Where to go from here...

[rjozen]

*Update\* - I ended up Killing my personal Loan, Settled it with my 200K EF I had stashed up in Absa, And moved the left over 90K to my Flexi Reserve in the home lone bond, I am staying in\ So have about 119K Stashed as flexi , emergency fund in the Bond now, Follow up post will come with where i will be investing my free'd up money monthly.*

Looking for some advise, what everyone would suggest is the best way forward from here.

39 Years old, Currently employed full time and have about R500 Free every month... Not much to invest at the moment.

Car I am driving is fully paid off.

Debt:

1. I have a Townhouse, Bond still paying off ( living in this house ) 800K left @ 11.25% Interest rate
2. Have a Townhouse, Renting out in in JHB area ( owe bond around 600K left ) 11.75% Interest rate
3. I have a personal loan that helped pay off wedding (around 126K left) 15% interest rate

Investments:

1. about 200K in Absa Savings as emergency fund 7.5% Interest rate
2. TFSA Maxed out for the year 36K ( first year investing there) , and wife did the same
3. about 40K in Flexi Reserve of home bond
4. Sanlam RA currently running.

Other:

I have Medical aid & Car / House insurance, and Sanlam RA rest of money goes in Groceries, fiber, cell phone - and no other major expensive or wild lifestyles or even other Debts..

The Actual Question is i am looking up to free some monthly income to better investments option, Anything i can or should change,

Option 1) or Maybe sell the 1 Town house i am renting out,

Option 2) or Push my emergency fund to pay off the Personal loan? Not sure what best options are from here..

Option 3) Or just be content with the current month to month lifestyle?

 

[joshbruh]

@rjozen Option 2:

1. Definitely kill that personal loan!
2. Put Emergency Fund in an Access Bond (a.k.a FlexiReserve) in either Property 1 or Property 2. Can try and be maximally tax effective here, but just add it to your FlexiReserve for now.

Is the Sanlam RA contributions reflected on your payslip? If not and you need to have a bit more cash available every month, send proof of the debit order to your employer and have them include it in your PAYE calculation (No need to wait until tax season and SARS to reimburse you).

 

[rjozen]

@joshbruh Thanks for the Feedback!

1. I was also thinking that to kill that Personal loan, but that will be hit with my Emergency reserve fund, Think i might have like 80 or 90K left in the emergency fund then.

You bet it better to push that into my flexi reserve then right? Can you explain this part a bit more for me please. - "Can try and be maximally tax effective here."

And my Sanlam RA no, it not on payslip, I pay it privately, it is from my 12 years service in the Army, when i left, i transferred my pension accumulated there, over to a RA, and kept on contributing onto it. I will have a chat with my finance team at work and see if they are able to do that for me.

 

[jeffreypauls]

@rjozen I'm definitely not qualified to give any advice on such mysterious matters as access bonds and RAs...but it seems like you'd definitely want to kill that personal loan with your emergency fund, just looking at the interest rates.

Unless you think it's likely you'd experience a R100k+ emergency in the next few months. Has that ever happened before? And if it does, you could just take another personal loan and start the cycle all over again, right?

 

[rjozen]

@jeffreypauls Seems like the Personal loan killer is the best bet here, and most popular opinion, feels sad pushing that hard earned saved cash all gone in 1 shot... lol.

Well life is unpredictable... never know what happens specially in this economical climates, but rather be safe than sorry lol

 

[vancouverguy]

@rjozen You have a personal loan and an emergency fund. If you use part of the emergency fund to.pay off the personal loan, every month you don't have an emergency you will be saving money.

If a more than R90k emergency comes up before you have rebuilt up your emergency fund from the money that you arent now paying to the loan, you can always take out a new personal loan

 

[rjozen]

@vancouverguy Yeah think that is the way. Get that personal loan out of the way and asap... Its been killing me slowly.

Just take the hit from EF and kill it.

 

[soikeobongda24h]

@rjozen Personally I would kill the personal loan . No point being charged 15% you will never get on emergency fund interest and you will still have emergency fund although smaller .

