Podcast: Your money or your life

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This is another themed-by-serendipity episode. Last week Edwin mailed with a dilemma: how do you choose between being a good citizen or family member and having money? Whatever you spend on your family, kids or pets or donate to charity is money not going towards your savings goals. Does that mean you should forego those things altogether?

Money and morality are closely linked, but so is money and health, as Christoff pointed out. Having a lot of money but never having any fun is completely pointless. A lot of money at the expense of having children is not going to make you happy (if you want children). Sitting on a mountain of money and never helping anyone else is going to bankrupt you morally. Spending your life trying to get rich but neglecting your health is going to lead to sickness in retirement. What’s the point of that?

We discuss strategies to navigate these questions and completely fail to choose a winner for Sam Beckbessinger’s Manage Your Money Like a F*cking Grownup giveaway. Something to look forward to next week!

Win of the week: Jacques Kasselman. He found us by accident on iTunes and immediately panicked. After reading his mail I realised that he actually didn’t need to panic at all.

Where to start to get on track? I think the best thing would be to get rid of my debt of over R1500 a month, excluding interest on my vehicle loan.

I started paying off my debt by having a liberty investment I had for 6 years (R500/pm – 1.67% growth above what I put in) pay out and pay off my most expensive debt first. That’s R700 that can go to the next card/account and then the next and so on.

Is this the right strategy or should I rather look for somewhere else to invest that money, eg. TFSA, ETF and slowly pay off the debt over time?

The way I understand from what I have learned from you guys so far is get rid of debt, then create an emergency fund while simultaneously slowly starting to save/invest and increasing the savings/investing part as the emergency fund gets closer to 3 months salary.

TFSAs

SARS gives us R23,800 tax free interest already. Is it still beneficial to contribute to an TFSA at possibly lower returns if we are still far from reaching that limit? Saving the R500,000 cap for when one day we pass the R23,000 limit? Reaching the R500,000 limit would take about 15 years if you contribute the max of R33,000. As I am 34, I still have 31 years left if I am unable to retire early.

PENSION

My employer requires 22.5% pension contribution monthly, deducted from my salary (me=7.5% company=15%). At the moment its split between Allan Gray and the company fund.

I plan on increasing the percentage towards retirement to max as soon as I can get the rest in order, or at least a little better.

Stefan responded to Frank, who wanted to know where to keep his Lazy system cash while he waited for entries.

I have four EasyEquities accounts and I get interest on all cash in my accounts. There’s a cash management fee, so it’s not the best cash account, but it’s not like I’m getting nothing.

Fred has an interesting question about TERs. He is invested in an Allan Gray Balanced Fund through a financial planner. The TER of the fund is 1.44%. In addition to that, he pays an admin fee of 0.40, an advisor fee of 0.50% and a management company fee of 0.79%. Just for the privilege of buying the fund he’s paying 1.69%.

I looked up the fund costs on the Allan Gray website, and I have some bad news. The TER is 1.45%, but excludes “other expenses” of 0.02%, VAT of 0.15%, and transaction costs of 0.07%.

3.38% total cost.

The problem is, you don’t see the TER. It costs you money, but you don’t see the money.

Pieter is putting his emergency fund to work. He banks with FNB, and he’s really made the most of that infrastructure.

I have a cheque account that my salary gets paid in. I have a bit of extra money to cover the “shit I did not budget for”. I move most of my expense money to my credit card so it is positive. This earns me a tiny bit of interest and I win back quite a lot in ebucks.
I have a linked savings pocket with 1 months expenses in it. It earns interest, has no account fee and money is available immediately.
I am building up 3 months living expenses in a 32 day notice account that also earns interest and has no account fee.

So the plan is: for small unplanned things, you just use money in your account. If the paw paw hits the fan I can live a month with my savings pocket money. When I start touching that money I can request “next months salary” from the 32 day notice account without incurring costs.

If I can build up > 3 months in my notice deposit, I will move that to bond ETF or something that gives better return.

This way I have no fees and costs, acceptable interest and money available now.

Gerhard needs help with life insurance.

I love your war on fees. It’s helped me a lot in making my decisions around investing.

Is there a similar type of thing in the life insurance side of the world?

My life insurance is with Liberty, and it is fully a grudge purchase, but I do have 100s of children so kind of have to have something.

Are there new style life insurance companies that you guys are aware of, like a 10X but for life insurance?

I asked the 10X team and they didn’t know of anyone.

However, I did get some suggestions.

Have a look at brightrock.co.za. It looks like a new school type of business, but it’s majority shareholder is Sanlam.

The other suggestion was FMI. They’re a division of Bidvest Life.

Craig Gradidge from Gradidge-Mahura investments said:

The insurers who are “traditional” and reasonably transparent are Sanlam, Old Mutual, Hollard, PPS. The 2 that integrate are Discovery and Momentum.

With Brightrock benefits structure is still something they need to work on…as always, the answer of which is best is usually determined by client requirements, their lifestyle and health conditions, etc etc

Poor Josh is stuck between a rock and a hard place with his RA.

