Emergency cash reserves?

[HavocXphere]

Are we talking cash that's instantly on hand or money that might be sitting in RAs, endowments, unit trusts, equity in property, your car, etc?

See OP.

Only counting money/investments you can spend on <24hrs notice without paying heavy penalties, so no fixed deposits, stamp collections etc. No counting overdrafts or credit facilities either.

Someone pointed out that a credit card might serve as a better emergency buffer...hence there is a bit of debt discussion in this thread.

 

[ld13]

But for personal use, it should never be considered.

It should always be considered. It is unwise to build up a large cash reserve when you have other debt incurring interest. The exact details will differ from situation to situation of course. A credit facility like a credit card gives you liquidity - exactly what one would usually require in an emergency. Your definition of emergency would probably also come into play here. Loss of income might call up a different set of needs than eg. a medical emergency.

e.g. I can borrow at 8% right now and invest that cash into RSA retail bonds at 8.25% (6%+2.25%). Ignoring the fact that the one is linked to repo while the other is CPI linked, that is pretty much a risk-free quarter percent. If I'm willing to take on a bit more risk I can invest that in say Satrix which should easily outperform 8% by a good couple percent.

Be careful hey, a monthly loan capitalization vs the bond's 6-monthly capitalization can eat into your "risk-free quarter percent". By my rough calculations you are up by a mere 0.18% over the full period of 5 years if one ignores any payments. One would have more of a margin to work with if you invest in eg. FinBond that can get you up to 10% over 66 months the last time I checked. Once again, the exact details will differ from situation to situation.

Where are you able to get funds at 8% by the way?

 

[HavocXphere]

monthly loan capitalization vs the bond's 6-monthly capitalization can eat into your "risk-free quarter percent".

Good point.

Yeah I didn't quite nail that point with my crap example. Need something that floats & doesn't suck quite as much as the bonds...will think about it a bit more...maybe some commercial paper...

Where are you able to get funds at 8% by the way?

Credit card. I'm sure others here have house loans with access bond at similar rates though [Nobody get any stupid ideas pls].

Thats part of the problem for me...I can't pull enough off the CC to make schemes like that worth while. 0.25% x pile of money = not a lot

 

[cguy]

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can't buy time.

Actually, time (well, at least quality time) is one of the things that I buy quite frequently. Offhand, for me personally: No car (so I don't have to fill it, service it, sell it, upgrade it, search for parking, insure, repair, etc.) - I can only do this because I can afford to buy near where I work (5 minute walk), and taxi/limo on-demand (Uber). Similarly, I have my groceries delivered (straight onto the kitchen counter), so I don't have to shop. I pay for fast internet (25mbps ) so that I don't have to wait (much) for data. There are many similar examples, of trading money for time.

For those with unlimited budgets, they don't have to waste time debating feature/cost trade-offs and tracking their spending. In many ways, the wealthy can pay to avoid queues: priority in airports (hell, even chartered flights), shopping in more expensive, less crowded stores, etc. They can choose jobs that they enjoy, rather than those that pay more (effectively trading money for more quality time or equivalently, less non-quality time), or even not work at all if they so choose. Would be nice...

 

[Other Pineapple Smurf]

It should always be considered. It is unwise to build up a large cash reserve when you have other debt incurring interest. The exact details will differ from situation to situation of course. A credit facility like a credit card gives you liquidity - exactly what one would usually require in an emergency. Your definition of emergency would probably also come into play here. Loss of income might call up a different set of needs than eg. a medical emergency.

Even if you have huge amounts of debt, you should always put away a small amount for cash reserves. Its easy to say on paper this and that, but we are human and credit-cards make it so much easier to dip in deeper than what we need to.

Its all about financial discipline and if you have a credit card today then you have no discipline as there are alternatives to credit cards today for those needing the payment convenience of having one.

 

[Other Pineapple Smurf]

I agree that most people should perhaps give it a miss rather as it can backfire viciously, but I think there can be scenarios where it results in financial gain for a person.

e.g. I can borrow at 8% right now and invest that cash into RSA retail bonds at 8.25% (6%+2.25%). Ignoring the fact that the one is linked to repo while the other is CPI linked, that is pretty much a risk-free quarter percent. If I'm willing to take on a bit more risk I can invest that in say Satrix which should easily outperform 8% by a good couple percent. Thats income on money that as you say "never belonged to [me]".

Obviously thats a pretty dicey plan but I'm sure one can come up with more viable plans...especially when it comes to property.
...

But see you are treating this as a business model to generate revenue.

The same as in December I loaned R10K to my wife to buy stock for the business. This was money I had set aside for my first rates & taxes bill and I could still extend the payment deadline with minimal penalties (think I paid R300 dunning charge in the end). Technically we made debt with the intention of making a profit as the money was not mine, I just had to access to it at that time.

 

[ld13]

Even if you have huge amounts of debt, you should always put away a small amount for cash reserves. Its easy to say on paper this and that, but we are human and credit-cards make it so much easier to dip in deeper than what we need to.

