Page 30 - Waterfall City Issue 1 2023

Waterfall City News

right vehicle, sufficient fuel in reserve they pass away and leave their family in equity markets, you are almost
and appropriate maintenance to with their debt, there’ll be nothing left guaranteed to destroy wealth. Many
get you there. Similarly, financial in their savings pot. investors don’t achieve the average
freedom requires the right planning, of market returns and, optimistically,
sufficient savings, sufficient reserves “Just because the bank says you can might achieve only 70% of market
and continuous maintenance of your spend 20% on your car, and 30% on returns, due to the impact of emotional
financial plan,” he says. your home loan repayments, that decisions and poor market timing,” he
doesn’t mean that you must,” Desai elaborates.
Importantly, don’t save yourself poor continues.
by saving too little, having too little Ultimately, one must diversify one’s
inflation-beating investments and “You need to make sure you have portfolio with well-constructed,
excessive debt. The worst thing you can capacity for interest rate increases in time-managed investment cash flow
do is jeopardise any savings potential your budgeting scenarios – particularly strategies. And most importantly,
by getting into too much debt. “An in the current climate of interest hikes.” advice is key.
interesting reality is that, for our size of
economy, we get the most incredible Desai advises that the point of If someone is committed to saving,
cars for sale here. One just has to drive departure should be ensuring that they are on a good wicket. The hardest
around Johannesburg or Cape Town to you have a good financial planner to thing to do, is to start. Preferably start
see this. South Africans want the best. guide you to the right vehicle for your early, following these simple rules of
And from a lending perspective, the investment journey and help coach you thumb:
limits for spending on a car or a house around temptations such as that new • Save a minimum of 15% of your
based on an individual’s income are super hatchback, or the dream house income towards retirement, ensuring
very generous,” Desai explains. you’ve just seen listed online. you have a margin of safety in your
disposable income.
In South Africa, the debt limits “It is important to ensure that you have • Save more if you’re behind on your
only apply on the required debt flexibility to invest in growth assets, retirement goals (but it’s best to start
repayment to the bank, not the capital which is one sure way to earn returns saving early!).
outstanding and not the extraneous above inflation. Listed equities typically • Manage your expenses and be thrifty
maintenance costs. For example, for return 6% to 7% above inflation over with your spending.
the average non-farm employee in SA, the long-term. Furthermore, with
a R22 500 salary will allow for a R5 000 time, these real returns compound “Importantly, save over and above
repayment on a vehicle. This vehicle dramatically. Over a 10-year period on what you’re setting aside for
will on average cost between R5 000 average you will have doubled your retirement in discretionary savings.
and R10 000 a month in maintenance lump sum capital compared to keeping This is critical for many of us as we
and driving costs (depending on your money in cash.” now suddenly see interest rates
mileage) and will be worth only 40% of causing higher loan repayment rates,
its value after five years. Desai does stress that investors should for example. Also, remember that,
be aware of the volatility that growth next time the interest rates come
With the remaining money after tax assets will bring and that one should down, you avoid being tempted to
and medical aid contributions, there expect that one needs 10 years to create more debt. Savings should
is very little left for rent, let alone reliably get the returns that equities be a lifelong endeavour, and one
savings for retirement or discretionary deliver over the longer term. should get better at it, and pass this
investments. For many South Africans, knowledge on to the next generation
when the day comes for them to retire, “By moving in and out of equity – there’s no better way than to teach
or if they get retrenched, or worse, if markets and between different funds by example.” Desai concludes.

28 Waterfall City Issue 1 2023