The Fat Wallet Show with Kristia van Heerden

Podcast: Keeping your living expenses low

In Latest, The Fat Walletby Kristia van Heerden

fw_230919The downside to doing my job is that I don’t get many opportunities to talk about my own financial insecurities. As with most things, there’s a distance between theory and implementation. I have my bad habits and anxieties around money as much as the next person.

Billy’s question around minimalism and frugality gave me an opportunity to talk about some of the things with which I struggle. An ever-present challenge is finding a balance between spending and saving. I’m always too far in either camp. You can accuse me of many things, but lacking the courage of my convictions is not one.

Far be it from me to tell you what to take from these episodes, but I do hope our conversation sheds some light on the importance of the process. It’s a lifelong journey, full of surprises and challenges and new joys. That’s what makes it fun.


The bleeped version is below.


Win of the week: Billy

I saw Simon in Woolies the other day (I was like a silent groupie lurking in the shadows). Next time, I’ll buy you guys a bottle of bubbles to say thanks for the awesome work!

I’m a 30 year old engineer (another one for Kristia’s collection!), and in great part thanks to you guys, I recently moved to a smaller place, got rid of a bunch of useless kak, and also scaled down on my car. This also extended to my finances, where I scrutinized all my financial products, cut unnecessary costs, negotiated better insurance premiums, and started to actively put money away in cheaper investment vehicles (such as Easy Equities).

I know that both of you have decided to actively keep your living costs low, and I recently read an article where Simon mentioned that he decided to scale down a lot and move to a smaller apartment with his wife. The idea of having very few possessions to tie me down, whilst having plenty of money put away appeals to me quite a lot. I’ve realised more and more that having lots of things means having lots more to worry about. Physical clutter, financial clutter and emotional clutter are different sides of the same die. As much as we like to think finances are separate from other aspects of our lives, everything feeds into our overall well-being, freedom and contentedness. 

So, thanks to you guys, I’ve developed a bit of an aversion to unnecessary “kakkies” – specifically financial and insurance products laden with complex “kakkies” that only serve to obfuscate real costs and returns. I like Kristia’s idea of investing in one ETF (or at most very few), and not over-complicating my portfolio, as more products could mean more blind spots.

To get to my question: Being minimalist seems like a full-time struggle – an active raging against the beast of financial dependence. What are the principles you both follow to keep your living costs low? What did you cut down on that made the biggest difference? Also, how do you prevent the activity of keeping costs low from becoming a cumbersome penny pinching exercise that ends up defeating the purpose? 


Donal 

While all this was going on, I was also busy researching possible brokers that I could use to purchase Vanguard All World (taking Patrick McKay’s advice!). 

I ended up with a company called Degiro. While their fees are low, they are nothing like the “easy” I’m used to with Easy Equities. Their registration process is a bit of a pain in the ass and their online trading platform is not as user friendly. 

I jumped through all the hoops and signed up for a Basic Account. I made my first lodgement and did my first Vanguard purchase. I did a small amount first to test the water. All went well and I was ready to plunge all my funds in. 

At this point I got a little nervous and did a bit of triple-checking online just to make certain that there were no negative comments out there about Degiro. 

Apparently, when you hold a Basic Account, they have the right to lend out your shares to other investors who use them for the purpose of short selling. I guess it’s their way of making some cash on the side using my shares. If you don’t want to allow this, you need to open a Custody Account, which means that they cannot lend out your shares. The catch is that they charge 3% on all dividend payouts for a Custody Account – compared to 0% for a Basic Account.

Is this type of lending out of shares by a broker commonplace? Do you know if EasyEquities do it? If they do, then I would feel a lot more reassured to carry on with my Basic Account. But if you guys think it’s unusual for a broker to do this and it carries a high risk, then I’d rather close my Basic Account and sign up for a Custody Account and take the 3% hit on dividends.


Captain Pants

I plan to pay off my bond within the next six months, which will be 10 years early. A scenario I hope many Walleteers will experience in the future. 