Check if any of your bonds are access bonds you can maybe keep your excess funds in there , cutting debt and costs will free up funds . Few investments can garentee you 15% after tax return .

On the rental property you have not given any figures is it cashflow positive does it pay for self or do you have to pay in each year ?

 

[rjozen]

@soikeobongda24h Thanks for the feedback, I am pretty much on same page now think killing Personal Loan is Nr 1 on priority list.

Both my bonds have the Flexi Reserve option, so i am leaning to move my EF over there for now then, what is left over after killing the Personal Loan. Putting this in the bond that is not being Rented out, due to Tax Reasons.

Regarding the Rental Property - I owe about 600K @ 11.75% Interest, Rent i get in from the unit is about 7100 (plus Elec ) but then i have to pay the Levies and rates still. So currently the rental is just covering the bond, basically and i am covering the levies and rates out of my pocket, but with Tax return, lucky i don't have to pay anything there, as the interest on the bond, is deductible so in reality, not making any money from it, running just below breaking even on the property. Hope that is a bit more info on it.

Thanks for feedback

 

[coffeecups]

@rjozen Move some money from saving into loan for marriage 15 % cost against 7.5% saving , immediately saving which you can add to your R 500.00 you able to save , consider a retirement annuity reduces tax return can be pretty good , but you will need money later to pay off your medical aid ad you get older

 

[rjozen]

@coffeecups 100% Think this is the best option. Need to get that Personal loan squashed and quick.

 

[coffeecups]

@rjozen Go for it flatten the loan

 

[dustytoast]

@rjozen 1) Long Term Assets like properties can form part of a financial freedom strategy. Do not sell them to aid in monthly expenses. Rather think about initial purchase price and current sale price. And make a very strategic decision.

2) Yes! This is how you reduce debt. Pick one of the three loans to start with. The personal loan in this case. Pay it off either with a lump sum or with much larger monthly deposits. Then take that amount and focus on the main property. Then lastly focus on the rental property. Free yourself of debt then focus on building wealth.

3) You have a great setup and you are asking the right questions. But you can definitely benefit from a debt reduction strategy and wealth building plan.

 

[rjozen]

@dustytoast Thanks for the advise. Definitely going to kill this Personal loan soonest.

Financial freedom is tbat dream we all have and ultimately strive towards

 

[cami777]

@rjozen if you take the interest portion of you rental debt so 11.75% of R 600k +- R 6k a month, if your rental is less than that sell it it's a lemon, take your returns if any and stick it in the other bond as rainy day fund, then kill personal loan first then the second bond.

If you are getting like R 8k - R 10k per month you may wan to hang on a bit if ANC loses the elections else sell.

The rainy day funding is better in the bond as you will get 11% over 7.5% but if you are in trouble the bank cuts you off. happened to me....

 

[rjozen]

@cami777 I am getting R7100 (+ Elec usage) Rental p/m from the property, but then a portion gets paid for levies(its in a complex), and rates and tax...

"but if you are in trouble the bank cuts you off. happened to me...." How do you mean cut off? Do you mean from accessing your funds? or what happened?

 

[cami777]

@rjozen I'd look at net income after expenses and compare to the interest you are paying.

I had R 500k in an access bond then the bank blocked the account so I couldn't withdraw the money when I needed it after losing my job, I needed to survive for maybe 2 months on it so wouldn't have needed much, luckily I had a backup plan at the time

 

[carlv_52]

@cami777 Very unlucky, but not a very common situation. The bank likely doesn't even know your employment status, and generally speaking are happy as long as you remain solvent. They have no reason to block your access.

 

[rjozen]

@cami777 ah okay I understand now, regarding the blocked off.... yeah and in these trying times anything can happen not certain about anything. specially job security... Thus the big focus on the EF...

"I'd look at net income after expenses and compare to the interest you are paying."

And yes, After levies, Taxes, agent fees and all, then it is below this amount: "11.75% of R 600k +- R 6k a month"

 

[runner12]

@rjozen The personal loan has to go.
My wife and I used to have a big personal loan and when we killed the loan, we could then invest better monthly.