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MOHALE WRITES:
I am 30 years old and based in Gauteng. I graduated with a degree in 2014 but I am struggling to get a job in my profession. This led me to go out and hustle for any kind of job so I could get paid and meet my needs.
I have a contract job at R12 000 a month, but it is not a permanent position. They can’t guarantee the project duration as it is a government tender.
I am fortunate to be able to save R7 000 a month as I have a low rental in the township. I have a piece of land in Mpumalanga where I want to start a farming business, so I am buying some materials with the same pay, after saving.
Although my savings have reached the R120 000 mark, I find I am struggling to save further and I don’t know why. I can’t see where I am spending my money and it is a few months now that I have not been moving forward.
I want to buy a second-hand car but am struggling to adjust my budget. What can I do to stick to my goals? Can I buy a car and still afford to save?
CITY PRESS REPLIES:
First, congratulations on your savings to date. You are better off than most 30-year-olds.
It is not surprising that you are struggling to find the money to save. The cost of living has increased significantly and it is getting harder to make ends meet.
You must focus more on understanding where your money is going. Start by writing down everything you buy. That will give you an idea of where your money goes.
After a few months try work out what the pattern of spending is and if there are things you are overspending on or things you don’t mind giving up. You might also find that when you are keeping a record, you are less likely to do any impulse spending.
Then you need to start focusing on improving your income so that you can reach your goal of your farming business. If you have been working for a while and developed a good track record with your employer, is it possible to get an increase? You have work experience now, so always keep looking for other, better-paid jobs.
If your ultimate aim is to get into farming, try to find work in that sector to gain more experience. Find out about NGOs that might provide skills training for potential farmers. Start working on building up networks – even through networking site LinkedIn where you can tap into knowledge in the farming industry. Knowledge is without a doubt the most valuable currency.
In the shorter term there are other ways to earn an income, at the weekend, for example. Having a “side gig” is now the new normal. Restaurants need extra staff at weekends and there are many “student types” of work advertised for weekends.
If you bought the car, would there be a way to make some money from it on weekends or evenings? For example, doing pizza deliveries or as a courier.
What you want to avoid at this stage is debt. You should only consider a car if you can buy it with cash because car finance will become a huge burden if your contract ends.
Remember these are short-term solutions so you can reach your ultimate goal. The work you put in now will pay off later.
Should I take early retirement or resign?
Moremi asks:
I am 56 years old and work for the education department. There is a circular from the department that we can take early retirement without penalties. My retirement plan is to buy another house and rent out the one we are living in. I also want to buy a car.
My wife resigned last year and received R1 million pension payout which we intend to combine to buy the house. For me to achieve all these plans I am thinking of resigning rather than taking early retirement.
City Press replies:
Your biggest concern would be tax. You will pay a lot of money in tax if you take the money and do not use it for retirement income. For example, on R1 million you will pay about R210 000 in tax.
The other concern is whether you and your wife have enough income in retirement considering that she has already cashed in her pension.
It is worth spending time doing some calculations on what you need to live. It may be better to take the Government Employees’ Pension Fund retirement option and guarantee yourself an income for life. This would include a 50% pension to your wife if you die before her.
On retirement you would still receive a lump sum – this is calculated based on a formula – and you could use that to meet some of your property plans. You need to have a diversified income approach, so all your income needs are not based on property.
Having a portion of income that is guaranteed and increases each year could be a good strategy.
Renovate or buy a home?
XOLILE ASKS:
Our current home doesn’t provide for the needs of our growing children. We need to decide whether we sell and buy another house, or renovate which will overcapitalise our home.
CITY PRESS REPLIES:
You need to look at the various scenarios and their financial implications.
If you had to sell and buy another property, what would the cost implications be? Would you have to take out a bigger mortgage? What are the costs of selling and buying?
Then compare this with how much your renovations would cost. Keep in mind that renovations always cost more than they are quoted so expect to spend at least 20% more than the quote.
This comparison will give you a clear idea of the financial implications on your day-to-day budget. Will you have less financial outlay if you renovated or if you sold and bought?
Then look at the emotional side – a home is not an asset in the true sense, it is somewhere to live and raise your family – so different factors need to be considered. Do you like living where you are now? Are there conveniences like a school/family nearby?
Third, look at the risk of overcapitalisation. If you are going to live there for the next 20 years, over-capitalisation now will not be that significant. The bigger effect is on your daily finances and lifestyle.
In other words, if it works out that renovating would be a cheaper option and you really love where you live, then the overcapitalisation should be less of a consideration.
If, however, you don’t like where you live, you would prefer somewhere closer to your kids’ school/work, then buying another house would make sense – as long as it doesn’t increase your financial pressure.
How to reach R1 million in five years
Mike writes:
You wrote an article last year about how, if you save R2 750 a month for the next 15 years, it could grow to R1.1 million. Is it possible to reach the same target by tripling the amount and saving over the next five years? Simply put, will I reach the same amount if I save R8 250 a month for five years?
City Press replies:
This is where the power of compounding, and time, becomes so important. If you invested R2 750 a month over 15 years, earning 10% a year, you would have invested R495 000, but the investment would be worth R1.13 million.
If you invested R8 250 a month for five years, you would have also invested R495 000, earning 10% a year, but it would have grown to only R638 000.
This is because, at a growth rate of 10%, your money doubles every seven years. So, the longer you invest for, the more opportunity for your money to double.
In this case, if you invested R8 250 a month and stopped contributing in year five, within another five years your money would be worth R1.1 million. If you continued to invest the R8 250, you would reach R1.1 million in less than eight years.
If you still wanted to have R1.1 million within five years you would have to invest more than R14 000 a month or R840 000 over five years. This is why they say the longer you invest for, the less you have to contribute because time and compounding does the rest for you.
Lump sum or regular payment for my home loan?
Jeanette asks:
Is it wise to make an extra lump sum payment once a year (eg your bonus) into one’s home loan or should one stick to monthly extra payments?
City Press replies:
The sooner you pay money against debt, the sooner you reduce the interest. So, for example, you would save more interest by paying R2 000 a month than R24 000 at the end of the year, as you have started to reduce your outstanding balance sooner. But it all depends on your cash flow and what works for you.