While looking forward to redirecting my repayments towards ETFs, I’m wondering what are the best practices when paying your bond off early?

As far as I know there are two options:

  1. Almost pay it off and then adjust the bond repayments to a negligible amount.

A benefit of this would be that the bond stays open as easily accessible cheap debt. However there would be a fee of at least R69 per month for the next 10 years (~R8,280).

I would not be the owner of the property – the bank would still be. So I would be unable to mortgage it (correct?), but can dip into the flexi-bond if need be.

What monthly amount should I aim for? Would the bank allow me to pay off R1 per month + fees for the next 10 years?

  1. Pay off the bond in full, close it and become the owner.

I understand there may be a fine attached to this. If it is less than fees I would pay over the next 10 years it may be worth it?

What are the benefits of truly owning a property? 

Also, is it possible to overpay your bond? ie. have a positive balance in it? Would that earn interest?

Is there anything I haven’t considered?

Will wait by the wireless for your response.


Karabo

I have rental properties. I’ve been saving my emergency fund in their bond accounts. The challenge is that this emergency fund reduces interest paid on the properties in effect increasing my tax liability on income earned over the year. Income earned on rental property is taxed as income.

Where else can I invest my emergency fund to reduce my tax liability on these rental properties. Should I still keep the emergency fund in the bond accounts or save it in a different account.


Stephnie

When each of my nieces (who are now 2 and 4) were born, I invested a once-off lump sum into SATRIX Top40 ETF for each of them. 

I opened an account on the SatrixNOW platform for this purpose, and currently both lump sums are invested in a single account. 

The account is in my name. My plan is that the investment will be my gift to each of my nieces on their 21st Birthdays, and they can then decide whether they want to cash in the investment, or keep the ETFs.

At the time that I opened the investment, I just stuck the money into SATRIX and didn’t think too much beyond that. But now I am starting to think about how to ensure that this investment will be as tax efficient as possible and as fee efficient as possible.

If my understanding is correct, if my nieces decide to cash in the investment when they turn 21, I would be liable for the capital gains tax since the account is in my name. Is that correct? Is there any way that I can avoid or lessen the capital gains tax burden on my nieces’ investment? 

If my nieces want to keep the ETFs when they turn 21, will I be able to transfer the ETFs to them? (i.e. is it possible to transfer ETFs to a stockbroking account in their name?). Are there are taxes or fees I should be aware of, aside from the usual charges incurred when transferring an investment from one platform to another?

Would there be any benefit in opening investment accounts in my nieces’ names now, and transferring the ETFs to them now? 

If you have any other thoughts on how I could structure and handle my nieces’ investments to be as optimal as possible – I’d love to hear it.


Maureen

I’ve inherited some Kruger coins and would like to get a fair value for them. Is there a website that will give me a fair price on any given day? Also, I’ve heard you say not to sell them to a Scoin shop. Where can I sell them for the best price?


Justin

I am in the process of paying a student loan and an unfortunate car loan. I have a little money left that I would like to make use of and not just lie in my account adding temptation. 

I am lucky enough that my parents still help me out and I have medical and a Providence fund with the company I work for, so I can’t really see the desperate need for an emergency fund. 

Should I put the little money left into a TFSA or should I start an emergency fund anyway? If I should start one, what is the best way to go about it rather than hiding my money under my pillow were all it does is finance the dreams of buying bubbles?


Ben

My parents stay in France (not near Champagne unfortunately) and they are UK citizens. They have a unit in a complex in SA that they are going to sell. They would like to gift/loan us the money to help us buy a house with a granny flat where they can then stay when they visit.

My understanding is that the tax on gifts are 20% for everything above R100k, so we thought of doing something like a low-interest loan in order to circumnavigate that tax. Do you perhaps know who can advise us on this to ensure we do this right?


The Fat Wallet Show with Kristia van HeerdenThe 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.

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