Budgeting for a wedding

2014-11-30 19:00

Mary writes: I will be having a traditional wedding and renewing my vows next December. I am planning to save my November bonus.

The bonus, together with my stokvel money, equates to almost R40?000. Where can I invest this money over the next year in order to finance our wedding?

Ayanda Ndlovu, financial adviser and the KwaZulu-Natal regional head for Liberty’s emerging consumer market, replies: You do not want to take a risk with the money over such a short period, so consider a fixed deposit account at the bank, where you should get about 6.25%.

What is really important now is creating a budget, and working out what the wedding will cost and how much you can afford to spend. Remember that you and your loved one share a common goal – a memorable wedding day that is also affordable.

Stick to the budget and avoid borrowing money to cover your wedding costs. You don’t want to start your married life drowning in debt that you incurred for your wedding.

You should start consulting a financial planner as a couple when you start planning for your wedding. Your financial planner needs to know your main goals as a couple. This is particularly important in order to avoid conflict later on. Finance is one of the crucial sticking points in wedding plans, which can cause tension between the engaged couple as well as their families.

Money is generally a difficult topic in any relationship, so starting on the right foot and having these discussions before you get married will benefit you throughout your marriage.

How to invest in dividends

Sidwell writes: I read an article titled “How to earn income from shares” in City Press on November 2. I’m ­currently one of the many people who in fact invest in shares. Investing in shares is easily accessible. One can do this through a stockbroker or via online ­trading. I would like to get involved in investing in ­dividends, but have no idea how one should go about doing this.

City Press replies: Dividends are a natural result of investing in shares. It is just a ­different investment strategy.

Share “trading” is typically where one is buying and selling shares in companies based on where you think the share price will move to. You would not necessarily hold the shares for very long.

Share “investing” is when you buy shares in a company with the view to holding them for the longer term in the belief that over time they will grow in value as well as pay a ­regular ­dividend.

You could continue using your online stockbroker, but you would start to build up a share portfolio with the idea of earning a dividend income off it in years to come.

You might find that you start moving away from smaller, more volatile, shares to the “stalwarts” like Tiger Brands, Vodacom or Spar, which are large South African ­companies with track records in paying out good dividend income.

Investing a lump sum near retirement

Themba writes: I have just sold my home for more than R1?million and would like advice on how to invest the money in a responsible way. In December this year, I will also be receiving payouts from my investments in MTN, Sasol and Southern Sun, and should receive a further R300?000.

I am 60 years old and have been self-employed for about 20 years.

I would like to give a portion of the money to my son to buy a flat for himself.

City Press replies: Considering you are now 60 years old, you need to first consider your own retirement plans. This R1.3?million should all form part of a holistic financial plan.

Only once you know your own retirement is secure can you afford to consider giving your son this money.

Some parents give their children a lump sum from their retirement money, hoping the children will in turn support them in retirement.

This is not a fair arrangement.

Firstly, there is no guarantee your child will be able to support you and, secondly, many retirees overestimate the income they would receive from a lump sum and put financial pressure on their children.

For example, R1?million would generate an income of about R5?500 per month, yet the costs to provide for a parent might be far greater than that.

Rather have your own retirement plans and do not become a burden on your children – that is the greatest gift you can give them.

Another scam afoot

Ndivhuho writes: How do I find out whether a company by the name of It Makes Cents, a division of World Loves a Winner (Pty) Ltd, is legal? They claim to be a registered agent with Telkom.

City Press replies: It took about 30 seconds to set off our warning bells. Firstly, they have a tab on the website that says “too good to be true”. If an investment has to address that issue, you can be sure it is indeed too good to be true.

Furthermore, when justifying it is not a scam, all it does is give examples of amazing inventions that have nothing to do with the company and investing. The investment promises to give unrealistic returns – promising R100?000 off a R25 000 investment.

If Telkom was able to get those kinds of returns, its share price would be much higher.

Just because it says on its website that it is registered with Telkom Mobile does not make it true. You can be sure this is a pyramid scheme.

Paying off my bond

Sego writes: I have R100?000 from my pension fund, which I cashed out last year. I am 30 years old and have a retirement annuity I took out recently. Should I use the R100?000 to pay into my bond?

City Press replies: It is a pity you cashed out your pension fund as you have now paid tax on the amount and have less money to retire on.

In terms of replacing your retirement funds, make sure you increase your monthly retirement funding to 15% of your current income.

If you continue to maintain that level, you should have sufficient income for retirement at age 65.

If you do not have any expensive short-term debt, it makes sense to put the money into your mortgage.

The key is to continue repaying the same monthly instalments you currently pay.

In that way, you will settle the bond quickly.

Diversifying investments

Levy writes: I have saved R190?000 and intend investing R20?000 in the Satrix MSCI World Equity Index Feeder Fund, R20?000 in the Satrix Top 40 Index Fund and R10?000 in Satrix Balanced Index Fund for five to 10 years. I would also like to know what funds to invest in for income.

City Press replies: It looks like you are diversifying across too many funds. This will lead to increased costs and admin. One offshore fund and one local fund should be sufficient, so you need to choose between Satrix Balanced and Satrix Top 40.

The Satrix Balanced Fund will have exposure to bonds, cash and property, while the Top 40 would only have exposure to shares, specifically the 40 largest South African companies.

Technically, the Satrix Top 40 should outperform the Satrix Balanced Fund over 10 years as equities are growth assets, and outperform cash and bonds over time. But in the shorter term, you will experience more volatility (price movements) in the Satrix Top?40. If this makes you panic and disinvest, rather opt for the Balanced Fund, which would give you a smoother return.

If you are building up the portfolio to generate an income in 10?years’ time, you could consider a fund like the Satrix Divi, which invests in funds paying a higher dividend yield.

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