I recently started working at a Big Four bank

I come from a company that used 10X as a provider. I didn’t know how lucky I was back then. I am 26, so I need an aggressive portfolio.

The fund options we have are somehow administered/managed by Old Mutual and the options are:

Allan Gray global balanced portfolio – 51% equity allocation, 1% fee on SA based assets, and performance related fees of between 0,5 and 2,5% for foreign assets. I’m staying fucking far away from this one. Assholes.
Coronation global houseview portfolio – 49% equity allocation, looks like a fund of funds so fees on fees will apply here, but doesn’t look that bad. Still shitty though.
Investec balanced fund – 41% equity allocation, 23% bonds allocation. Fees are reasonable at 0.54% for local assets and 0.75% for international assets. I ended up choosing this one due to the lower fees, but it’s so conservative, so shitty.
Nedgroup core diversified fund – 50% equity allocation, 7% bonds. Fees are good at 0,58%. But again, lower equity exposure. Actually looking at this now, this option looks the best out of a shit bunch.

The rest are so shit they aren’t worth mentioning. Think old mutual, Tanquanta cash pooled fund (yes, seriously).

So, my question is – do I bite the bullet and just throw as much as I can at the Investec/Nedgroup funds, or maybe lower contributions to the least I can and then open a portfolio with a better RA provider like a Sygnia/10x etc in my personal capacity?

I’m leaning towards the latter. But this would probably mean some complications come tax return time? I don’t suppose I can go to a massive corporate’s benefits department and tell them that my options are terrible, give me better ones?

Jorge wants to invest in a living and guaranteed annuity, but he wants to know how to make that decision.

What are the practical implications and values considerations should be taken into account when opting for both a guaranteed and living annuity?

We have an excellent article on justonelap.com/retire about the difference between these products.

Entries to win Manage your money like a fucking grownup by Sam Beckbessinger.

We asked you for the one fact that changed the way you thought about your finances.

Christoff’s point is about health.

When you realise that you need to save up for a potentially very long retirement (30+ years these days!), we do all this planning to ensure that we’re “taken care of” financially, but what about our physical health?

If we’re going to live for another 30+ years after retirement, we’d be enjoying those years a lot more if we’re fit and healthy, right up to nearly the end.

I’m 43 and take good care of myself, but I look around at my peers (school friends, cousins, colleagues, etc of the same age-group) and a LOT of them already suffer from heart problems, hypertension, cholesterol, various forms of cancer, diabetes, and what have you! It’s very depressing to think of having the benefit of living in the 21st century, with enough technology to keep us alive for so many more years, when most of those years are going to suck!

Just as compounding works for/against your finances, it does the same with our health. Poor daily habits will eventually catch up with you, so we need to keep our attention on this very important factor if we’re going to enjoy our hard-earned and cleverly-invested wealth.

Phemelo found The Fat Wallet Show in January and has made massive strides in his financial life.

I’m not all over the show.

I have a financial plan and taking on the challenge of keeping the lifestyle cost the same to avoid lifestyle creep.

My huge eye-opener was there are no shortcuts to this thing – baby steps.

I’ve closed my overdraft, I’m starting to slowly chow the credit card debt, and I started paying my student debt.

The next step is starting to slowly build the emergency fund.

Ronel had an a-ha moment about fees

If I can lower my fees on my Retirement Annuity, I can have sooo much more money.

It blew my mind that if I get 10% growth, and inflation is 6%, there is only 4% left for growth (compounding) and if I pay 3% of 4% in fees, I will only get back what I put in (adjusted for inflation). That is not my idea of a comfortable retirement ….

So I moved my Retirement Annuities from Sanlam and Old Mutual to 10X.

I am now on a fee witch hunt to cut ALL fees to the bare minimum 🙂

John Morrison (our retired unicorn) submitted a vote for Khuliso, I think.

When people speak about money I have realized that I must first determine their anchor point and their biases. Then I can adapt this information to my anchor point and confront my biases. Someone investing for future retirement is at a different point to another living off investments in retirement.

I am truly inspired by Khuliso and their kota. Such an understanding of compound interest, time and lowering the cost of living. Really amazing!

You can’t help it if your parents were poor and you start poor, but with compound interest in a single generation everything can change. Well done Khuliso!

With ABSA’s WTF new minimum brokerage fees in ETF accounts (which is by the way more than a kota) we need to get behind EasyEquities and give them huge support. Is EE the only company that understands not to rip off the poor?

Links to be included in show notes:

Adam sent a link about the three biggest lies about passive investments.

They are:

People can’t make their own decisions about which products to buy
- - Very few investors have the time, knowledge or skill to invest their own money.

The fees aren’t as low as they claim
- - Passive products available to retail investors in South Africa are still relatively expensive and not that much lower than actively managed funds.

You don’t get market return
- It is easy to compare the JSE/FTSE All Share Index returns with active manager returns and conclude that active managers are not worth their fees. The comparison is flawed. It does not consider risk and it also does not take into account that most of the growth from that index has come from one share – Naspers.

I’m not going to tell you what to think about this. If you understand how these products work, you can make up your own mind.

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 [email protected].