YOUR MONEY: How to allocate monthly expenses

Question:

What proportion of my monthly income should I be spending on housing — either renting or buying? If I do decide to buy a property as a first-time buyer, should I use my savings for a deposit (or a portion thereof), or is it better to keep my savings intact and take out a full bond?

— Henry S

Answer:

I am not sure, based on the information provided, about your age or your existing investment portfolio. These will both play a role in deciding on accurate advice for this decision.

As a rule of thumb I normally recommend prioritising your investment portfolio to start with. You need the benefit of time and compound interest to be able to retire one day. You need to invest an estimated 15%-20% of your income for your entire career to be able to ensure that you have enough one day at retirement to support a lifestyle similar to what your pre-retirement income provides.

Unfortunately most South Africans save too little; that is why a mere 6% retire comfortably. Many individuals I deal with take a 30%-50% income cut at retirement due to not having made sufficient provision.

This percentage recommendation is very important, as many individuals start investing only late in life, when the 15% recommendation will not be sufficient. A comprehensive planning exercise is always advisable. You will be happy when you turn 65 and find you have prepared for the next journey in your life.

Property is something that should make sense. Location is extremely important, as is your mindset. Is this going to be your home for the long term? Is the idea to resell, or merely to have no debt at retirement?

I know we all have to plan our budget monthly. And in an environment of high interest rates and high inflation this becomes much more challenging than otherwise.

In an ideal world I recommend trying to optimise both aspects of your portfolio. Yes, if you can create a debt-free retirement, it would be the ideal position to be in. You also need a portfolio that is sufficient to live off, big enough to replace the income you are used to.

I would recommend working with an adviser to ensure holistic planning is done based on your age and needs. You can, however, work with rough guidelines:

• 15%-20% allocated to paying yourself first. Invest this money for emergencies, holidays, university fees for the children and, most importantly, retirement, which can last for 30-40 years;
• 20%-30% allocated to housing; and
• 10%-15% allocated to transport.
• The rest needs to be set aside for medical aid, school fees, groceries, electricity, fuel, social events, clothes and the like.

Our finances are sometimes navigated rather aimlessly. This leads to unnecessary mistakes and time lost. That is why I recommend working with a wealth adviser from day one and ensuring that informed decisions are made from the start that address all aspects of life, including family and business concerns.

— Elke Brink is a wealth adviser at R21 Wealth Management, Stellenbosch

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