We South Africans love our cars – whether it’s a sleek new model, a massive off-roader or a customised, souped-up machine. Globally, cars are seen as status symbols, and many of us feel pressured to keep up with the trends, often diving headfirst into purchasing one.

But how much do our immediate lifestyle decisions – like buying that dream car – impact our long-term financial health? Let’s take a closer look, using cars as an example, because they’re a highly emotional (and very expensive) purchase.

The dream car dilemma

Let’s say my dream car is a VW Tiguan. I went online to build my ideal version, and here’s what I found: the base price of a brand new VW Tiguan 2.0 TSI is R861 600. But of course, I wanted some extras – upgraded paint, rims, a better sound system, a sunroof and safety features. Throw in a sports package and my dream car now costs a staggering R987 850 (including VAT).

I have two choices:

1. Pay nearly R1 million upfront (which, let’s be honest, most of us don’t have).

2. Finance the car with a vehicle loan.

If I choose financing, my monthly payment would be around R19 500 for six years (based on a 12.25% interest rate). By the end of that period, I’ll have paid about R1.4 million in total. Suppose I’m denied finance; I could opt for a “more affordable” balloon payment option. It will then cost me R17 000 per month over six years, with R258 480 outstanding and immediately payable at the end of the contract.

But what if, in a parallel universe, a more practical version of me exists? He sits down with a financial planner and runs the numbers. Instead of buying the car, he invests R17 000 per month for six years, earning 10% per year. By the end of those six years, he could have a potential investment portfolio of R1.58 million (around R1.1 million in today’s terms.)

The real cost of a car

Let’s see what happens if I stick with my dream car. After six years, it’s estimated to be worth around R438 000 as a trade-in (assuming 15% depreciation each year). Adjusted for inflation, that’s only about R300 000 in today’s buying power. Meanwhile, I’ll have spent over a million on financing and will be left with very little to show for it. In fact, I’d have lost nearly R800 000 in the process.

Sure, I could cover the balloon payment by trading in the car, but I’d be left with almost nothing to put towards my next vehicle.

The bigger picture: Freedom vs debt

What would an extra R1.58 million mean for my future? In a world focused on instant gratification, it’s easy to forget that retirement – and financial freedom – are real things we need to plan for. Investing this extra money at age 44 could mean reaching financial independence sooner. The funds could continue to grow, potentially providing a passive income or giving me the freedom to pursue new goals and live life on my terms.

We haven’t even explored other options, like adding additional funds to your home loan, investing in income-generating assets or starting a business. All of these are alternatives worth considering.

Flexible alternatives to buying new cars

I used an expensive car as an example, but the principle applies to most new vehicles. Luckily, more affordable brands in South Africa offer similar value without the hefty price tag. Plus, there’s always the second-hand car market, where you might find a vehicle that holds its value better.

In recent years, leasing a car has become a popular option for those who prefer to avoid the long-term financial commitment of buying a new vehicle. However, leasing can still significantly impact your budget, so it’s important to carefully consider this option and ensure you can comfortably manage the monthly payments before committing.

The trade-off

Every financial decision is a trade-off between today’s wants and tomorrow’s needs. Many of us live by the “you only live once” (YOLO) mentality, but that mindset can be short-sighted when it comes to our finances. A better mantra might be: “You only live once, but for longer than you think” (YOLOBFLTYT) – you need to plan to live to 100!

Do I still want the dream car? Of course. But not if it means sacrificing my future financial freedom. That’s why it’s so important to talk to an independent financial planner before making big decisions like this – because your choices today will shape the lifestyle you’ll enjoy tomorrow.

Are you juggling the responsibilities of supporting your parents, adult children and possibly even grandchildren? If so, you might be part of the Sandwich Generation. In my financial planning conversations with clients, this balancing act comes up in at least 35% of our meetings, reflecting a growing trend. According to the Old Mutual Savings and Investment Monitor research report, the “Sandwich Generation” increased from 39% in 2022 to 43% in 2023.

While having your children, their children and parents living with you can be incredibly rewarding, the responsibility can be overwhelming. Balancing financial resources, time and emotional energy while planning for your own secure future can seem nearly impossible.

Ask yourself:

• Can you afford to support children who should be supporting themselves?
• How does this affect your retirement savings?
• Would you need to cut funds available for your own medical care and living expenses as a result?
• What is the long-term impact of the permanent loss of capital and compound interest from a drawdown?
• Will your adult children be able to support themselves if something happens to you?
• Will you eventually need your adult children to look after you?

