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Clean swearing bleeped out show is below.
Crushed under the weight of debt and desperate to get out, a younger, dumber version of me would often resolutely put money away – either toward debt repayments or honest-to-goodness cash. As often, I would have to cover some unexpected financial event (some more legitimate than others) and my resolution would dissolve. Eventually I’d accept I’m bad at saving and give up. It was easier than living with failure month after month.
For most people, repaying debt and saving at the same time is impossible. Just like we want to be rich right away, we want to sort out our money right away. Resolution is the work of a single insight, so a systematic solution is frustrating. Sadly, implementation happens payday by payday.
Sean asked, “My wife and I are going into our 30s and have no savings other than our provident funds and RAs. We earn a net income of R28,000 and have R10,000 debt in total. We can’t afford to save more than R1,000 a month.
Whenever we save, something seems to go wrong and we use that savings to bail us out. We never go out or get take aways. The last time we bought new clothes was three years ago so we look like hobos. Our cars are fucked and we can’t replace them because there is no extra money in the budget. My wife and I don’t drink, so there is no wastage there.
I’m not sure what we are doing wrong.”
In this episode, we discuss what Sean might do differently.
We have two winners this week. Both win because of the homework they did.
Sally did a lot of legwork to understand an interest payment amount. She deserves a win for that.
I changed my debit order date (on my home loan) recently. I wasn’t aware of this, but apparently if you do that they charge you interest twice.
She did a lot of investigation, calculations, eventually got in touch with her home loan provider and discovered the following
Because you change the debit order date, they work out the interest you owe from the original date until the date you change it.
Then they calculate the interest again on the day after your new debit order date.
Together they’ll make a month’s interest. So they do charge you twice, but not double.
She deserves to win, because:
- She knew immediately that two interest deductions went off her account.
- She did her own calculations.
- She wasn’t afraid to ask for clarification from her financial institution.
- She really loves horses.
Nadia wrote us in the financial crisis episode to ask if she has the right exposure in her ETF portfolio. I sent her a link to the article on the six questions to answer before you buy an ETF. She did that, sent me her answers and in the process read up a lot more about the ETFs she holds. I’m very proud.
In the episode on preparing for a financial crisis, we spoke about Sanlam dangling a carrot for Wim to keep his RA with them. Brett wrote to explain how the echo bonus works.
I started an RA with Sanlam at the age of 22 which was based on their Echo bonus feature.
This means that all contributions that I made to the RA during its life would be tallied up and given to me at retirement on top of all my investment returns and original contributions. This bonus sounded great, but of course the fund had fees of 3.5% per year, and I am sure you know how the rest would go.
I did some calculations on this and wrote about it in the following article (although I did not name the fund):
http://www.etfenthusiast.co.za/2016/08/fees-matter.html
Sally also has experience with the Echo bonus. She currently has that RA, as well as a 10X one because she didn’t have enough invested in the Sanlam RA to qualify for a transfer.
If I assumed the same rate of growth and contribution from my side, to just compare fees between the two, you pay less fees at 10x (as expected) and the fees at Sanlam are more over the entire term.
However, because of that Echo bonus, the end amount I got from the Sanlam RA was similar to the 10x one with the reduced fee.
That was my situation specifically because the Echo bonus works on how long you are invested with them and all that (the longer you are with them, the higher your percentage).
You miss out on the compounding over time, but at the end of the day, it was much of a muchness for me. In the end I decided to just leave the two as they were, so I have two RAs now.
Sephathsile found a company that lets you pay estate duty upfront.
Last week I came across Capital Legacy. They offer free wills and promise to finalise your estate matters in 6-8 months with the option to pay your fees in advance as monthly contributions so that your family won’t worry about it. They do a pay out to the family within 48 hours so that life can carry on whilst they sort out your estate matters.
https://www.capitallegacy.co.za/
Gerhard is not loving property right now
I’ve managed to make some bad property investment decisions in my life – of the buy to let variety.
