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Unless you were born as wee baby Rockerfeller, personal finance plays an important role in your life. To many, the idea conjures up imagery of retirement accounts, sensible saving and a meticulous budget followed to the T.
And that idea isn’t necessarily wrong. For many, it’s exactly that. Many of us save and invest but aren’t quite sure why, or indeed, for what?
The idea that we have to get a job, get married and buy a house is an antiquated one. Certainly, it works for many. But more and more young people are seeking out an alternate lifestyle that suits them.
This means that personal finance means different things to different people. One person may dream of being a millionaire, which is great. But it might mean working long hours, plenty of sacrifice and retiring at 65. A nightmare to someone whose personal finance goal is to retire at 40, with enough money to live a modest – yet enjoyable – lifestyle.
There’s a perception that successful personal finance follows a methodical, step by step plan for sure-fire success. But success depends on your goals, surely?
I’ve been mulling over these thoughts for quite some time, trying to prioritise my own wants and needs. For example, I’d love to frolic about in Austrian snow or restore my elderly Benz. However, we’re so conditioned to think of these expenses as ‘frivolous’ and irresponsible when we have a future to save for.
Now, I’m not advocating that my age group abandon saving for a rainy day and retirement, but perhaps a realisation that success in personal finance doesn’t look the same for everyone. If home ownership is a goal you want to achieve, go for it. But if travelling the world before you turn 30 is more your cup of tea, then focus on that.
Not everyone wants to be the traditional definition of wealthy. Some prefer to exchange their cash for experiences and memories. But whatever your goal, there’s only one road there – clever money management.
Firstly, it’s always good to review and revise your budget to see where one can cut back. Do you really need to buy take-out so often? (I’m talking to myself here). Or does your cellphone need to be upgraded so frequently? That 2021 showroom model may look great on your driveway, but admit it. There’s nothing wrong with your five-year old car. It’s nearly paid off, I’m willing to bet.
Secondly – and I’m very aware that this is a sensitive topic – is finding a second stream of income. In an economic situation such as the one we find ourselves in, having one job – any job – is a blessing. But there are always things to be done. Housesitting, freelancing or any number of mundane tasks people couldn’t be bothered to do themselves.
My final piece of advice pertains particularly to my age group. Learn to live with what you have and what you earn. Spending the amount of time we do on social media, we are bombarded by influencers and brands who tell us what to buy and wear. We’re sold an appealing lifestyle – and some of us go into debt trying to live it.
Signalling the end of this column, is a pousse-café surrounding my shares. To be quite honest, it’s been rather quiet. An itchy trigger finger saw me selling my emerging market ETF when I saw the slightest hint of a profit. My Naspers shares have remained relatively stagnant, but as I learnt with Tongaat, it’s all about patience.
Last week, I asked you to send me your finance and investment queries. Here, Johan Steyn, CFA* of Stellenbosch University, shares his expert advice by providing answers to your questions.
J. de Villiers asked,
My husband and I are expecting. When is the best time to start saving for school and varsity? What would be the most sensible investment vehicle for this type of saving?
This is a question many new parents are concerned with. The straightforward answer is immediately. Education is expensive – especially tertiary education – where fees tend to increase in excess of quoted inflation. The more difficult questions to answer are where to invest and in whose name and whether you should use the tax free savings account (TFSA) allocation. When our baby boy was born earlier in 2020, we also wanted to immediately start saving for his education. I initially thought to open a TFSA Easy Equities account in his name and contribute to it monthly.
However, I read somewhere that it is not advisable to use the TFSA allocation in the name of a minor as they will only start paying tax when they start working, so the full benefit of the tax free account may not be experienced. Especially since there is currently a lifetime cap of R500 000 in terms of contributions associated with TFSAs. Seeing as the intention for the funds is to be utilised when he is roughly 18, it may be better to use a normal, taxable investment vehicle and keep the full TFSA allocation unutilised until he starts working. Then in terms of where to invest, you have to remember that the time horizon is typically long, especially if you are saving to cover university costs.
Therefore, you want to predominantly invest in growth assets such as equities. In this regard, I read a tweet from someone who suggested to keep it simple and opt for broad international diversification at the lowest possible cost. The Ashburton Global 1200 ETF ticked those boxes for me. We started making small monthly contributions to the account, with the firm intention of increasing it every year. Don’t underestimate the power of compounding. A R1000 per month investment growing at 9% per year can compound to over R500 000 in 18 years’ time. I’m guessing your child will be very grateful if they won’t have to take out a student loan because of your diligent saving.
With all the financial uncertainty everyone is currently going through, would now be a good time to purchase a new vehicle?
This is a very personal question and would depend on your current financial situation. I think the chief concern is whether there is an urgent need for a new vehicle. And also whether you can afford it without taking on too much debt. From a personal finance point of view, there are a few key points to take note of when it comes to buying a car. Always remember that a car is not an investment, it is a depreciating asset. It continuously loses value. Therefore, you want to ideally avoid using debt to finance the purchase and you best avoid buying it brand new. A new car loses value as you drive it out the dealership door. Keep in mind that there are additional costs such as fuel, services, tyres and insurance that you need to take into account when making the decision. If there is a possibility that you may lose your job due to the current uncertain economic climate, it is probably best to postpone the purchase for a while, if it is at all possible.
- Johan Steyn, CFA is a lecturer in investment management, from the department of business management at Stellenbosch University. He holds a Masters in investment management and has a background in fund management.
Have a question about share investing? Write to me at [email protected].
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