The impact of enabling dependency

It’s important to consider that you may not be helping your adult children by enabling them to rely on you for financial support. They miss out on building their own income and learning crucial life skills, and their dependency can erode their confidence and hinder their ability to re-enter the workforce. Striking a balance between offering support and encouraging independence is essential. Continually supporting your adult children can perpetuate a cycle of dependency, which isn’t beneficial for anyone involved.

Tips to manage the delicate balance

When it comes to your children:

1. Encourage responsibility and accountability

Teach your children the importance of responsibility and accountability. Encourage them to find work, whether part-time or not, in their preferred field. Any contribution they make towards the household helps build their confidence and reduces your financial burden.

2. Support beyond finances

Offer assistance with job applications, help improve their CVs and pay for coaching or psychological support. Enrol them in courses or connect them with financial planners or business coaches. Brainstorming creative income ideas together can be particularly beneficial. Some ideas my clients have successfully implemented include teaching English as a foreign language, house-sitting, pet-sitting, participating in online surveys, creating digital products (e-books, online courses, presentations), engaging in affiliate marketing, earning royalties from intellectual properties (books, music, patents, graphic designs) and renting out equipment or property (eg, cameras, drones, parking spaces).

3. Set boundaries

If your children return home temporarily to reset their lives, that’s understandable. But if this becomes a recurring pattern, you may be enabling them never to manage their own money. Think about putting boundaries in place to protect your financial security. Teach your children about money management, involve them in financial conversations and set a date when financial aid will stop.

4. Involve children in money conversations

It’s never too early to start speaking to your children about money and teaching them the skills needed for future financial independence. Discussing money openly can demystify money management and encourage responsible financial behaviour.

5. Encourage and celebrate failure

Children need to fail to learn, grow and develop. Let them navigate challenges and find solutions independently. Celebrate their efforts and resilience. Consider asking your financial planner to meet with them and work out a plan. Failure can be a powerful teacher.

When it comes to your elderly parents:

6. Support your elderly parents early

Consider supporting your elderly parents before their money is depleted. Parents are living longer, and in many cases, their funds run out before they pass away, leaving you with the financial burden of looking after them. By contributing a smaller amount early on, you can help extend the lifespan of their retirement investments, delaying the need for more substantial financial support later.

7. Research and compare retirement care options

Many retirees are determined never to move into a retirement estate, often preferring live-in carers. Carers are expensive, and this cost burden eventually gets transferred to their children. Make time to research the costs of retirement or community care homes versus the cost of a live-in carer for yourself and your elderly parents. Consider long-term benefits and make informed decisions.

Being part of the Sandwich Generation is undoubtedly challenging, but finding a balance that supports your loved ones while securing your financial future is possible. While caring for your children and elderly parents may be extremely rewarding, you must make informed decisions. You don’t want your children to eventually look after you if you deplete your retirement savings due to being wedged between two dependent generations. Meet with your financial planner and ensure that your long-term plan for your second chapter includes a fulfilling life for yourself plus provision for any long-term care needs. It is possible to navigate complex situations that balance your responsibilities and financial goals.

As a financial planner, I’ve seen clients struggle with the responsibilities that come with inheritance. Often, beneficiaries are unprepared, lacking what I call “financial maturity” – the understanding and experience needed to manage inherited wealth effectively. Financial maturity means understanding the value of money, making informed decisions and feeling comfortable with financial responsibilities.

Emotional complexities of inheritance

Inheritance can come with emotional baggage. Some clients receive money from relatives with whom they had strained relationships, leading to feelings of guilt or reckless spending. Younger beneficiaries, in particular, may feel disconnected from the inheritance, viewing it as not truly theirs. This emotional complexity can significantly impact how they handle the money.

Importance of financial maturity

The biggest burden arises when the inheritor lacks financial maturity. For instance, I’ve encountered spouses overwhelmed by financial management after the death of their partner, simply because they were never involved in the financial planning. This fear and anxiety can persist even when significant funds are available, leading to a life lived in unnecessary scarcity.

Financial maturity is crucial when one partner has always controlled the finances. On their passing, the surviving spouse can feel overwhelmed and anxious about managing the money. This scenario is all too common and highlights the need for both partners to be involved in financial planning. Without this involvement, the remaining partner may live in fear and scarcity, despite having adequate funds.

Strategies for leaving a legacy without burden

1. Open communication

Discussing financial plans with your spouse and beneficiaries ensures they understand the purpose of the inheritance and are prepared to manage it. No matter how uncomfortable, these conversations can prevent future financial difficulties.

