Thinking about how you are going to spend your money when you haven’t yet started earning any seems like putting the cart before the horse. However, if you’ve been earning money for a while you probably have monthly expenses that are difficult to account for. Why is that we can plan every other aspect of our lives, but our financial decisions are often without direction.
In our first ever recording in front of a live audience, Simon and I discuss how to create structure around your salary. We explain, once a again, the five financial concepts that will enable you to make a good financial decision every time. To recap, they are:
We discuss the expense categories that will apply to most of our finances. First, you have unavoidable costs to keep yourself alive. Secondly, you have a bunch of costs that you can avoid in the short-term, but that will benefit you in the long-term. Next, you have costs that can improve your quality of life. These are the perks. Finally, you have costs that you can’t avoid because you are part of the formal money system. We’re talking here about banking and brokerage fees and interest.
While the first and third categories tend to capture our imagination and the fourth is mostly ignored, our future financial security depends on the second category. Keeping your costs low in category one, three and four frees up money to really help you secure your future.
We argue that your bank account should tell a story about your values. If you don’t know what you want your money to do for you, you’re going to end up spending it on things that don’t matter to you.
When you wonder about what you want from your money, there’s no such thing as a wrong answer. If you want to travel the world with your money, you should. If you want to retire in ten years, write that. If you want to spend your money on your hobby, that’s good too. Once you have taken care of your future self through long-term savings like retirement and tax-free savings, your bank account should reflect what is most important to you.
Finally, we are so grateful to Marc Ashton and the Moneyweb team for the opportunity to speak at the expo and get a chance to interact with all of you. Thanks for stopping by and making our morning a success. Congratulations to Ernst Jordaan for being our first IRL win of the week.
Kris
In the current political climate it’s not surprising that we get so many questions around moving money offshore. This week’s episode was going to be about moving pensions abroad, but offshore exposure in general ended up dominating the conversation.
First, we talk about taking your pension fund with you when you emigrate. The good news is that it can be done if you’re not already taking a pension. The bad news is there’s no way to avoid paying tax. Next, we talk about tax on foreign dividends and finally we get to how much offshore exposure you need in your portfolio.
We land, if you’re too impatient to listen, on having much more offshore exposure than local exposure. Think 80-20. The question for a returns junkie like me remains how to work out how much of my offshore exposure should go towards developed markets and how much to emerging economies. I like the idea that there’s a lot of room for upside in emerging economies. It would be naive to assume those economies can only go up, however. The higher returns come at the expense of stability. How do I know how much risk to take?
We also explain how an ETF can be a feeder fund and talk about unitising your portfolio. The spreadsheet we mention can be found here. Information around unitisation is here.
Remember that we’ll be at the Money Expo this Saturday, 29 July. Between 9:00 and 10:00, Simon and I will discuss how your paycheque should be structured. It’ll be a Fat Wallet-style conversation, with the added bonus that you can ask questions. We look forward to meeting everyone!
You’ve probably noticed that we’re aflutter about the new Satrix ETFs. International index-tracking offerings on the cheap is pretty much the reason we get out of bed in the morning.
Investors have a chance to get their hands on these ETFs before everyone else in the initial public offering (IPO). In this episode we figure out what the upside is to getting in before the products list.
Find our episode on private placements here.
When companies list, a limited amount of shares are issued and allocated during the IPO. If the share price rallies after a listing, investors who get in before everyone else have nowhere to go but up. ETF units, on the other hand, are created as people buy them and priced based on their underlying value. Aside from not paying a brokerage fee, buying ETFs on IPO is the same as buying them at any other time.
We mention Stealthy’s post on cost comparisons for the new ETFs. You can find that here.
Mike pointed us in the direction of an early retirement calculator. Find that here.
If you’ve been hiding money offshore, you have a grace window to own up to SARS. That site is here.
Kristia
I had to fight the urge to throw my laptop away and run for the hills when I read Jurie Lombard’s mail this week. This is not Jurie’s fault. I’m overly-cautious when it comes to debt - once bitten and all that.
However, I’ve also wondered about using my portfolio as collateral to borrow money. Borrowing can be a powerful way to create wealth. People who swear by property often cite the ability to use existing capital as collateral to acquire more capital as an upside of the asset class. As Simon points out in this episode, small business owners also often borrow start-up capital to create more capital. Why should our share portfolio be exempt from leveraging?
In this episode I try to push past my discomfort to figure out how to leverage a portfolio smartly. Simon did this excellent seminar on risk and leverage. In the video he’s talking about contracts for difference (CFDs), but the principles hold true for borrowing against your portfolio.
The biggest risk we could identify is some sort of market crisis. If the value of your portfolio drops overnight, you can expect a margin call in addition to watching your portfolio getting klapped. That’s not a good day at the office.
The product Jurie was asking about can be found here.
Last week Simon challenged Stealthy to create a spreadsheet. Of course, Stealthy already had the spreadsheet. Download it here. At my current savings rate, I will be financially free in just over 16 years. If the market did what I wanted it to do when I started, I’d be a bit further along by now, but we accept what we can’t control and then complain about it bitterly on our podcasts.
Medical students, interns and professionals, check out this blog. Thanks to Alexis for sending it along.
Lastly, by the time you read this I will be on holiday. That means there will be no Fat Wallet Show on 10 July.