Young Adults Finance Talk

1. Young Adults Finance Talk 08 April 2014

2. Marshmallow Savings Test

3. I don’t earn enough to save: • I don’t earn enough to buy my own property • I am young and healthy and don’t need insurance: • Retirement is for old people: • I will pay off my student loan at a later stage: • Finance is for big people: • I wont qualify for a home loan: Common Young Professionals Mistakes

4. South African Statistics

5. South African Statistics

6. South African Statistics

7. South Africa Prime Overdraft Rate • Prime Interest Rate is the interest rate that commercial banks utilise when issuing interest rate loans to applicants. • Current Prime Interest rate is 9%

8. Diet vs Eating Plan • Budgets have a strict control (less flexibility) • Spending plan = Guideline • Provides flexibility • Efficient allocation of money • Indicator of money availability • Maintain control of expenses • Debt control Create a New Budget Spending Plan

9. Gain control of your own finances • Get out of / stay out of debt • Create a nest egg for unforeseen expenses • Resist the urge to spend impulsively • Achieve goals that you have set for yourself • A step towards Financial Freedom Advantages of a Spending Plan

10. Spending Plan: Total Income

11. Spending Plan: Expenses

12. Spending Plan: Expenses Cont.

13. Spending Plan

14. Spending Plan *Savings

15. What you spend vs What you earn? Balancing Act?

16. Rule of Thumb

17. Rule of Thumb As Debt Savings

18. What you spend vs. What you earn? Balancing Act?

19. Good Debt vs Bad Debt

20. Good Debt Bad Debt Vehicle Finance Depreciates in Value Not an Asset Overdraft High interest rate Credit Card High interest rate Store Account Very high interest rate • House: Bond • Long term investment • Wealth and Asset Growth • Appreciates in Value Debt Pay off the Bad Debt (Quick Money) ASAP = Can cost up to 20% more in interest Don’t miss any intalments = Negative Credit Rating If you cant pay the full installment, speak to the company to make debt payment arrangements Consolidate all debt and repay one amount monthly

21. Value Added Option Products Negotiation Negotiate a Salary increase at Interview stage Negotiate Interest Rates Price of What you see is not necessarily the price you have to pay…… Shop around Internet Purchasing Be Indian & Bargain Purchase Coupons Checkers (Mobile App) • Bank Rewards Program • FNB (Ebucks) • Standard Bank (Ucount) • Benefit Programs • Multiply (Gym discounts, Etc.) • Discover (Gym discounts, Etc.) Financially Fit and Money Wise Every bit of savings count

22. What to do with my savings?

23. Common mistakes • Savings Account • Low interest earning account (+/4%) • Inflation (+/-5.9%) • Interest earned – Inflation = Interest gained = -1.9% • Your money is therefore depreciating year on year due to Time Value of Money • R100 today is not worth a R100 next year this time, due to factors such as inflation and the exchange rate. What to do with my savings?

24. To Consider Investment Vehicles Unit Trusts Shares Property Fixed Deposit Remember: Interest earned > Inflation Rate Time Value of Money • Build up an emergency fund • Do not use a general bank account • Inflation Eating Effect (5.9%) -IEE • Unit Trust/Savings Acc (Interest Rate > 5.9%) • Retirement Planning Investments

25. Principle Numero Uno – Invest for the Long Term • Warren Buffet • Diversify your portfolio Investing

26. To Buy or To Rent? Housing

27. Advantage Factors to Consider Maintenance of the property Additional costs such as rates, taxes, insurance and possibly levies. Long term investment & commitment • Ownership • Long Term stability • Cornerstone of Financial Plan • Good start to life & family raising • Your House • Long-term Saving Commitment • Long-term Investment • Retirement Planning • You don’t want to be paying off debt or rent when you are retired. • Once the Debt is repaid, the monthly bond repayment becomes savings • Interest not paid is more tax efficient than interest earned Buying a House

28. Advantages Disadvantages Rent paid is seen as an expense Rent paid won’t be seen again Any investment in the house will be at your own expense If ownership is changed, then what No Asset Wealth creation • Most cases lower than bond repayments • Start saving differential as a deposit for a house • Flexibility to give 30 Days notice at end of rental contract Renting a House