2. Involve loved ones in planning

Regularly involve your spouse in financial decisions and planning to build their confidence and knowledge. This shared responsibility ensures that both partners are prepared for any eventuality.

3. Educate and prepare children

Share your will and estate plan with your children. Allow them to ask questions and understand your intentions to prevent future mismanagement of funds. Involving them early helps build their financial maturity and ensures they are ready to handle the inheritance responsibly.

4. Address emotional complexities

Acknowledge the emotional aspects of inheritance and provide support to help beneficiaries deal with these feelings. This can prevent emotional decisions that might negatively impact their financial future.

Inheriting should be seen as a gift and a legacy to be honoured, not a burden. Proper preparation and communication can empower beneficiaries to manage their inheritance confidently, turning potential burdens into lasting legacies. By fostering financial maturity and involving loved ones in financial planning, you can ensure that your legacy is managed wisely and fulfils your intentions.

Ultimately, the best way to honour the legacy of a loved one is by being prepared and empowered to manage the inheritance with confidence. This approach transforms potential burdens into lasting legacies, ensuring the inheritance serves its intended purpose and supports the beneficiaries’ financial well-being. For more information, visit www.charteredwealth.co.za.

As is the reality for many South Africans, many of our clients have children or heirs living abroad. This dynamic adds an additional layer of complexity to estate planning and often raises the important question of how to ensure a smooth transfer of assets while protecting your wealth. Navigating the intricacies of estate planning becomes even more crucial when your loved ones reside in another country. In this article, we will explore practical considerations specifically tailored to South African residents with children or heirs living abroad, offering insights and strategies to help you manage this unique estate planning landscape.

Managing investments: A clear understanding

Estate planning entails having a clear understanding of how your investments, both local and offshore, will be managed and distributed by the executor of your estate. However, being well-informed and proactive becomes even more critical when your heirs reside in another country. It is essential to have a comprehensive grasp of how your investments will be handled and ensure that your intended beneficiaries receive their rightful share.

Assets outside the estate winding up process

Certain assets may not automatically be included in the estate winding-up process, but this does not exempt them from estate duty tax obligations. As a South African resident with heirs living abroad, it is crucial to explore how such assets will be distributed and consider the available options, such as individual ownership or placing assets in local and offshore trusts. Understanding each option’s implications will help you make informed choices that align with your specific circumstances and protect your assets.

Varying timelines for inheritance

The timeline for heirs to inherit assets can vary significantly, especially when international factors come into play. Factors such as including assets in the estate winding-up process and the involvement of entities like the Master’s office, Deeds office, and SARS (South African Revenue Service) can introduce complexities and potential delays. People with heirs abroad need to grasp their own timeline expectations and effectively communicate them to their heirs. By managing expectations and providing your heirs with a clear understanding of potential inefficiencies, you can help them navigate the complexities of the inheritance process and minimize any challenges that may arise.

Inheriting assets in their pre-death form

One advantage for heirs living abroad is the ability to inherit assets in the form they were in before your passing. This means that heirs residing in another country can hold South African-based assets (such as property or a share portfolio) and offshore-based assets without needing immediate redemption. However, it is advisable to check with your heirs regarding any country-specific exceptions or regulations that may apply. Ensuring that your heirs are aware of their rights and limitations can prevent complications and facilitate a smoother transition of assets across borders.

Estate planning for South African residents with children or heirs living abroad requires careful consideration and attention to detail. By understanding how to effectively manage investments, navigate assets outside the estate winding-up process, anticipate varying timelines for inheritance, and consider the impact of different jurisdictions, you can ensure a seamless transfer of wealth and protect your legacy.

Please contact your Financial Planning Specialist if you have any questions or require further assistance in addressing these considerations.

The state of Eskom and the frequent load-shedding have understandably caused distress among many South Africans, who are now seeking alternative energy solutions. Fortunately, solar power has emerged as a popular option, offering reliable and cost-effective electricity for households. At review meetings, I often get asked whether renting or buying a solar system is better and how each option would impact long-term finances. However, the decision to rent or buy a solar system isn’t a one-size-fits-all solution, and it’s crucial to weigh the pros and cons of each option before deciding.

To make an informed decision, it’s essential to have a clear idea of the appliances that need to be powered by the solar system before requesting quotes. When considering buying a solar system, it’s important to take into account the upfront costs. The cost of purchasing a solar system varies significantly based on the system’s size and the number of panels needed to power your home. Nevertheless, it’s worth bearing in mind that buying a solar system can increase the value of your home and even help you recover the installation cost when you decide to sell your property, depending on market conditions at that time.