Sure, a thousand odd rands hidden in the house cannot hurt. But what is so different between cash saved up and access to credit? Would it not be as easy to dip into your savings you built up as accessing a credit facility available to you? A human somehow feeling forced to (ab)use his credit facility will surely not feel indifferent towards his savings and will probably eat into it before dipping into his credit facility.

Its all about financial discipline and if you have a credit card today then you have no discipline as there are alternatives to credit cards today for those needing the payment convenience of having one.

Making a blanket statement that credit card users have no discipline is unreasonable in my opinion. Financial discipline has nothing to do with avoiding credit or credit cards. In the end it is about using the tools available to each and every one of us in the correct and proper manner. We all have access to guns, but only a small percentage of us decide to use those guns improperly. If one feels that they cannot handle credit, then sure, do not sign up for a credit facility. If one feels that they cannot stop spending their savings, then take out a monthly savings plan of some sort that limits your access to the funds.

 

[FlashSA]

Have a month's salary in a savings account which I will move into my access bond when I get this year's SARS refund as this will kickstart my next month of salary saving.

We had an offer on a new house which would've increased our bond repayment by a lot and used up all of our savings but I am quite glad the offer expired before we could sell our current property - we would've been stretched very thin for the next 12 months.

 

[HavocXphere]

But see you are treating this as a business model to generate revenue.

Is there a difference? Does the model in terms of which it is viewed change the reality?

I - like many presumably - would not mind making an extra buck whether in terms of a business model or not.

The same as in December I loaned R10K to my wife to buy stock for the business. This was money I had set aside for my first rates & taxes bill and I could still extend the payment deadline with minimal penalties (think I paid R300 dunning charge in the end). Technically we made debt with the intention of making a profit as the money was not mine, I just had to access to it at that time.

Right. As you say you made a debt with the intention of making a profit. You invested it in your wife's venture, I (hypothetically) invested into Satrix. Wedding rings aside the two are essentially the same - business ventures out to make a profit.

To be clear cb, I think you've got a reliable mindset there & many would do well to copy it. I just object to the blanket dismissal of debt in a personal context i.e. "it should never be considered".

 

[yebocan]

I have no real expenses, and zero debt....have 100k + saved up...sitting in a Capitec Account, buy Satrix @ 2k per month and put away about 3k .....I do not have credit cards, nor any other line of credit. I pay cash for everything, I live simply...Once upon a time I was in a black hole of debt...--bumped my head big time...took time, but got out...and vowed, nooit bloody weer...

 

[OrbitalDawn]

I have no real expenses, and zero debt....have 100k + saved up...sitting in a Capitec Account, buy Satrix @ 2k per month and put away about 3k .....I do not have credit cards, nor any other line of credit. I pay cash for everything, I live simply...Once upon a time I was in a black hole of debt...--bumped my head big time...took time, but got out...and vowed, nooit bloody weer...

Do you own property?

 

[yebocan]

Do you own property?

Nope, will dive into that madness in 2015-

 

[akescpt]

Nope, will dive into that madness in 2015-

so you at home with the parentals?

 

[yebocan]

so you at home with the parentals?

Nope, share with a best mate... total expenses, includes ADSL/DSTV/Rent/Food/Sundries.... my share comes to about 5k a month...

 

[akescpt]

Nope, share with a best mate... total expenses, includes ADSL/DSTV/Rent/Food/Sundries.... my share comes to about 5k a month...

bloody hell that's neat. how long to bank the 100k?

 

[yebocan]

bloody hell that's neat. how long to bank the 100k?

Took me about 24 months...must add, also dumped some moola into some tech stocks via the Etoro platform....got some nice returns from them....

 

[Paul_S]

Do you own property?

With all the racist rhetoric and gaining popularity of leftish groups like the EFF who's policies clearly target the seizure of privately owned land, I'm not so sure it's a good idea to consider purchasing or owning any property in South Africa.

Of course this is more of a knee-jerk reaction but if one looks at what is happening just North of us it does not help shake off the nagging uncertainty regarding property rights and the possible abuse thereof.

I have even considering withdrawing all the spare money in my access bond and moving it to offshore investments. Then if I need to flee the country I have something outside their reach and they can sort out the money owed to the banks.

 

[MrGray]

Nope, will dive into that madness in 2015-

Then you can kiss your R100k goodbye. Rather don't.

 

[Paul_S]

Then you can kiss your R100k just for transfer costs, taxes, etc. goodbye. Rather don't.

Amended it for you.
If only we knew what lay 20 to 40 years ahead. It would make financial planning so much easier.

 

[Messugga]

With all the racist rhetoric and gaining popularity of leftish groups like the EFF who's policies clearly target the seizure of privately owned land, I'm not so sure it's a good idea to consider purchasing or owning any property in South Africa.

Of course this is more of a knee-jerk reaction but if one looks at what is happening just North of us it does not help shake off the nagging uncertainty regarding property rights and the possible abuse thereof.

I have even considering withdrawing all the spare money in my access bond and moving it to offshore investments. Then if I need to flee the country I have something outside their reach and they can sort out the money owed to the banks.

I know a couple of guys with several properties each, that have this plan of action. Pay off the bond, except for R100 to keep it open and if **** hits the fan, they can quickly empty the bond and take the cash out of country, leaving the banks to fight over what's left.