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HOW TO MANAGE YOUR DEBT FOR A BETTER FUTURE

Debt

The average South African is indebted, many at a critical level, and any interest paid on money borrowed today has an impact on your future. But there are ways to manage the situation, says Mark Hawes, Certified Financial Planner at Alexander Forbes.

 

Firstly, understand exactly what debt is and why you should manage it. Debt is your money from tomorrow. The problem is that when you get to tomorrow, you’ve already spent it.

If you buy an apple today on credit, you haven’t paid yet. Great – or is it? The result is that, come next month you will pay for it, plus interest. The problem is that when you do actually pay for it, for more than you bought it for, you don’t get an apple, because you have already eaten it.

Consequently, you pay more in the future and have less money available to be able to buy additional food in this example. This is the fundamental mechanism of how we end up living beyond our means. Therefore, basic monthly consumption should not be paid for with credit. Large assets possibly yes, but not daily expenses like groceries. In addition, all debt, including houses and cars, should be settled and paid for by the time we retire – or sooner.

Mark Hawes

It might sound like a monumental task, but there are strategies to manage your future financial security. So how do we get out of debt – and stay out of debt?

 

Step 1: The best place to start is where you are, with what you have.

Find out the details of all your debt; the settlement amount not the balance; the interest rate in percentage not just rands and the monthly instalment in rands.  This will help you to compare loans as to which one is the most expensive. Remember just because the debit order may not be very big, your interest compared to your original loan may well be. For example, the instalments on a housing loan are generally the largest debit order in (nominal) rand value, but the cheapest in interest rate rand value.

 

Step 2: Take control

Pay your smallest debt off first. With all the pressures on our income it’s very important to build momentum. The best way to do this is to actually see fewer and fewer debit orders coming off your bank account. This will help you to maintain the course to getting out of debt and staying out of debt.

 

Step 3: Pay yourself first.

After each debt has been settled your cash flow should improve. In order to sustainably pay off debt permanently, you need to feel your cash flow improve as a direct result of your efforts. So keep 10% of the cumulative premium you were paying for yourself. The balance can be paid to the rest of your debts to pay them off – unless you are under debt review and are legally obliged to.

 

Step 4: Emergencies will happen.

The secret to staying out of debt is savings. With each debt that is settled, it is a prudent approach to take at least 20% of the instalment and put it aside in savings for emergencies. This will prevent you from going back into debt to the same extent when things don’t according to plan.

 

Step 5: Get rid of expenses you don’t need.

Go through your budget and decide if each debit order, whether it is a policy or present, improves your cash flow and future over the next 12 months or not.

We can therefore conclude that:

–          Debt is the problem, not the solution.

–          Your financial well-being is within your control if you take full responsibility for achieving it.

–          It will take time.

–          Stack up the small victories to maintain the stamina.

–          Improving your cash flow will afford you more resources for an improved lifestyle in the next 12 months.

Ultimately you don’t want to just stop the pain of yesterday’s overspending, but focus on improving your lifestyle and ability to spend in your future. You want to be able to face retirement without the cloud of debt and stress spoiling your plans.

 

Be the solution you have been waiting for.

Finance

HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK

FINANCIAL SERVICES

By Alex Saric, smart procurement expert, Ivalua

 

UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.

This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.

 

More suppliers, increasing risk

One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.

The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.

A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.

 

Businesses unprepared for the worst

One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).

In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.

 

Making supplier management smarter

It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.

For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.

To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.

 

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Finance

ISO 20022 – THE BEDROCK FOR PAYMENTS TRANSFORMATION

PAYMENTS

Lauren Jones, Global Payments Ambassador, Icon Solutions

 

The financial services industry has seen ISO 20022 grow firmly over the last 15 years. What was then a small pocket of countries tackling migration has now become widespread adoption for domestic and international payments.

And with momentum building, it is clear that IS0 20022 is playing a foundational role for banks in the transformation of their infrastructures, with the rich messaging format delivering business benefits and enabling enhanced customer propositions.

 

PAYMENTS

Lauren Jones

The time is now for ISO 20022

European initiatives, such as SEPA, were the first to drive usage, but have since catalysed a network effect in other countries. Recent examples driving adoption include the New Payments Platform in Australia and the Bank of England’s Real-Time Gross Settlement (RTGS) service doing the same in the UK.

Despite the timeline delay, the SWIFT migration to ISO 20022 for cross-border payments will drive further adoption and it is clear to see why. As the world becomes more connected, having a globally interoperable standard is attractive. ISO 20022 allows banks to have a consistent experience across geographies and provides a low-risk approach to modernisation.

In the US things are moving as well. With the country’s most important payments market infrastructures, the Fedwire and The Clearing House Interbank RTP system, migrating their High Value Payment (HVP) systems almost concurrently, widespread ISO 20022 has reached a tipping point.

For US banks this means it is important to understand that ISO 2022 is no longer happening “somewhere else”. Banks dealing with the modernisation of infrastructure need to decide what will become the bedrock of their transformation efforts. ISO 20022 seems to be the only sensible choice.

 

ISO 20022 in practice

While banks in the US and across the world grapple with ISO 20022, it is crucial that they engage internal and external stakeholders early on in their journey to define their strategy. Resources should also be pulled from all areas of a bank, including technology, operations, AML, product and sales.

Implementation is not just a technical issue. Governance, sequencing and coordinating activities are all vital for success.  Banks need to lay a foundation where legacy systems are ringfenced, but it is equally important for them to understand how to move rich data through or around legacy infrastructure as early as possible.

Deciding what to do with legacy systems is a challenge for many financial institutions. Therefore it can be useful to deploy mapping or translation services in the early stages of adoption. In fact, many market infrastructure ISO 20022 programs include a phased approach where there is a like-for-like phase (where no new functionality is used), allowing adopters to become familiar with the new standard.

This is often followed by multi-year adoption of new functionality and gradual decommissioning of legacy formats.  However, mapping should not be viewed as a longer-term solution. To harness the full value of ISO 20022, supporting the standardisation natively allows banks to build from the ground up. This creates a modern data model where both internal efficiency and external value can be realised.

 

ISO 20022 is the way to deliver added value

One of the major drivers for ISO 20022 adoption is to remain competitive. By implementing a common standard banks can have a platform to innovate at pace and with lower costs.

Many banks now see ISO 20022 as a critical foundational element to deliver value to their corporate clients. But the benefits of ISO 20022 are not solely external. Increasingly, APIs are being used to support both deep integration within the bank and with a broad spectrum of fintech partners. ISO 20022 allows the capability of having a single data model across various computer languages and therefore across multiple use cases.

With a shift towards data-driven architecture, ISO 20022 allows banks to generate greater amounts of standardised data to provide targeted insight. The move to ISO 20022 will therefore be of paramount importance for banks to take advantage of richer, standardised data sets. With more payment volumes set to adopt ISO 20022 by 2025, the discussion is moving on from the standard simply serving transactional needs to the data that can be extracted from these transactions.

 

Prioritising payments transformation

In other words, over the next few years we will see payments being refocused from a commoditised proposition to a strategic, value-adding one. Yet being “data-aware” is not good enough. Banks need to be powered by that data. As cutting costs is no longer enough to sustain banks, they must use payments data to deliver more appealing propositions and revenue-boosting, value-added services.

As the adoption of ISO 20022 remains fragmented in the US for the time being, many banks will continue to question how best to take advantage of the standard. However, it should be evident that ISO 20022 is coming and the time to prepare is now.

 

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