A Car is Not an Investment

A Car is Not an Investment

We all know that a car is NOT an investment right! But why do we continue to treat it like one? I am learning to unlearn all I learnt about car ownership in the past. We were a one car family for a very long time. And most of my friends were bugging me about not owning my own wheels. Being in South Africa where everyone owns or at least wishes to own a car, and all. I wonder why friends never ask if I'm investing for retirement for a change. That would be a better concern.

Oh well, I managed to buy myself a car 5 years ago. I did so much research. I knew that I don't want a new car, I don't want a car that has covered a lot of mileage, I don't want a very old car. Most importantly, I didn't want a car INSTALLMENT. And all my wishes came true. There I was at the dealership of choice, picking and choosing. I ended up with a 1.8 litre car, 5000km mileage, same year model, and parted with R170,000. And I negotiated it down from R175,000. It gives me goosebumps just thinking about it. I was very proud of myself. Sacrifice does pay off.

Lets look at the figures. Based on the high interest rates at the time I would have paid just below R5000 per month over 5 years and just above R255,000 total payment over 5 years. Typing it alone sends chills down my spine. And indeed after 5 years I had an itch to buy another car. There's a whisper in my ear that says, "your car will start giving you problems". There was that whisper until I read an article about the guy who drove his car for 16 years. His car was bought used. I brushed the edge to splash on another car immediately. I guess I can keep pushing for another 5 years. This guy understood that a car is NOT an investment and focused on things that matter. In year 13, his car started giving problems. He fixed it for R7000 or so and continues with the ride. I know you think its too much, but he rightly justifies the cost by his lack of an installment. He just put aside R7000 per year for similar repairs going forward, saving the equivalent of the installment for another car. The most that he paid in repairs in the last 3 years of his car's life was R2800 per year. By the year 16 he bought himself another car, CASH, using the car fund that he opened for such.

Now back to me. This is my 5 years of driving my car, and my first year doing so without the warranty. That used to scare me. What is stopping me from starting a car fund, saving the R5000 - R7000 that I would pay for a car installment in that fund. I refuse to spend more than that on a car installment by the way. I can even invest that car fund whilst learning online investing. And since its a longer term project, I would reinvest all my dividends and do what is termed drip investing. It would be interesting to watch the money piling. YES, I am that positive. And I suspect that with a mileage of just above 100000km, I will have a great 5 years and another 100000km. Paying for service will be a pain, but a better pain compared to a car installment. I think.

How do you finance your cars? Do you save for a high deposit to reduce the monthly installment? Do you buy an older car for cash? Do you just do without a car, PERIOD?

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Beginners Guide To Investing

Now for an opinion only beginners guide to investing for inspiration:
I happened to bump into one of the big four banks’ pages on Facebook. They challenged their followers to inspire others on turning budgeting into a habit. Those who have succeeded in making bugeting a habit started sharing their tips. A young person started:

I don't have a car and haven't started paying for my new home loan. In preparation for these financial commitments I save 30% of my income equating to two monthly homeloan installments, I save another 30% which equals to a car installment, I invest 10% and live on the remaining 30% which covers my current living expenses.

Its public knowledge by now that I try to live below my means but this young man/ woman is a hero. I have never lived on 30% of my income. The best that I achieve is living on 45% in one given month every once in a while. A friend of mine told me that she lived on 25% of her income a few years back. I must say I was more than impressed. Like me, my friend loves money market investing and rental property.

What better way to test if you are ready for home ownership than saving an equivalence of the bond’s monthly installment. Even better, save two monthly installment per month like the guy in the forum does. This doesn’t require any training, just an old fashioned discipline. For a young person, I would have expected some stocks in the mix. Standard Bank used to offer some beginner stock market investing courses. That may help.

However, low risk-low return products usually offer safer investing opportunities that we are mostly comfortable with. In that case saving in money market accounts, investing in index funds, etc. are the way to go. Pay up your debts, cut back on your living expenses and start saving towards your goal. Your goal could be investing for retirement, buying a home, a vacation or children education. The only way is living below your means.

