This feature is sponsored by PSG Wealth. Send your financial queries to personalfinance@inl.co.za
CAN I SAVE WHILE ALSO PAYING OFF DEBT?
My goal for the new year is to start tackling my debt, but I also want to save for a deposit on a house. Is it better to start by paying off all my debt first (I have a bank loan, credit card and clothing account), or can I start to save simultaneously – albeit a much smaller amount as I will not have much disposable income while clearing my debt?
Name withheld
Dulcie Weyks, Financial Adviser, PSG Wealth, Waterkloof, responds: Congratulations with this bold decision to take control of your financial wellness.
If the interest charged on debt is higher than the interest you can earn on savings, it is best to first pay off your debt. Review your statements and term agreements to find out how much interest you are charged.
You mentioned that you have a bank loan, credit card and clothing account. Based on the average rates for common types of debt, the interest charged on your credit card is likely the highest.
I suggest you start with a budget to assess how much surplus you have monthly to allocate towards paying off your credit card first. Consider channelling a small amount monthly towards an emergency savings fund to prevent you from having to use the credit card again for unforeseen expenses. If you are eligible to receive an annual bonus, try to put as much of this as possible towards your debt. I would boost the emergency fund with a portion of the bonus. Once the credit card is paid off, channel this payment towards your next most expensive debt, likely the bank loan.
An advantage of getting rid of your debt is that it will improve your debt-to-income ratio and your credit score when you apply for a future home loan.
A registered financial adviser will be able to assist you with this. Good luck and remember, it does not matter how slowly you go as long as you do not stop.
DO I REALLY NEED A FINANCIAL ADVISER?
How does an adviser go about developing a financial strategy that is tailor-made? Surely there are only so many routes that one could take to growing your finances.
Name withheld
Alexi Coutsoudis, Wealth Adviser at PSG Wealth, Umhlanga Ridge, responds: Growing your finances can be a complex and challenging task, but with a personalised financial strategy, you can reach your unique financial goals with ease and efficiency. The key to personalising your strategy is to take stock of your current financial situation by gathering information on your assets and liabilities, employment status, income sources, marital status, and any financial dependants.
By understanding your current financial standing, you and your financial adviser can then set clear and achievable financial goals and objectives. Whether it's saving for a down payment on a house, planning for retirement, or simply living the lifestyle you desire, your adviser will help you determine what you want to achieve and how much is needed to reach your goals.
Once your financial goals are established, your adviser can then design and implement a plan tailored to your specific needs and risk tolerance, taking into account all available asset classes and structuring the plan for optimal tax efficiency. However, as life changes and the financial landscape shifts, it's important to regularly review and adjust the plan as necessary.
A skilled financial adviser can guide you through the ever-changing financial landscape and help you stay on track to achieve your financial goals. They will act as a navigator, not a defender of an outdated plan, ensuring that you are always on the right path to reach your financial goals efficiently and effectively.
INVESTING IN THE FACE OF UNCERTAINTY
The future state of our economy is looking very uncertain. I am a young female and would like to start investing. I know that with this comes various risks, so I am cautious about where to put my money. My goal is to work towards long-term investments to secure my financial future. Which investments are best to buy now, as a beginner and how can I prepare myself for unexpected risks, and how does retirement planning fit in as part of this broader plan?
Name withheld
Jac De Wet, Wealth Manager at PSG Wealth Somerset West, responds: Investing is loaded with uncertainty, but if you approach it sensibly and plan appropriately, the uncertainty and risks can be managed and mitigated to achieve your investment goals.
Investing towards long-term goals generally means that investors can take more investment risk, with a greater portion of the portfolio allocated to growth assets, like shares. History shows that shares have outperformed most other asset classes over time. However, the higher the expected return, the higher the potential risks and volatility, particularly over the short term. You can prepare yourself by understanding that it is often more important to manage your behaviour and emotions rather than your investments.
Investment products you may find suitable for your needs include (and I focus on investment products designed to benefit you over the long term): retirement annuity (RA), tax-free savings account (TFSA), voluntary investment, or share portfolio. These products all have underlying funds, or other investment instruments. This is where your money is actually invested.
Since you are young and have a long investment horizon (and assuming your risk tolerance allows it), it could be beneficial to invest in as many growth assets as possible in the underlying funds or investment instruments.
Retirement planning is an important aspect that is often overlooked, and very few people actually have enough to retire comfortably.
There are various investment vehicles available to invest for retirement. You/your employer may be investing in a pension or provident fund for you. If you are not contributing to a pension or provident fund, you can make use of an RA.
By contributing to an RA, investors can take advantage of the tax deductibility of the contributions, subject to various rules, regulations and limits.
Another long-term savings vehicle is a TFSA. All the growth in this investment happens tax free. Investors are allowed to contribute a maximum of R36 000 per tax year and R500 000 over their lifetime, to a TFSA.
While we can give you some insights as to what investments are available to you, the information provided in the question is not sufficient to give proper advice. When starting your investment journey it is always advised that you speak to a qualified and trusted financial planner to assist you.
TRAVEL INSURANCE: HOW MUCH IS ENOUGH?
The travel bug has bitten me and I’m itching to travel during the next month or so. It has, however, been a while since I last travelled (due to Covid-19 restrictions) and I’d like to know exactly what I need when it comes to travel insurance. Can you help?
Karen Rimmer, Head: Distribution at PSG Insure, responds: While some banks provide complimentary travel cover when airline tickets are bought using a credit card, these policies usually only cover a specific scope of travel expense, which focus mainly on limited medical cover and won’t account for events such as baggage loss or cancellation costs. It is therefore recommended that you take out additional cover as a “top-up” to cover other eventualities and particularly sufficient medical cover.
A comprehensive travel insurance policy will even cover the cost of airlifting should you need to be transported by helicopter to the nearest hospital. The latter form of cover is particularly important in instances where you are embarking on trips to outlying areas or regions that are difficult to reach via vehicle. This includes hiking or ski trips as well as island visits and sea voyages. With that said, it’s recommended that you talk to an adviser ahead of time and discuss aspects such as your itinerary, whether family members are accompanying you and any illnesses that need to be taken into account when selecting cover.