Building financial literacy

[farmergal]

Hi all, I’ve learned a lot from reading through old and new posts over the last few days. I’m not sure if anyone would have to time to respond to me but I thought I would just put my situation out there for any feedback.

I’m turning 25 this year, working in my first job for about 2 years (1 as intern) and take home about R27k p/m. I’m living at home with my parents but hoping to move out (renting) soon-ish. I would like to buy my first car quite soon. I need it to get to work mostly and am in an industry where there can be a bit of travel for events/meetings. Also the car will play a role in my independence which is a bit stunted living at home. My expenses at the moment are kinda minimal at around 8k, most of that being Discovery medical aid. I have built up a bit of a savings account over the last year which is R86k in a 32 day notice account (7.95% interest p.a). Clear score has my credit score at 652.

Based on my reading this is what I have been thinking and I would be grateful for opinions:

1. Open a TFSA with a R36k lump sum deposit from my 32 day account. I’ve never had a TFSA but have seen Sygnia come up often enough.
2. Start an RA and I was thinking of contributing 8-10% of take home pay. My job makes no retirement contribution and no medical aid contribution either. Is that too low? I was also going to go with the Sygnia skeleton 60.
3. Allocate R20k to a car deposit and go shopping around for something reliable preowned/demo at about R200-250k. So financing R180-230k with the bank. I was thinking of using Absa’s insurance (this is also where I will probably take out the loan) but I’ve seen Naked Insurance come up too. I would love a Swift GLX auto but it’s not looking like a super smart price choice. Am I being too extravagant?
4. What do I do with the remaining R30k in my 32 day account? Throw it at the car?? Some other posts say you can get a better interest rate on a larger loan amount (so no deposit), others say 10%, others that the first repayment should be large so paying R30k (basically the ‘deposit’ amount) instead of R5k (the minimum repayment). I’m not super well educated on investing and just learned about TFSA in the last week lol. I’m probably not a very active researcher on stocks and investing so is there anything passive I could look into?

My parents have done a lot for me to further my education to even get a job like this. They live on credit cards and debt and I just want to make good choices with this first job and ‘big purchase’. I feel like they really invested in me and I want to make good use of my opportunities.

Any comments would be super helpful. My financial goals are just not needing to borrow money and create stupid debts and knowing I’m looking after myself. Thank you!

 

[noeljack]

@farmergal I’d say yes to all four points, and add:

1. Save up three months expenses based on the total cost when renting your own space.
2. Save up to pay a deposit on a flat.

 

[farmergal]

@noeljack Thanks so much - the 3 month expenses is something I missed. I was just amazed at the TFSA and RA info lol

 

[chucklemethis]

@farmergal Furniture?

 

[farmergal]

@chucklemethis Yeah I would be starting from scratch when I move out. I’m gonna take the advice to keep the 30k and then focus and building that up. 30k doesn’t always take you far with appliances and major furniture anymore. Thanks for that

 

[chucklemethis]

@farmergal Goodluck!

 

[exoregonsoldier]

@farmergal looks like a very good plan. If you can I would recommend staying at home as long as possible and 'power saving' for as long as you can.

It's good to have an emergency fund of accessible, liquid cash. So nothing wrong with having that 30k going to that. This will prevent you from dipping into your longer term savings if disaster strikes or you need a lump sum (unexpected car repairs for example).

Your TFSA and RA plan sounds good. Remember to try do the TFSA before the end of February so that you can do it again next year.

Sygnia Skeleton 60 for your RA looks good. Go for max offshore equities in your TFSA. (Sygnia also fine here).

In terms of your car It would be nice if the payments were lessthan 20% of your gross income (so less than 5.2k pm). That is just a thumbsuck figure, lower payments are better BUT they come with possible problems (unreliability).

Otherwise good luck.

 

[farmergal]

@exoregonsoldier Thanks for these points. Just opened my Sygnia account today. I was wanting to spend around 5k-5.5k on the car but will just have to keep shopping around until I find a deal that makes sense

 

[justbadcode]

@farmergal Before you move out, make sure you have a minimum 3 month emergency fund. Car insurance get three quotes. Santam direct would be the best. You will also need 1-2 months deposit on a rental property. RA 15 to 20% of your gross salary. Stay far away from liberty. Ninety one and investec are performing well. You need a hospital plan and gap cover

 

[farmergal]

@justbadcode Okay thank you - working on car insurance next and heard great things about Santam. 15-20% for the RA is noted

 

[peterdom]

@farmergal Keep that remaining 30k for when you move - it's a lot more expensive than people realise

 

[farmergal]

@peterdom Thanks for that - yeah I’lol be starting from scratch with all furniture etc so that makes a lot more sense. Kinda confirms for me the necessity to stay home for a bit longer and build up that 30k much more

 

[graceseeker164]

@farmergal Good plan. As others have mentioned keep the 30k for rental deposit and furniture.

When you get your own place buy furniture second hand (except linen and mattress). You get great deals on Facebook marketplace. Everything in my place is second hand and I have quality solid wood furniture that gets compliments all the time.

Get a cheaper car. It's a depreciating asset. Rather pay off the car quicker and then once paid off invest. You want the cheapest car that is safe and reliable. I bought a demo suzuki celerio (the old model which was the cheapest and simplest car at the time) and it is amazing to spend comparatively little on petrol, insurance, services and tyres. For reference my last service at suzuki was 2k.

 

[graceseeker164]

Also, when you build up your emergency cash, have enough set aside to pay insurance excesses (for car and household content)

 

[namhoang217gv]

@farmergal Very valid points made already. I will add that without your employer contributing to your pension you should save at least 20% of gross. Max the TFSA and then diversify the rest, starting with RA to reduce your immediate tax burden.

 

[paulgilldrums]

@farmergal Might be missing something have you been work for 2 years already?
If yes 86k saved means your expenses are much more then 8k a month.
First do a budget and work out what you want.
Research fire retirement, if that appeals to you it will guide how you spend your money.
Final thought before you buy an item using debt understand interest rates and residuals if you get a deal with a ballon payment.

 

[silbo]

@farmergal All seems good but to be honest one of my biggest regret was financing a car of 200k. It ended up costing me 5k pm for 6 years with insurance.300k total. I'd rather drive a beater and save to buy an even better car cash later