Our Beginners Guide To Investing Goes:

1. Monitor and reduce your monthly bills by monitoring your usage of electricity and water consumption
2. Draw your own personal finance plan. Start at your goal eg. Increasing passive income, buying a house, paying up your home...
3. Budget and stick to it. You may work on living on 50% of your income. Its quite possible if you are committed enough. If not, 80% can be low enough to give you a saving space. 
4. The 20% or 50% that you don’t use should be saved and invested in income earning products. This could be shares for dividends, banks' interest bearing accounts and unit trusts for interest, property for rental income, etc. Draw a plan on that too and make sure its diversified. 
5. Avoid excessive shopping and impulsive buying. Differentiate between needs and wants. Some things are just not necessary. Rephrased, MOST things we spend on are not necessary at all.

Its feels great not doing as the Joneses do. Its my life, not a contest. Financial freedom is worth depriving myself now so that I do as I please in future.

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Cost of Security in a Property Investment in South Africa

Cost of Security in a Property Investment

I live in South Africa, OK! I invest in property and I sometimes feel that my investments are under threat. Whilst I am very positive about the future, I am definitely not in denial.

In my previous post I wrote about how my levy dropped a whooping R130+. But today is another day and I am writing about how my net income went down due to high security costs. It’s like a rolling wheel. You get one step forward and two steps backwards. But the long term the graph is moving upwards.

A while back I decided to get rental property in the security/ residential/ gated estate. I still think it’s a wise move because many South Africans like the idea of living inside an estate. I never have vacancies in the unit but the returns on my investment are horrid. The truth is… I bought this property as my own home. It became a rental unit when I moved out. I doubt if I would buy it for rental purposes. I have owned this unit for 6 years now. In the 6 years I haven’t heard of an attempted break in into the said estate until May. After that I got an email on break ins in 2 houses in the estate. Scary right???

There are a number of factors that put us at risk at the moment...
There are a lot of commercial developments in the area, making the estate very vulnerable to opportunists. It’s easy for criminals to hide in empty buildings and construction sites, etc.

Being an estate proves to make it easier for criminals to do their business. They may have inside help or worse, buy property to be part of the community. That way they can learn the ins and outs. Actually, even before they learn ins and outs, it may be far easy for them to get assets without breaking in. My friend, for instance, has a tendency of sleeping with first floor doors open in summer. We’ve always believed that we are far safer than we actually are. And yes, criminals don’t struggle to break into estate houses because of this relaxed attitude to security by the residents. We put too much trust on the manmade systems.

Safety Doors
You would think that we are relaxed because we have trellis and security bars in our doors and windows…NOOOO we don’t. In my case, that’s about to change. I am going through my security door quotes for the ground floor. My tenants are very happy to pay more for extra security. But I must say, my income will be hammered by the +/-R15000 this will cost. Why does everything have to cost this much?

More Estate Costs
The estate is also taking this matter seriously, as it should. And their seriousness costs a lot. We had emergency levy of about R1000 when we had an attempted break in. When the actual break ins occurred, the paranoia grew stronger and fast. I’m scared of what will be required now. Worse, guests may be required to strip naked when they visit residents.

Alarm Systems
It looks like we are back where we started. When we lived in a stand-alone house we had burglar proofed our home to a point of feeling imprisoned. Burglar bars, alarm systems and locked doors 24/7. We paid premium with the hope of feeling a little free, and now, we are back where we started. We need alarm systems. How sweet. And we still pay premium for “safety”.

As if this is not enough, a couple of months ago we had a few break ins in the complex where I have duplex. Tenants and owners who live there were in such a panic that we had to get security guards immediately. We later had to formalize this and increase the levies by about R500. That’s a lot of money. It’s a low income area. I raised the rental by R300 for this unit, meaning that I have a R200 decline in net income, plus inflation. 2012/13 will be a lower income year in this unit in real terms.

Whats your experience on the cost of security in a Property Investment in South Africa? Is property investing still worth it?

photo by: Christopher Barnatt

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MY LEVY DROPPED

Residential Estate Entrance

Shocking, I know, my levy dropped by R136 for real. I was in shock. I have bought into the sectional title schemes from the year 2001 and I never got a letter that I received last month. At the best, my levy remained the same.

