Posts Tagged With: risk management

Money 1

I’m still experimenting with the structure here, so please bear with me if you see odd layouts and changes happening now and again.

I want to bring in some tips and advice about money, finance and the like. A lot of it will be from “The Money Book”, one that Sasha and I wrote back in 2003. Having been in banking earlier in my life (N.B: a sensible, ethical banking group, the third biggest in Southern Africa at the time), I think I may have a few tips that help.

In my thirty-one year banking career, I’ve been through droughts, recessions, stock market crashes, financial exhilaration, govt. over-regulation, farming, diamond cutting clients, personal, commercial and corporate finance, and on top of it all, I eventually qualified to head the bank’s internal Credit Audit Division.

Throw in a few years of managing risk and creating M.I.S. for our then fledgling mortgage loan division, I’d covered enough ground by the time I left banking in 1996 to realise, by 2003, that people here were in a pretty risky scenario financially. With personal debt exceeding One Trillion Pounds!! and rising, it wouldn’t take very much to upset the apple cart, had there been a serious enough trigger, and dump us all into the biggest load of manure you’ve ever seen.

So Sasha and I wrote The Money Book. The intention was to give the man / woman in the street some help when in or approaching financial hassles… Speaking from memory, we sold about a dozen copies that year. Less the next year. No one was the least bit interested; when your house is growing in value hand over fist, when the government encourages you to borrow, when saving is discouraged, what else does one do but take out a second / third mortgage to cover that holiday in Florida the family has begged you for. And the speedboat, and the caravan, and so on.

So, here’s the first tip: don’t ever increase your mortgage for any reason except to improve / maintain the property itself. Ok, if in dire straights to survive, that too. But never for holidays, luxuries, or anything else. In fact, one really needs to concentrate on getting the mortgage repaid, the sooner the better.

And tip No. 2: Pay off a bit more than necessary each month. Very often, you can increase your mortgage repayments by 10% each year. Make every effort to try to do this; I know money’s tight as a… a.. darn, not allowed to make jokes any more. Yes, money’s tight for most of us today, but this tip was out there 2003, when it was feasible…

I have to add very clearly, that I don’t believe it’s not all our own fault that so many people didn’t have / don’t have any savings to cushion the hard times. I’m very categoric that the banks, other financial institutions, and government itself, have all played a part in our woes, in a manner that a third-world country like, for instance, South Africa, would never have dreamed of allowing to happen. After all, they are all supposed to know better than us. When you go to the doctor, you expect him to tell you what medicine to take. Not so?

Maybe after I left in the mid-nineties things changed in South Africa, but not earlier. I lost all interest in banking after I left, and in retrospect, I can see that things may have started to go the wrong way at that time, because I was getting more and more fed up with tried and trusted rules falling by the wayside, slowly but surely.

Interesting that, in our book, I felt I had to soften our line somewhat, because a). people just weren’t in the mood to hear a negative/hard attitude – they would have laughed if I’d suggested a depression was possible – the worst I thought I’d get away with was to explain what deflation was, and b). I was totally unaware and never, ever dreamed it even remotely possible that banks could be so incredibly stupid (greedy?) as to break one of the strictest rules in the history of finance – you don’t fund long-term finance (mortgages) on short-term money (overnight / three-month money). Simples! You just don’t do it. Why? Because if you do, you get into the most horrendous funding problems you can imagine. Just ask anyone at Northern Rock…

Right, that’s enough for now, and I hope to keep the wordage down next time, with more tips and less retrospective analysis.

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