Nkosana asks: I have an investment that comes to an end next year. I invest R785 each month. I do have a retirement fund with Old Mutual contributing R358 a month, which increased by 10% every year.
What will be the best thing to do with the money once it is paid out as I have a home and a car and plan to start a family next year?
Maya replies: There are several financial needs that you need to consider:
- Are you saving enough for retirement or does this saving need to form part of your retirement plan? Unless you also have a company retirement fund, your current retirement saving of R358 is not enough. Once the investment comes to an end you would need to consider using some of that monthly debit order to boost your retirement funds. You need to be saving at the very least 15% of your salary before tax.
- What is your financial strategy when you start a family? Will you be taking time off work? If you are, then you could use this lump sum to fund your maternity leave. Do not cash in any of your retirement funds if you leave your company.
- Children’s education: Educating children is a very expensive exercise; you may want to consider investing a portion of the lump sum for you future child’s education.
- Paying off the car or the house? Car debt is more expensive than a home loan so it may be worth settling your car finance, although find out if any penalties apply. Not having to make those extra monthly payments each month will put a significant amount of cash back into your pocket. A portion of this you could use to pay off your home loan faster and the rest will be quickly used up with the expense of a child!
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