It’s also essential to factor in the ongoing maintenance costs of a solar system. Although solar panels require minimal maintenance, inverters and batteries may require periodic replacement, which can increase the overall cost of ownership. Nonetheless, the savings on your electricity bill over time may offset the maintenance costs.

For those who lack the liquidity to purchase a solar system outright, renting may be a more viable option. Renting a solar system involves monthly rental fees, which may increase over time due to inflation. Although renting may be less expensive in the short term, the total cost of ownership over the system’s life may be higher than buying one outright. Renting may also come with restrictions on the size and type of solar system that can be installed, which may limit your energy production and savings potential.

Some solar system installers offer rent-to-own packages, which can be a great option for those who want to own a system but can’t afford the upfront costs. With rent-to-own, you’ll be renting the system for a fixed term, but over that time, you’ll also be paying off a portion of the capital and interest to the seller. At the end of the term, you’ll own the system and be responsible for its maintenance. This option is similar to financing an installation through your bank, and the only additional cost would be the interest payable over the term of the contract. However, financing costs will be spread over the term of the agreement and may increase the overall cost of the installation.

Let’s take a closer look at the financial implications of buying versus renting a solar installation for a household with monthly expenses of R50 000, including residual electrical expenses through Eskom and an investment portfolio of R10 million. In this scenario, we assume that expenses increase at an inflation rate of 6% and that there is an investment return of inflation plus 4% per annum on investments. We also consider the cost of maintaining the solar installation.

For a purchased installation with a cost of R180 000 once-off, replacements would be required for the inverter every 10 years (R40 000), panels every 20 years (R23 000) and batteries every 10 years (R50 000). On the other hand, a rented installation with a monthly rental cost of R4 000 increasing at 6% per annum (inflation) would have an installation cost of R4 000 (first month’s rental) and a removal cost of R30 000 assumed at the end of the client’s life increasing at inflation.

Our scenario found that renting is a better option for the first five years, after which buying the solar installation becomes more financially beneficial. A purchaser would have 5% more remaining investment capital than a renter after 10 years, 13% more after 15 years, and a significant 75% more after 20 years. This is because the cost of renting increases with inflation while the investment capital is reducing.

It’s important to note that buying a solar installation is a good long-term investment for households with sufficient liquid investments. However, renting may be a better option for those who cannot afford the upfront cost or those who plan to move within five years. When making a decision, it’s crucial to consider the maintenance costs and evaluate the expected savings against the initial investment to determine which option is best for your household.

To determine which option is best for your unique financial situation, please consult with your financial planning specialist. They can help you understand the total cost of ownership of both options, including upfront costs, ongoing maintenance costs and energy savings potential. By evaluating your long-term financial goals, they can assist you in making an informed decision that is tailored to your needs.

I’ve had the incredible opportunity to witness how men and women bring their own unique perspectives to the realm of financial planning in my years as a financial planning specialist. These observations have unveiled intriguing trends that shape our understanding, says Tiffany Havinga, Financial Planning Specialist at Chartered Wealth Solutions.

Putting family and self first

A recurring theme that has caught my attention is the way women often prioritise their families’ financial needs above their own. This inclination, born out of genuine care, can sometimes lead to neglecting their personal financial well-being. It’s akin to the flight safety advice: secure your own oxygen mask before assisting others. In the world of financial planning, this wisdom rings true – strengthening your own financial foundation is crucial before extending a helping hand to others. Just as ensuring your own safety equips you for effective caregiving, focusing on your financial security provides the stability and resources to meet your family’s aspirations. This comparison highlights the essential role of self-preservation in financial planning, allowing you not just to look after your loved ones, but also to empower them to look after themselves.

Embracing life planning

Another notable observation centres on how women wholeheartedly embrace ‘life planning’, intricately weaving their financial decisions with their personal dreams. Women, I’ve noticed, bring a unique resonance to life planning. They approach it with an attentive perspective, carefully assessing the early stages of discussions. This tendency might come from the careful thought they’ve put into planning their upcoming life stages. I also find that women are aware of (and quite realistic about) the impact that significant life transitions may have. This perspective allows them to tackle challenges head-on because they are not caught entirely unaware.

A new dialogue about money

Excitingly, the conversations surrounding money are shifting. Women are taking the reins, venturing beyond mere numbers and intertwining money with life goals.

Please contact your financial planning specialist if you have any questions.