In reality, no favour was done for me and other homeowners. We paid more last year, thats all. The units are relatively new, and therefore require minimal maintenance. Most units are still owner occupied, which helps with the damage to the property. Owners take care of their investments than tenants in most cases. Knowing that its my money coming back didn't stop me from jumping with joy as I read-

During the recent meeting of the Trustees, the budget of the HOA was discussed in detail. It gives great pleasure to announce that the Trustees resolved to decrease the levies from 1 July 2012 as follows…

As usual I was scanning through the letter rushing to the bottom line. How much more will I have to part with exactly??? Geez, a decrease in levies, of more than R100 nogal. My guess is that we had excess in our savings/ scheme funds. These can’t be refunded to the owners according to the law, but can serve as a subsidy for future levies. And YES, I didn't attend the meeting, I was traveling.

Not to dampen this moment of excitement, but I have to mention that my security costs are shooting way up in two of my units. I’m installing trellis in one and paying about R500 extra levies for security guards in the other. When will this craziness end good Lord?
 
More on Levies or Homeowners Association Fee
A levy is an amount of money paid monthly by owners of sectional title residential property to themselves as a collection/ organisation. The levies are used to maintain and improve on the property. In South Africa the HOA fees or Levies, as we commonly refer to them, are quoted calculated in accordance with the participation quota for their unit which is usually according to the size of the property. Levies used to pay for Municipal rates and taxes among other things. Each owner pays the municipal rates with the municipality and pays the levies for the management of the sectional title scheme and:

• Water and electricity used on the Common Property
• Waste and Sewerage
• Insurance premiums
• Repairs and maintenance of the Common Property
• Wages and salaries of the cleaners and other staff
• Security
• Savings fund for unexpected expenses

Levies can be required for Free Standing properties in gated communities and boomed off areas. That is for security and we know we need a lot of that. In my next post I will write about the cost of security for property investors in SA today.

With the new comfortable lifestyle, our levies also cover:

• Swimming pools,
• Tennis courts,
• Community clubhouse
• Neighbourhood parks and water features
• Children play areas
• Garages, gardens and parking areas 

It is possible for Home Owners Associations to actually go bankrupt. In that case, it may be liquidated. This is a reason prospective home buyers should always investigate prior to buying into the sectional title scheme. Whether it’s a rental unit or for their own use.

You should also investigate the levies to determine the affordability. The levies are just very high these days. That’s due to the cost of security. I pay up to R2500 for some units. This is inflated by security and the municipal rates and taxes.

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Nedbank: the Best Bank in South Africa

Is Nedbank: the Best Bank in South Africa? Apparently YES, that according to the global banking publication, Euromoney International Finance Magazine. And they scooped an award at the 2012 Euromoney Awards for Excellence Dinner in London. The stamp on their victory for being named the South African Bank of the Year for the year 2011 by the Banker Magazine and Sustainable Bank of the Year for Middle East and Africa for 2012 by the Financial Times and International Finance Corporation. Well Done to them.

Praising South African banks' profits wears me down. It reminds me of the crazy bank charges and numerous penalties and high interest rates on debt, etc. But what can we do, the bank has done well regardless of how I feel. We can only make sure we get a piece of those profits through the JSE or investments and savings. The figures confirm that Nedbank did extremely well regardless of the global crisis.

“It was a good year for South Africa’s banks. Bad debts were largely already cleared; percentage profit growth at the big four banks was in the twenties.” said Clive Horwood, editor of Euromoney. We are off course not surprised. Nedbank reported a 26% growth and a 15.3% return on equity in 2011. Nedbank is further praised for investing in its staff. Thats great, I think.

The chief executive, Mike Brown must have been over the moon when he said, "We pride ourselves on being a world-class financial institution and are deeply honoured by this award... We continue on our journey to become a great place to work, a great place to bank and a great place to invest.” *touching*.

I guess you and me don’t care about Nedbank being named the Best Bank in South Africa or their profits, losses and amazing profits. What we want to know is what this means to us.
What we should be doing is investing in the banks to get back our charges and some more. Crying about it will never help. Like I always mention, my Nedbank Just Invest gives me great interest. My small Nedbank shares give me great dividends. You should be investing where your money is taken too.

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2012 Mid Year Goal Review

Its 2012 Mid Year Goal Review time already, SO UNBELIEVABLE. Time flies.
The emergency fund and the small girl's bursary that I give are the highlights of the past semester. I had 2 bad months and the rest of the time I was a great girl. I will actually revisit my goal setting. I don't think I need most of the goals I have here anymore. Blogging makes it so much fun trying to keep on to my goals.

