Anthony asks: I’m 22 and I am wondering when I’ll be able to move out the house and into my own place because at current salary requirements levels one would need to earn R25 000 a month to purchase a house valued at R750 000, which is considered an average house.
Taking into consideration that I’m studying part time and working full time, what are my other options when it comes to, not just finding my own place, but also saving money for the future? What are the best long-term saving accounts or investment opportunities that I should consider?
Maya replies:
I gather you are still living at home. Stay there for as long as you can bear it — this provides you with the perfect opportunity to save for a deposit on a place of your own. The first step is to start adjusting your lifestyle as if you already had a mortgage — save this amount each month.
This will help you to adjust to the cost of owning your own place and to build up a deposit. Currently a mortgage of R750 000 would have a repayment of about R7 300 per month. This may be a stretch for you now on your current salary but try to save as much of this as possible. If you do have to rent a place, don’t be lavish — tighten the belt and try to save for a deposit. At this age you have the most potential to save — don’t waste it. Trust me, you will regret it once you have responsibilities like a mortgage and kids!
Where to invest depends on your time horizon. If it is just for a year, then a high-interest-rate account with your bank would be sufficient. If you are looking at saving for the next two years then consider an income fund with a unit trust company that invests in various interest-bearing financial instruments and which should provide returns a few percent above cash. Stick with well-known unit trust companies — if someone is offering a rate that looks too good to be true, it probably is.
This is also the time to start thinking about retirement savings. If you start a retirement plan by the time you are 25 and save 15% of your income you should be able to retire very comfortably. The secret is to never, ever cash in your retirement plan when changing jobs. You will also benefit from the incredible power of compounding, which is when you earn interest on interest. For example, if you saved R1 000 a month for 10 years from age 25 to 35 and then never saved another cent, based on an annual return of 10%, your savings would be worth R2,5-million by retirement. If you only started saving R1 000 from age 35 and saved for 25 years, by the age of 60 you would only have R1,4-million on retirement. That is the power of compounding.
If you are looking for additional long-term savings (more than five years), then a debit order into something like Satrix or a unit trust that invests in shares on the JSE would be ideal. When selecting your investment, watch the costs, these have a material impact on your returns.
For more financial advice from Maya Fisher-French, visit her Smart Money website