Life has this dreadful habit of happening. Almost always these goings on require money to solve. The financial foundation we advocate is designed to help you cope with financial crises when they happen. When you have no debt, sufficient short-term insurance, an emergency fund, medical aid and dread and disability cover, you have some tools in your time of need.
Unfortunately life doesn’t sit around waiting for us to have our ducks in a row before causing drama. Sometimes you have to do the best with what you’ve got. In this episode we offer some ideas about what to do when life happens before you’re ready to cope with it. We talk about dealing with emergencies when you have debt and no emergency fund.
We have no elegant solutions, but hopefully a few of the strategies can help you navigate a tricky time with grace.
Good luck!
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Beeped version is below.
Keith
According to the national credit act (NCA), debt should be repayable at any moment by a borrower without any penalties. If a loan at the outset has a, say, 16% interest rate over its life, then the lender is not allowed to capitalize the entire life of interest over the life of loan so that early repayment penalizes you.
As far as I can tell, that is illegal.
NCA gives the borrower the power to ask for the full and final settlement account at any moment. Hence, if you are 2 years into a 10 year loan, they cannot go and add 8 years of interest into the loan’s capital amount. This would, surely, be illegal.
Gregg
I was listening to a program on TV where the panelist said we need to be aware when buying equities through Easy Equities, they are on the balance sheet of the brokerage. If the brokerage goes under, you are not guaranteed of getting all your funds back.
Can you explain what this means? Perhaps explain using an example. If I buy Satrix 40 ETF – does it mean if I sell them that EasyEquities may not give me my money and that I have no direct claim from Satrix itself because the ETFs I bought are lying on EasyEquities balance sheet?
This sounds like a risk. Is it one worth being nervous about? I would assume that as an Easy Equities user yourself, you’ve done your homework?
I am considering buying through them directly onto the US Market, which is one of their offerings. I want to make sure that I can quite comfortably do this at almost zero risk.
Dario
Could you guys please talk about how EasyEquities functions as a platform i.e how they are able to provide fractional shares and are there any other good alternatives?
I am asking this because I bought some STXNDQ without looking at the buying price. before logging off I decided to have a look and quickly cancelled the order as there was a 9% difference between the delayed price and buying price.
Mariette
My parents are 78 and 72 years old. My dad gets R14,500 pm from pension, so a lot of the extras fall on myself and one of my 4 sisters.
I took out life cover on my dad’s life (after not such great advice from a ‘financial advisor’) which costs me a pretty penny every month. The idea is that if something should happen to him, my mom can use that amount (R500k) to offset the 50% loss in income from my dad’s pension fund.
My dad had all his investments with Old Mutual and after all those years had a measly 2% growth.
He immediately took that money (about R450k) and put it in a 7-day notice account with FNB (6.3% repo related interest). He is dependent on the interest from that investment to cover expenses that are not covered by his pension. He doesn’t want to take any risks, especially with big institutions.
My mom has a buy-to-let property she bought with some inheritance money and try to save R1000 pm from the income. This can be done in a TFSA, but not sure if it will make such a big difference at their age.
What would you suggest they do to stretch their savings a bit?
My first suggestion was to move from FNB to Capitec, take R370k and put it in a fixed deposit (8.55% interest) and the rest as an emergency fund with Thyme Bank (10% interest).
Also to try and reinvest as much as he can and not make use of the full R1000 extra from the increased interest rate. I’m not sure if my dad will go for an income-generating ETF, it’s too unknown and too big a risk for him.
Paul
Here’s a list of his spreadsheets: The spreadsheets list my investments; their TER; their individual holdings (i.e. Naspers, BHP, Apple, etc.); how much (%) each investment is of my total value; to tracking what they have been doing on a monthly basis; my monthly expenses; SA inflation, my monthly savings (+-40%); retirement target and how far I am away from it; the amounts from every formal salary slip I have ever received (I can tell how much money I have made over my 14 year working career and my subsequent retirement contributions); to a breakdown of individual index funds for comparison purposes; to the monthly updating Rule of 300; as well as all the graphs in between.
My company retirement fund (which I contribute 27.5% to each year) has increased by about 18% this year, which is great, after the bloodbath of last year.
Should I get an RA or just leave my money in investments?
My understanding is that an RA is just tax delayed, but with having investments at least you have an accurate representation of what you should get out of your investments as the tax is taken constantly. An additional benefit (or negative depending on how you look at it) to the RA is that the money cannot be touched by anyone until it matures. What is your opinion?
Stephen
I had a legacy Sanlam RA which, after listening to your podcast, I started investigating the charges. To cut a long story short I decided to take the penalty and move it to 10X.
The problem I have with 10X though is the lack of visibility into what sectors they are investing. I think this is important to know so that you don’t over-invest in certain sectors in your TFSA and Taxed portfolios.
I then moved the RA from 10X to Easy Equities.
My reasons were:
- Strategy visibility
- Everything under a single solution
Hopefully future functionality to build my own Reg 28 compliant portfolio.
However, my question is why do these products all tend to overlap equities?
Personally I’d prefer purely Satrix 40 for local instead of the overlap in the different sectors.
For international I’d prefer Satrix World with an element of Satrix Emerging to capture the entire market.
My EE RA is a small portion of my retirement as my main funds are within my work fund (Sanlam) and I’m maxing that out at 27.5% (any contributions above the standard 15% does not incur costs). I’m more prone to go aggressive on my RA and also simplify the approach.
I’d prefer to stick with EE and have a custom Reg 28 RA based on Satrix products without penalties for not using Sygnia products. I’m hoping they release the functionality in the near future.
Do you have any connections at EE to find out if this is on their roadmap and by when?
Eric
I have a TFSA that I max out yearly. The only ETF that I have is the Sygnia S&P500. Although I’ve had some great growth over the last 2 years, I’m concerned that due to the market being at record highs, growth may start to stall & taper off in 2020.
To counter this, would it be a good idea to keep the initial S&P500 investment and start investing any new money into something like the Ashburton 1200? Maybe contribute toward a 50-50 split between the funds or contribute until a 50-50 split is reached? I’m very aware that there may be duplication of the same companies / regions if I choose these funds so is there maybe another fund to counter the exposure to the US market?
The Fat Wallet Show is a no-nonsense personal finance and investment podcast hosted by Kristia van Heerden and Simon Brown. Every week we answer questions by a growing audience of finance enthusiasts. Submit your pressing money and investment questions to ask@justonelap.com.