Then I thought let me try this listed property thing, as it supposedly beats buy to let over the long term, and I know you had some Magnus guy doing an insightful comparison on it.
So I am uncertain if his calculations still hold.
My challenge is simply to run this comparison again and see if it still holds.
As you can see below is the graph of the PropTrax TEN and I am no technical analyst but it is not looking pretty.
I would love if you could comment on what in the world is going on with it.
Is it okay to still hold it, I really do not want to climb out of it now… as I am far under water.
Phemelo is about to become a property owner. They want to know:
- I am in the process of getting a bond, I was wondering which is the best option, obtain a 30 year bond and pay it off as quick as possible or get a 20 year bond and pay just the required instalment (something has got to give)
- I am about to become a homeowner and I do not have a life cover, I would like to find out how does one go about getting a life cover for the bond. Do I need to go through the hustle of meeting 5 different brokers and comparing which one is better?
- I would like to get an ETF that pays dividends, however I would like on whereby the dividend payout is invested in a tax free savings account, is this possible and with which financial provider?
Cyrus had to help a family member deal with debt. The process is frustrating, to say the least.
This is the second time you mentioned it (if I recall), in terms of supporting family. Today’s mention was about paying off their debt with a low interest arrangement. Previous it was about supporting them if they are in the dwang.
So personal experience – we tried that. The supportive role. My sibling was at rock bottom – maxed out credit card, clothing account, less than R500 in cheque. So I went to town on his budget and came out with a STOP, START, CONTINUE plan.
Part of it was to financially support their essentials. I did not want to pay off their debt since I wanted them (sibling and spouse) to learn how to handle cash.
Things went south pretty quickly as I continually pushed frugality and it was not being met with my expectations. They were not keen on only eating peanut butter. I had a 10-point plan, and they were already challenging point 1.
The short of it is that another family member has bailed them out (with a low interest agreement), however I’ve stopped my involvement due to the anxiety and friction it created.
Family. Ugh
Stefan has some insights into the EasyEquities offshore accounts and the TFSA for kids thing.
My son is 2.5 years old. Shortly after he was born I opened his own EasyEquities accounts. As you already know doing so gives you access to three accounts, TFSA, regular EasyEquities and also the USD account.
Every month I add to his savings, but I split it between TFSA and regular EasyEquities, so either half-half or one month I do TFSA and the other Regular.
If need be, funds from the regular account can be drawn for things like an education, car, etc in about 18 years. We won’t have to tap into his TFSA and we can let that run until he retires rich one day.
I know there will be a tax hit on the regular account so perhaps I have not chosen the best way, but so far this has been easily managed and efficient.
* Then re the USD account with EasyEquities.
A few weeks ago I logged a ticket with EasyEquities and managed to get some clarity. The EasyEquities USD account is real money sitting in a bank account in New York so it i’s proper offshore cash.
EasyEquities does have an easy way to get the cash offshore. You put cash in your regular account and then you can send the desired amount to your US account. |The spreads are wide, though.
Hendrik’s awesome spreadsheet is at the bottom of this post.
What is the best way to manage payments and investments between spouses?
Me and my wife each have our own accounts where our monthly debit orders go off.
We also have a joint credit card which we both pay into and use for our day to day expenses (and greenbacks of course, which covers our monthly electricity).
Because we pay a set amount into this card each month it serves as a budgeting tool for our day to day expenses as well.
We use 22seven to track all our expenses and determine our monthly surplus, which we then split between her TFSA (mine is maxed out for the year), a retirement annuity and paying extra off on our home loan.
I figure that I am guaranteed a saving of 10% interest on the home loan and it serves as a good emergency fund as well. When it is paid off I will save that portion in ETFs/shares as well.
Fred wants to know if there’s a scenario where hyperinflation and exchange controls could lead to South African-based funds that invest offshore could be prevented from trading or shut down.
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.