29. There’s a general shortage of residential rental properties and as a result, rent is rising - an average of 10.8% last year, according the latest figures from PayProp. As such, many young tax-payers are finding that monthly repayments on their own property are lower than rent. - Chas Everitt Opinions

30. Renting Currently: Start saving for a Deposit • Benefits of a Deposit: • Reduces the Interest portion of Home Loan repayment • Reduces the Risk towards the Bank & More credibility in application – Greater Affordability • 100% home loans are not 100% guaranteed • Can be difficult & Depends on your financial situation Deposit

31. Your not restricted to a city/town if you have bought a house. • Could be used as an investment property • When applying for your next property, utilise the lease agreement as additional income which could offset the bond of the investment property • Strategy should be purchase your residence property and pay it off. • While gaining access to additional funds, build up your property portfolio. • Use other peoples money to pay off your bond • Use other peoples money to build your asset base… Property Portfolio:

32. The earlier you start the better, due the compound interest effect. • Pay off your bond as soon as possible: • Put a portion of your increase into your bond. • Strategy to every year add 10% of your salary into your bond: Property Portfolio

33. Process of Home loan House Purchase

34. Bargain Tip: Buying directly from the Seller cancels out the middle man & therefore bargain a better price as a commission is earned by a property agent. Appointed by the Seller to transfer the property into “Your Name” Appointed by the Bank for the Granting of the Home Loan Parties Involved Appointed by the Bank for the cancelling of the Home Loan of the Seller

35. Homeowner Home Work

36. Choose your Home & Location, Location, Location:

37. House Hunting:

38. Make an Offer:

39. Apply for your Bond:

40. Proof of income: your latest salary advice. If you earn commission or overtime, provide the latest 3 salary advices Latest 3 months personal bank statements • Personal Assets & Liabilities Statement for loan amounts over R1 500 000. • Copy of your ID document (for both applicants if applicable). • Copy of Marriage Certificate or ANC Contract (if applicable). • Copy of the Purchase Agreement.* • Latest 3 months bond statements.** • Latest rates/Levy Statement/Utility account statement.** Documents Required Easy as That…

41. Transfer Process Begins:

42. You’re a Homeowner:

43. Affordability: not the amount of money you earn, but how much you can afford. • Fixed vs. Variable Interest Rates • 100% Home Loan vs 80% Home loan • Saving for a Deposit • Banks will also look at your credit record • Additional Costs: • Attorney Fees • Transfer Fees • Water & Electricity Account Deposits Important Factors in a Homeloan Application

44. Prime Interest Rate fluctuates and correlates to the Repo Rate • Repo Rate • Any change to the repo rate results in a change in the Prime rate • Which therefore affects the homeloan • High Risk loans = Higher Interest Rates • E.g. Credit Card, unsecured loans • Low Risk loans = Lower Interest Rate • E.g. Home Loan, Vehicle finance Interest Rates 101

45. The Bank looks at an applicant’s: • Income & Expenses as well as funds left after all expenses have been paid to work out if the applicant can afford to repay the loan or not. • Affordability refers to the applicants ability to honour their obligation within the homeloan agreement to repay the homeloan amount granted by the bank, through monthly instalments which includes the interest rate over a set period. • Use an online Affordability Calculator for a rough estimate – All bank websites, as well as fin24.com or property24.com Affordability

46. Home Loan Example

47. Home Loan Example

48. Bond Terms Attorney Costs Home Loan Example

49. Purchase a Property as young as possible • Earlier in the property market = more time to repay. • Long Term Investment • Look for Bargains • Stay within affordability range • Stick with starting out small…. • New Developments: • Less Maintenance in early years • Can benefit form no transfer fees • Purchase another Property for rental income • Use this rental agreement to gain access to another home loan. • Use other peoples money to build your assets. Housing Summary

50. Interest Rates are still relatively low • Housing market is still in the buyers favour • Nelspruit has a large demand for property • High Demand for Rental Property • Housing Prices in Nelspruit has shown year on year increase • Nelspruit is one of the fastest growing cities.. • Better to jump in while prices are low & affordable • Eg. Think of what your parents paid for their house in comparison to what the going rate for that same property is today. • Diversified Province and therefore significant opportunities….. • Tourism & Business Development boom Market Analysis: Nelspruit