In this podcast, Maya and Moroka Modiba, author of Think Yourself Rich, discuss how newlyweds should start managing their finances together, why a household budget is important, and the shared goals that need to be discussed. Moroka also unpacks the various investments that newlyweds should consider based on their investment time horizon.
Short-term goals (0 to 3 years)
Emergency funds: Make sure you have at least R15 000 to start in your emergency fund and work on building that up over time to at least three months’ worth of expenses.
Product: Money Market fund or bank savings account. The money needs to be accessible at short notice.
Baby on the way: You will need funds to cover the expenses of having a child ‒ not only additional medical bills but also all the paraphernalia like cots, prams, and nappies.
Product: Bank savings account, but consider a 32-day notice account. You know approximately when you will need the funds so you can afford to select a notice account which could provide a better interest rate.
Holidays: Romantic weekends away are important for newlyweds, but rather than putting these holidays away on your credit card, start a holiday savings account. You can build this into your monthly budget as one of your lifestyle goals.
Product: Bank savings account, but again, consider a notice account. You want this to be easy to deposit into each month and with some flexibility around when you will access it.
Deposit for a house: Discuss your financial priorities. For many newlyweds, owing their first home is an important goal. Do not rush into buying a home before you are financially ready. Take your time to build up a deposit. If you are keen on property as an investment, you should still build up a good deposit to reduce your credit risk.
Product: This may take you a few years, but you do not want to take any market risk. So, sticking with interest-bearing accounts like a money market fund or fixed deposit would be appropriate.
Medium-term goals (5 to 15 years)
Children’s education: Once you start a family, start putting money away for your child’s education. This could be to supplement school fees or to fund tertiary education.
Product: For longer-term goals you need to have capital growth. Investing in the stock market is one way to achieve above-inflation growth. Unit trusts and exchange-traded funds (ETFs) are easy, low-cost ways to invest. You could select a well-diversified balanced fund that includes offshore exposure. If your plan is to educate your children internationally, then consider funds with higher offshore exposure.
Starting a business: If you have a dream one day of leaving the corporate world and starting your own business, the more capital you have the better. If you have a five-year or longer time horizon, you will need to ensure above-inflation growth.
Product: RSA retail savings bonds are providing government bond rates of above 10%. You could also use a balanced unit trust fund.
Retirement: If you work for a company that provides a retirement fund, make a promise to each other that you will not draw on those funds when moving jobs and that it is there to secure your future. Also find out what death benefits the company provides and make sure your spouse is the listed beneficiary.
Product: If you do not have a company fund you could consider a retirement annuity which is a personal retirement fund. This provides a great tax deduction on your monthly income. Another great way to supplement your retirement fund is with a Tax Free Savings Account. These are offered by all unit trust and ETF companies. You are able to allocate R36 000 a year into a TFSA and you receive all proceeds tax free.
Generational wealth: The best way to leave an inheritance for your children is by starting to invest for them at a young age rather than trying to leave them a lump sum from your pension. Few people when they reach retirement have enough funds to bequeath to their child. Yet an investment started in your child’s name at a young age would have had the benefit of compounding over a long period of time. Even if you invest just R500 a month, over 20 years that could be worth R400 000.
Product: Consider opening at tax-free savings account in your child’s name. All the funds you put away for them grow tax free.