2012 PERSONAL FINANCE GOALS

1. Online income to R5000 per month by December 2012. This will take some work in my writing. I expect to spend at least 1 hour per day writing. - PROGRESS...
2. Maintain at least 12 months expenses worth of an Emergency Fund. - 131% DONE
3. Spend an average of 50% of my net income or less. - PROGRESS...
4. Maintain giving of about 10% of income- DONE SO FAR
5. Buy a new rental property. Changed my mind. Changed my mind again - PROGRESS...
6. Remodel the duplex that we have put off the market. Prepare that property for rent by the end of 2012, when we no longer need to use it. Remodel the bathroom in a two bedroom property.
7. Push for 70% equity on our home by December.
8. Get retirement accounts to 45% of the target
9. Get stocks to 55% of the current target. This is the most important personal finance goal for me. All my wealth growing energies are on this in 2012..

2012 HEALTH GOALS
My PCOS is in control. I am on a special diet. I lost 13.5 kg in the 6months or so. YAY
Exercise 3 times a week - FAIL

2012 FAMILY GOALS
Holiday in the Mediteranean Europe with hubby in 2012. MIGHT BE DUBAI
Spend great amount of time with my family. - DONE SO FAR
Visit my parents for at least 2 weeks.

CAREER GOALS
Get training in some media form. This can be online.

HOBBIES, ETC
Read at least one book per month. 
Finish all my unfinished home and craft projects. 
Volunteer in charity as much as I can. GAVE A BURSARY TO 1 CHILD & MORE

Have fun whilst doing it all. INDEED I AM HAVING LOTS OF FUN.

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Monthly Spending and Budget Report-June 2012

My monthly spending and budget report for June 2012. It makes me glad to report on the highest income month this year. I had above R13,000 online income. I decided to only claim my online income when its above R10,000. It takes me 2 or 3 months to get that. I am happy with my online income for now. I am happy with my Nedbank JustInvest interest. I am happy with my property income. I am totally unhappy with my dividend income. I am working on it seriously though. Hopefully my discipline will pay off.

I’m not confident enough to continue picking stocks and want to go the Satrix Divi route. I am a beginner stock investor and should behave like one. I will get lower returns with the Satrix fund than if I picked the best individual stocks. However, I ma pick the worse stocks too. But the Satrix Divi is a good mix of stocks that are expected to perform well. Some will perform well but some may not. I am banking on the benefit I will get from the great performing ones. What I want is a boost in my monthly income through higher dividends. R5000 per month would be amazing. Below is my budget and spending in percentages.

My June 2012 monthly spending and budget report:

INCOME	% OF TOTAL	NOTES
Real Estate	36%	Down from 59% last month. I like it when my rental properties are contributing a lower percentage. This is partly due to my online income and to a lower extent, preparing one rental unit for tenants.
Hubby Allowance	24%	This is not so necessary but I like it.
Once off	2%	Interest free loan repayments by a friend.
Online	35%	This is not for 1 month. I keep a hold on my payments for 3 months or more.
Extra	3%	Interest on my Emergency Fund. Dividends were ZERO again.

On the expenditure front: we had a nice and short holiday. It started with a trip to my in-laws and ended with a short trip to Gauteng. What a cold piece of SA. It was so refreshing though.

ITEM	%OF INCOME	NOTES
Real Estate	15.8%	1 mortgage & taxes/rates.
RA & Unit Trusts	5.5%	Fixed
Online	2.6%
Internet/ Phones	2.9%	Broken 3G cards, contract upgrades, etc, very costly.
Consumer	12.5%	Groceries, personal care and all that jazz.
Withdrawals&Fees	0%	Great
Giving	13.8%	Part of this is an interest free loan to a friend.
To Invest	47%	A huge part of this went to my homeloan. A small part went to my Just Invest. I am thinking of dumping the rest on the soon to be opened Satrix Divi.

It’s been a great month. I have an opportunity to get back to work after years of a break. That's very confusing. Most of my investments are 100% passive, justifying my going back to work in a way. This is more so now that I decided to give all my properties but one to a property manager. Hiring a property manager makes a huge difference when you don’t want to run around fixing tiny issues.

This is the second semester of 2012. The first half of the year is gone. We are given an opportunity to do better. The question is: are we gona take that that opportunity and do right with our personal finances this round.

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