2 costs that can make or break your nest egg

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  • Post last modified:Oct 23, 2020
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Most South Africans who earn a decent salary find themselves still struggling to save no matter how much effort they put into it. The roof over your head and the car parked in your garage may be culprits responsible for this.

Saving entails everything from cutting down the little costs but it’s usually the major, high cost, fixed expenses that have the most bearing on our financial lives.

Typically, once you commit to a car or home, you’ll be stuck with that expense for ages to come. It’s these decisions that we have to pay great attention to.

We need to carefully weigh our options before making a commitment as in the long run, they ultimately crowd saving for retirement.

1. Vehicle

saving

Owning a car is probably one of the biggest expenditures on your personal budget. Sometimes you see a car advert and it looks cheap enough so you just make a purchase without having a realistic understanding of how much it will actually cost to own it.

This is a consequential mistake because when all the expenses you chose to be ignorant of start kicking in, your budget will suffer and your savings will dwindle.

No longer having to depend on public transport or asking friends for lifts may sound exciting. Sure, driving has extensive benefits to your life but that doesn’t mean it’s going to be affordable (unless, of course, you go about it in a financially responsible manner).

 With a car, you have to flash out cash on insurance, parking tickets, and above all, gas.  It’s no secret that the surging costs of gas have been a cause for concern in South Africa over the past few years.

The prices for insurance are no better. And with all the thousand parts, small and big that make up a vehicle, it’s inevitable that something will break, need upgrading or start leaking so maintenance costs will be another constant expense associated with your vehicle.

Moreover, long after the excitement of owning a new car has died down, your budget will still be suffering for it. This is so because the payment will last for years and this will limit how much you invest into your egg nest.

Driving, however, doesn’t always have to be a cost that breaks your egg nest. With detailed, financially wise planning, driving your own vehicle will not necessarily break your egg nest.

When buying a vehicle, buy a new car, but in a smaller model. Depending on how much you can afford to spend on a car. In the case that it’s not much, then you could just buy a better vehicle.

Consider the fuel efficiency of the car. Get into the habit of D.I.Y maintenance of your vehicle. This will help you cut expenses and leave you with more to invest in your pension fund or long term investment goals.

If you have already made that mistake of spending more than 20%of your gross annual income on a vehicle then the best route to your comeback would be to bite the bullet and sell the car.

2. Housing

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Housing costs can, in fact, be the largest expense you incur through your life and housing isn’t cheap in South Africa. It’s no wonder so much of the country is covered with illegal settlements which are shacks.

So you wake up every day and grind hard to earn that dollar. For all the work you put in, you deserve a good place to call home.

However, stretching yourself too much in a bid to award yourself with the life you think you deserve will crash and burn your finances.  

Comfort, security and a house that lives up to your satisfaction are essential but that doesn’t mean you have to buy a million rand home or rent an apartment that costs a fortune.

If you find yourself paying above 35% of your income on your housing, then you might be heading for financial ruin in retirement.

Buying a house is a good investment but if it costs you your egg nest, it might just be an undoing in the long run.

Building a substantial egg nest takes time, dedication and consistency. Retirement is expensive that’s why it’s always best to get an early start to it and be constant so that as you advance in years, your nest egg grows with you.

Unfortunately, your egg nest can’t grow fast enough while all the money that could be dedicated to it is instead going towards a mortgage or rental payments.

That is why it’s important to take note of your housing expenses before they break your long-term savings goals.

It’s recommended to get serious about paying off your mortgage early. It might not be easy but it’s going to be worth all the sacrifices.

Imagine how fast your savings will grow if you were directing all the money that you used to spend on the mortgage towards your nest egg. Full ownership of your house not only gives you peace of mind but it also gives your wallet breathing room.

Peace of mind can be part of the heritage you leave for your children’s children. That, however, doesn’t mean you just dive head in into a commitment.

Carefully consider your options and how much you have at that time for a down payment. When it comes to the choice of a house, find something that fits your budget without overwhelming you financially.

If you are on a strong financial footing, getting the home of your dreams might work but don’t go overboard. However, if you are working on a tight budget, go for something that fits the criteria of what you’re looking for though affordable.

Even if it’s not the most ideal place or wouldn’t have been your first choice for a home. You can do this without compromising on important things like safety and convenience.

If you find that your home is drowning you in a pool of debt and leaves you no chance of growing your nest egg, it may be time to sell your home.

Or perhaps you are drawing closer to your golden years and have a house with more space than you actually need but don’t have enough saved for your retirement, it might be time to downsize your home.

Selling your house will boost you with enough money to pay off your mortgage, pay cash to buy a smaller, less pricey house then put the rest of the money into your nest egg.

There might be a lifetime of memories attached to your house but to achieve financial freedom, some sacrifices have to be made. In the end, memories might give you joy but they won’t pay the bills throughout your life after retirement..

If you’re renting, it’s wise to settle for something affordable for you. Take a hard look at your finances and consider if that fortune you are paying for rent on a monthly basis is worth stunting all your chances for financial independence and a bigger nest egg.

If you’re renting an expensive apartment or around an area where rent is known to be costly, it’s a good idea to move to a less expensive place or an area where rents aren’t particularly high.

Conclusion

Some of these sacrifices might seem too big but they will be worth it in the future. You have to program yourself to think long term. Chances are they will benefit more than just yourself.

Securing your nest egg will benefit your family, allow you to still be able to support causes and organisations that are close to your heart financially. Imagine the peace of mind that comes with not having to depend on the mercy of friends and children to get by in your old age.

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