Killing bad money habits – On The Money with Jarryd Neves

Jarryd Neves
On the Money. Budding stock market investor Jarryd Neves, of BizNews, sends out an invitation to everyone who wants to ask questions about share investing – but is too embarrassed to ask. Write to [email protected] And tune in for his regular Monday column: On the Money

Perhaps I’m just easily irritated, but there are a number of things that really drive me up the wall. People who walk next to each other on the pavement, for example. People who walk and text in public, oblivious to the fact that there are people behind them trying to get by.

What about people that stare at their phones while you talk to them? Nothing frustrates me more than having to repeat myself because someone was engrossed in their screen. On the road, I like to think of myself as a calm driver – but it’s hard to not get irritated driving in Cape Town. Put the most peaceful man you can find on the N2 for five minutes and he will return in a blur of rage and anger.

What I find so interesting about pet peeves and habits is how quick we are to notice – and point out – other people’s flaws. Yet, we are seemingly blind when it comes to ours. I could pin point the annoying habits of those close to me in a split second. But my own? Can’t think of a single one.

That’s not to say I don’t have any – otherwise my friends and family wouldn’t roll their eyes at me as often as they do. But it’s the same with money and our finances.

We’re so quick to judge and see what others are doing with their money. We question their decisions, inwardly wondering how someone can spend R30 a day on coffee? Yet, we’re perfectly unaware of our own peculiar spending habits.

I’m guilty of this hypocrisy. I find myself astounded at the amount of money people spend on alcohol, tutting my head in bewilderment as I buy yet another pair of shoes.

I guess the lesson (for you and me) is to focus on our own bad habits. One of the worst money habits people get into is spending more than they earn. Of course, in South Africa the reality is that many families have to do this in order to survive. But, if you can help it, it should most definitely be avoided. Financing a lavish lifestyle will bring short-lived joy, but trust me – it will end in tears. With credit, comes interest. Before you know it, you’ve racked up bills that gobble your salary up with plenty of room to spare.

Another habit – although one rarely spoken about – is the lack of emergency savings. So often, we do everything by the book. We pay our bills on time and save for our retirement/homes/kids education. Yet, we forget to store something away for a rainy day. I’m not suggesting that you have half a million stashed away for a worst case scenario, but you never know when your car may break down or (God forbid) you lose your job. Having that safety net will come in handy.

When paying off credit card debt, pay off as much as you can afford. Meeting the minimum amount each month is all you’re required to do, but by prolonging the payment you end up spending more due to the interest.

Achieving perfection in our personal finances may be impossible, but being aware of our bad money habits gets us closer. It’s up to us, though, to rectify them.

What are your bad (or good) money habits? Let me know in the comments or send me an email at [email protected]

Last week, I asked you to send me your finance and investment queries. Here, Johan Steyn, CFA* of Stellenbosch University, and Rocco van Zyl* of Brenthurst Wealth Management, share their expert advice by providing answers to your questions.

Nikesh asked,

Is it worth buying some shares in the local travel industry? Their stocks are at a low point now. After Covid is gone are they likely to climb? The only challenge I can think of, is how certain are we that travel companies can weather the storm for much longer?

Johan answers,

Contrarian investors will see this as an opportunity to buy at bargain prices. The low market prices reflect the aggregate opinion of the market that the outlook for the industry is not great. In order to consider an allocation to the local travel industry you will need to weigh up the potential for a recovery from these levels. You rightly point out that many companies may not be able to survive long enough to see a return to higher levels of demand for travel services.

The uncertainty about the potential delay in normalisation would also weigh on market levels, this is because the market hates uncertainty. Only time will tell if this was indeed a lucrative opportunity or an obvious one to avoid. Remember, if there is a turn around, the substantial return you earn from an investment would be the reward for taking the substantial risk of losing your money. I would not risk any capital that you cannot afford to lose, and stick to the higher quality companies – those with lower cost structures and manageable debt levels.

Nicole asked,

What is the best way to save for my young child’s future? I’m thinking long-term, university fees etc.

Rocco answers,

The best way to save for your child’s future is to start as early as possible. It is amazing what compounding can do over a 15 to 20 year period, provided you continuously invest and have the self-discipline to remain invested. I would advise that you consider opening a Tax-Free Savings Account (TFSA) in your child’s name. This product provides tremendous tax-breaks, as you can disinvest the proceeds to pay for your child’s university fees – or other fees for that matter – or your child can use the proceeds as a foundation for their life.

If you start early, it also allows you to invest the TFSA with a more aggressive approach, as time is in your hands. An aggressive approach comes with risks, but the returns over the long-term are typically much better than a more conservative approach. Do note, this requires a long-term view as all investments experience periods of lower returns. The main characteristics of a TFSA is that you can invest a maximum of R36,000 per year – or R3,000 per month – and R500,000 accumulatively over an individual’s lifetime. If you invest R3,000 per month, you will reach your child’s lifetime contributions limit in approximately 14 years.

Let’s say that you start a TFSA for your child the year they born, take a balanced approach in terms of risk for your child’s TFSA, and that you invest R3,000 per month, and earn on average 9%* per year on your investment. At the end of the first 14 years, the TFSA will have approximately R1,010,000 in it. However, there are still four years until your child has reached 18 years of age. Although your child would have reached their lifetime contribution of R500,000, should you stay invested – and your child’s investment continues to grow at 9% per year – the TFSA will amount to a total value of R1,425,698 by the time they are 18 and leave school. Although these assumptions do not take inflation into account, it shows that you can provide for your child’s future, with modest monthly contributions, should you use compounding to your advantage, and the tax-breaks that a TFSA offers.

TFSA’s also provide a much lower cost option for investors, as funds with performance fees are no allowed to be allocated, and all of the growth, as the product name indicates, is entirely tax free. Investors also have the option to transfer TFSAs between different investment platforms, and have a large range of funds available (platform dependent).

Therefore, making use of a TFSA to plan for your child’s future is highly recommended. Also do consult with a Certified Financial Planner (CFP) to manage the TFSA investment, to achieve above-satisfactory returns.

*For illustration purposes. Returns will depend on the underlying investments and risk level of the selected TFSA option.

  • 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. Rocco van Zyl is a financial advisor at Brenthurst Wealth Management.

Have a question about share investing? Write to me at [email protected].

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