Financial management for the Smallholder

South Africans recently awoke to the depressing news that the economists had got their predictions spectacularly wrong. What was supposed to be a small GDP growth of 1,1% this year, will in fact be a contraction of 2,2%.
Thus, while the economy continues to languish we all need to manage our finances more carefully and more actively, particularly given added whammies of eye-watering fuel price rises, increased electricity tariffs and a hike in the VAT rate.
And, the alarming talk of land grabs, despite the sensible and sensitive approach to the expropriation and redistribution of land which middle of the road government leaders point to, is affecting the sale of plots and small farms. Until there is greater clarity on the matter, nobody wants to buy land which they might lose, so smallholders are increasingly anxious about the value of their property.
So a quick fix to your financial distress, namely offloading all or part of your land to settle debt, is hardly a sensible option at this stage.
All the more reason therefore why we need to plan, budget and save, even though our expenses are different from those of people living in town.
What smallholders save up for will in some cases be different from what town dwellers buy. Often our priorities are quite different. And, happily, we also have the option of earning income from our plots.
Most of us know that we should live according to a budget, save something every month, invest to grow our wealth, minimise debt and ensure a financially secure retirement.
However, we often don’t know where to start, which means we never start at all. It doesn’t help that financial terminology can be intimidating, so we sometimes stick to limited financial products simply because we understand them.
Financial planners tell us to start by drawing up a budget. This is a simple exercise but it gives one a clear picture of ones circumstances on a monthly basis.
It’s not rocket-science: draw a vertical line down the middle of a blank page.
On the left, list all your monthly expenses. Start with fixed expenses such as rent or bond, insurance, school fees, retail accounts, credit card payments, etc. Then move on to variable expenses such as food, petrol, clothing, electricity, animal feed, etc. If any of these items are paid by your employer before you receive your salary, don’t include them (eg, tax, pension and medical aid).
Don’t forget to add sneaky little expenses such as bank charges, parking fees, car guards and the indulgent little latte and apple Danish that you enjoy when you’re peckish at work. Write everything down. This might entail keeping a notebook with one for a month in order to write down every little thing one spends money on.
On the right hand side, write down your net salary, which is the amount that is paid into your bank account every month, ie, after deductions. If you receive other income, list it here too. An example of other income could be rent charged for cottages on your plot, profits from the sale of livestock, fresh produce or other products made on the plot.
Add up the left column, and add up the right column.
Hopefully the right column totals more than the left, which means that your income is greater than your expenses.
You may find that you need to adjust it constantly. In most months there are unforeseen expenses – someone in the family falls ill or your car packs up or your brushcutter is stolen. Perhaps you forgot something, you estimated the cost of something incorrectly or your commitments change.
If your income is more than your expenses you should open a savings account and transfer some of the surplus into it.
The value of saving money lies in giving you a safety net. This will ensure that if your borehole pump breaks, you have a veterinary crisis or your child needs new school clothes, there will be money available and you won’t have to use your credit card. If you don’t have to use credit for emergencies it means that your credit card and retail accounts will soon be paid off.
However, if your expenses are more than your income, then you need what financial planners call “an SOS plan.” Carefully check all your expenses and determine which are nonessentials that you can live without for a while. For example, cancel the satellite TV subscription. Don’t go shopping for clothes for six months (some would say that maplotters are rarely noted for their fashion style anyway).
Another option is to consider how to increase your income. The Gauteng Smallholder’s Companion lists a number of ideas on how smallholders can use their plots to augment their income.
Do some research on what people need in your area and develop a solution that will meet that need as well as bring in profit to you.
If, however, your budget has shown that your credit card and other debt are out of control, you will have to scale down your lifestyle until you recover from this.
Speak to every contract service provider about how to reduce your payments. For example get quotes on cheaper insurance, negotiate lower bank charges, downgrade your cell phone contract when it’s up for renewal (you can also remove caller ID and other add-ons).
If you don’t own the property that you live on, talk to your landlord ~ if you are a good tenant he may consider helping you out for a while by reducing your rent.
You will never know if you can get things cheaper if you don’t ask. This applies to all budget scenarios, not just to those who are in dire straits. In any situation where you can save yourself some money, it will enable you to add to your savings.
Having a savings account is the first step towards financial freedom.
With some savings in the bank you need to do some research or take advice on turning your money into a wealth-building investment portfolio.
Most of us would like to be able to improve our present lifestyle and we also need to consider saving for retirement.
What you do with the money that you are saving depends on your goals. Put your goals and strategies firmly in place and be clear about what you want the money to do for you. If you don’t know how to achieve these financial goals consult a qualified financial planner. Make sure that he or she is independent and not going to emphasise a particular option because of the commission that might be earned.
But even then you must do your homework beforehand. Be very sure you know what you want from your money first and make sure that the planner understands your goals and your motives.
Even if you do take advice from a professional, arm yourself with knowledge so that you can understand what is being suggested. There are many easy-to-understand books available which demystify the world of money, saving and investment.

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