in the interests of transparency - but Allan Gray has decided it will no longer do this.
Other fund managers may follow suit, Moneyweb can report.
After the close of the last quarter, Allan Gray's portfolio details were conspicuous in their absence from the statistics.
Allan Gray has recently provided details of most stock holdings as of the end of March to statistics compilers, but will not be disclosing smaller holdings.
Cape Town-based asset management company Oasis has attracted criticism in the past for refusing to publicly divulge the make-up of its portfolios.
Michael Swingler of Oasis explained the rationale to Alec Hogg earlier this year on the Moneyweb Power Hour.
He said: "We believe that our clients pay us a decent fee to make money for the clients...that's our goodwill in our business - the actual portfolios - and the fundamental reason why we haven't been disclosing our portfolios."
Johan de Lange of Allan Gray told Moneyweb last week that its portfolio managers requested a shift away from disclosing full portfolios soon after the end of a quarter because three-and-a-half months "is a very short time to implement new ideas".
He said Allan Gray investors and potential investors would be given portfolios on request two weeks later than before "because we can't refuse it", but the company wouldn't automatically distribute these details.
In addition, shares that make up less than 1% of the portfolio will not
be made available.
De Lange said these are "not material" holdings, although they
can make a difference to performance.
He said these shares that each make up less than 1% of the portfolio total less than 7% of the equity portfolio, with the top ten shares taking up more than two-thirds.
De Lange said this "time extension" would help fund managers implement new ideas without others seeing what they are up to.
It can take time to stock up on shares identified as winners, with Allan Gray taking about five months, for example, to buy Sanlam to the extent that it wanted, he said.
The move to delay the disclosure of holdings, as well as to keep small
holdings secret, was taken in the interests of "investor protection"
as well as to "enhance investor communication", De
Lange said, noting that a cleaner list of shares was better for clients.
Association of Collective Investments' (ACI) chair Pieter Koekemoer said
that legally fund managers are not obliged to make all unit trust portfolio
details available at the end of each quarter.
There is a legal requirement to provide a fairly detailed review annually with audited financial statements, he said, plus quarterly reports must be filed to regulators for their oversight as well as the ACI for consolidated reporting purposes.
It is, however, industry practice for companies to make quarterly portfolio
information available to clients, he said. Some companies give monthly
information to clients.
One high-profile boutique asset manager, who did not wish to be identified,
said he was planning on following Allan Gray's lead.
He has found it difficult to stock up on one of his favourite shares - a fairly illiquid company - this year after others noticed his interest in the counter at the end of the previous quarter, he said.
Koekemoer, who is also a senior representative of Coronation Fund Managers, said his company was also considering similar steps.
"It's arguably less of an issue when you are a smaller fund
manager," he said.
"When you make your portfolio available you potentially allow
other traders to benefit from your research when they can see your portfolio
- specifically when you are building a new position," said Koekemoer
of why Coronation finds the current practice of divulging quarterly figures
problematic.
Save Young and Reap the Riches - Chris Needham
When it comes to financial planning, South Africans could learn a thing or two from the lessons Americans were taught 20 years ago.
Chatting to Money as a guest speaker at the Financial Planning Institute’s annual convention in Sandton recently, Elissa Buie, a top-rated certified financial planner in the US, said that youngsters in her country show a strong interest in financial planning.
“I would say that the younger generations in the US are definitely interested in financial planning and saving. These younger generations have no recollection of having any practice other than doing your own financial planning.”
This is in contrast to the generation that is now retiring, where employees could count on their company pension fund to look after them in their old age.
“People in their 30s fear being left with no social security,” she said .
That’s because Americans have had 401(k) retirement plans for two decades already. Treasury’s reform of the South African retirement fund industry is looking at possibly introducing such individual retirement accounts.
Buie said that one of the most important things that financial planners can do as a profession is to educate people to save for themselves.
Buie is married to another financial planner, Dave Yeske, who said that 401(k) plans “were one of the turning points in the US where the burden for saving for retirement was placed on the individual. This has sent a clear message that you must be responsible for providing for your own retirement.”
Yeske said that, with good financial planning, improvements can be made in individuals’ current lifestyles as well as their retired years.
“People think — incorrectly — that they’re going to be told they have to save absolutely everything to have a decent retirement.”
It also helps to have lots of information available about investments, as well as easy access to wealth creation, such as the stock market.
“In the US the stock market is extremely accessible to everyone — for very little money,” said Buie.
“And you can get help from the large mutual fund [unit trust] companies such as Vanguard. They give you ready access to advice on investments.”
Data from the Association of Collective Investments shows that local investors are still very conservative and that the super-conservative money market unit trusts are attracting a large proportion of flows.
Buie said that the US was also that conservative 10 years ago.
“People didn’t know how to access funds besides money market funds — there was the idea that unit trusts were only for wealthy people."
“But in the dot-com bubble people started to think they were really missing out and piled into the market.”
Although the bursting of that bubble caused investors to back off, Buie said that people have now realised the only way to make money in the long term is in equity funds. But it’s important to have independent advice.
Yeske quoted research by Dalbar that shows that in any given 15-year period, the average unit trust investor achieved returns dramatically lower than what the unit trusts did.
“That’s because they weren’t invested the whole time — they jumped in and out. That’s why you need an outside opinion. You will tend to be most optimistic when markets are high and most pessimistic when markets are low.”
Both believe that one of the ways that people’s finances in adulthood can be improved is by introducing financial planning as a subject in schools in the US . Buie added that “you can’t manage your life properly without learning how to manage your money”.
Also, one of the most important things people should be taught is to learn about “the magic — and the danger, if you are in debt — of compound interest”.
Buie said that the best piece of advice for someone who is young “is to save at least 10% of your income into your retirement plan and invest in the stock market for growth — starting from your first pay cheque in your first job”.
“If you’re saving 10% of everything you ever earn, that is probably all you will ever need to do to finance your retirement — if it’s invested well.”
Yeske said that “the key is to develop the mental habit that 90% of my paycheque is all I have available to spend.”
Buie’s message for older people is: “One of the worst things to do in your later years is to assume it’s too late to save for your retirement — starting late is better than not starting at all.”
She said that a problem in the industry is that planners tend to focus on giving advice to high-net-worth individuals, and low-income earners are left without decent advice.
“The profession has to find a way around that. There’s an obligation for pro bono work and for low-fee work for lower-income people."
“Employers could start offering financial planning to their staff in groups. It can be done in an employment environment very, very well.”
One smart solution for lower-income earners who can’t afford continuous financial advice is what Buie calls policy-based financial planning.
It’s a DIY checklist for every situation. For example, on a debt policy, there will be an agreement with the client that they will only use credit cards for convenience and only when they can pay them off in full.
The 7 'Deadly' Sins of Investing
1. Trying to TIME the market
- Waiting for that perfect moment…very tricky, fraught with error
- Remember: “It is time IN the market that counts” not timing the market!
2. Being distracted by recent performance
- Recent past performance is not a good guide to future returns
3. Having no plan…chopping and changing
- The key to successful investing is devising a plan and sticking to it over the years
4. Focusing only on charges
- Charges do make a difference, but they are only one of many issues to consider. The lowest charging fund may not be the best performer
5. Duplicating investments
- Diversification is important, but take care not to overdo it
- Always do a “see-through” assessment of the funds to see the actual holdings or asset allocation.
6. Failing to review one’s investments
- Very important to review periodically
7. Trusting the future to cash
- While bank deposits & money market are secure, this security comes at a price
- Inflation “eats away” at the buying power of one’s cash
How to Tackle Financial Adversity - Sunday Times
Many of us are aware that often a fortune can come and go. It’s one of the priority courses offered by the University of Life, and I’ve yet to come across an individual who hasn’t sat the test at some time along the way.
We can all handle life’s test results with a happy, positive attitude when fortune favours us, but the opposite quickly applies when our fortune ebbs.
Investing in the market is just one example. When markets run and you are making money, everything seems so good. You never believe that things can turn and reasons are found all the time why you should continue to be invested in the market. Occasionally you sell, and then a few days later go back into the market feeling pretty confident.
Another example is the meaningful changes that come about when financial problems appear. The old saying that love flies out of the window when poverty comes in through the door isn’t the only challenge. The knock-on effect of events happens so rapidly that before we know it our whole world turns upside down and it’s almost impossible to be positive about anything. It’s only natural to want to dig yourself into a hole and hide there until the problem goes away. Right?
Wrong! The very worst thing you can do is to pretend that the crisis will sort itself out. It won’t.
It takes huge doses of fortitude, determination and real character to get out of a financial mess.
Large or small, the same strategy applies. The more determined you are, the more you apply yourself to make real work of it, the quicker the problem will be dealt with and you’ll regain your rightful financial independence.
Just as you will have found doing your homework as a child, once you have started tackling the subject you’ll find that the work is not such a bad experience. So discipline yourself and start right away. But where?
In the mind! A productive point of departure is to ask yourself pertinent questions, but make sure that you avoid questioning history. If you’re driving forward there is no point in spending too much time looking in your rear-view mirror, is there?
Instead of “What went wrong?” ask yourself questions like “How can I reduce my monthly cost of living?” and, most important, “How can I increase my earning capacity?” Remember Aristotle Onassis. In response to a journalist who asked how he had managed to make so much money, he said: “I make my money while others are asleep.”
Ask yourself how many hours any well-known surgeon operates in theatre every day, and ask the same question of top lawyers, accountants and other medical people. The formula to success is working smarter but also working smarter and harder during working hours. Often you tend to work smarter but only work a few hours a day.
Pointed, focused questions will help you formulate a realistic action plan. Be creative, and don’t limit the number of questions on your list at first. You can revise them and identify the priorities later. That’s what you should expect to have to do. Your effectiveness will be diluted if you try and tackle too many ideas at once.
Don’t continue to criticise yourself because all negative thoughts must be dispelled if you are to succeed. Accentuate the positive. If you ask the right questions, you can find the right answers. For example, the answer to “How do you eat an elephant?” is of course “bit by bit!” You’ve got to have plenty of patience, but as long as you believe in what you’re doing and resolve to arrive at your goal within a reasonable time, you will.
We make a living by what we get, we make a life by what we give.
- Sir Winston Churchill (1874 - 1965)
