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12 money hacks and ideas - Part 1

Oct 17 2017 06:00
Dean Gerber

ONE of my favourite Warren Buffett anecdotes is from the HBO Documentary Becoming Warren Buffett, which was released earlier this year.

It describes Buffett’s daily breakfast routine on his five-minute drive to work. Every morning, while shaving, he’ll let his wife know to place $2.61, $2.95 or $3.17 in exact change in the cup holder of his car. Each amount corresponds to one of three breakfast meals at McDonald’s and Buffett chooses his meal depending on how prosperous he feels that day.

If the stock market is down, he orders two sausage patties for $2.61. When the market is up, he’s likely to order the more expensive bacon, egg and cheese biscuit for $3.17.

We can all take comfort in knowing that it’s not only us common folk that are constantly trying to save money. For Buffett, money is his “scorecard” and saving money is an entrenched mindset.

So, here are a few more of my money hacks and ideas to improve your own scorecard.

Investment property hacks

1. Buy investment property in complexes with low levies and high reserves

This might sound like obvious advice at face value, but it amazes me how few people (and their estate agents) ask to see the financial statements of the body corporate/home-owner’s association when they buy sectional title investment properties.

It’s vital to buy in a complex where the body corporate is well managed and has reserves built up for unforeseen costs. The effect that high common costs/levies and special levies of a complex or estate can have on the return on your investment is significant.

I like to look at it this way: assuming an interest rate of prime (10.25%) and a 20-year mortgage – every additional R1 000 per month that you pay in levies is comparable, in cashflow terms, to having an extra R100 000 of capital to pay off on your bond (without the benefit of paying down any capital).

Buying a property for R1m with R3 000 levies is financially equivalent to buying a property for R1.2m, with R1 000 levies. So find a property in a complex with lower levies and you could perhaps afford to buy a more expensive property.

You should also be very careful when buying off-plan properties (direct from the developer). The developers often advertise low levies to entice buyers. The levies then increase drastically once all of the units are transferred and a body corporate has been established, as these complexes need to build up reserves for unforeseen events.

2. Minimising transfer duty on investment properties

If you’re starting out with buy-to-let properties and have limited upfront capital to invest, it might make sense to consider the effect that transfer duty will have on your return on investment. On properties valued at over R900 000, you will pay 3% transfer duty on the cost of the property over R900 000, and this cost increases all the way to 13% on more expensive properties.

So, it could be a good idea to buy multiple, lower priced units rather than one larger unit and save the upfront capital spend on transfer duty. For example, if you buy two one bedroom units for R900 000 each instead of a two bedroom unit for R1.8m, you will save around R45 000 on your upfront costs. This is a great head start for your investment.

Look at it as an upfront discount in your first year of paying off the property as well as a saving of initial cashflow outlay. Obviously, you can’t just look at this saving in isolation – more expensive units might appreciate in capital value at a faster rate than smaller units, although smaller units might yield a better monthly return, etc.

FNB-related hacks

3. FNB eBucks discounted vouchers

I could write a short book on loyalty programmes in general and on eBucks specifically. It goes without saying that loyalty programmes these days can provide significant monetary benefits. It is worthwhile being aware and well-researched as to those that may be applicable to you.

But for the purposes of this article, I’ll emphasise the biggest benefit of joining the eBucks programme, which is that your eBucks can be used to buy discounted retail vouchers. You can exchange your eBucks for the equivalent value of various retail vouchers (Checkers, Dis-Chem etc) at up to a 40% discount, depending on your eBucks reward level. For example, on the highest level (5), R1 000 of eBucks can buy you R1 667 worth of retail vouchers.

Let's take a step back and think about this. eBucks already has some of the highest loyalty earning rates among any credit card programme worldwide on general retail spend (up to 3%), fuel (up to 15%), groceries (up to 5%), online spend (up to 6%) and so on.

Now gross each of those numbers up by 40% to work out what you can exchange the earnings for in retail vouchers. Up to 5% (3% X 100/60) on general spend, up to 25% on fuel, up to 8.3% on groceries etc.

I’d go out on a limb to say that no other credit card programme in the world can afford to pay 5% in loyalty rewards for general credit card spend because the bank normally only makes between 2% to 5% from the merchant on each transaction.

So FNB are clearly subsidising these rewards, which make them truly unique.

4. FNB saving on monthly account fees and tax benefit

FNB will waive their monthly account fee on some of their account categories if you maintain a minimum balance in your current account.

If you are already making full use of your annual interest exemption for tax purposes (R23 800 under 65 and R34 500 over 65) and have additional cash invested in interest earning instruments, it might be worth keeping some of this cash in your FNB current account.

It’s normally never advisable to leave cash lying around in your current account, but in this case it’s a little different. For example, if you are using an FNB Fusion Premier account and maintain a balance of R10 000 in your account, the monthly fee of R85 (R1 020 per year) will be waived.

That is the equivalent of earning 10.2% return on your cash post-tax (since this benefit is not currently taxed). Assuming a maximum tax rate of 45%, this return is the same as earning 18.5% interest pre-tax (i.e you would need to earn 18.5% interest to nett the same return in a typical interest-bearing account/instrument).

Over and above this, on some of these accounts, the bank will also pay you a small amount of interest on the balance. Other accounts also have this benefit -  FNB Private clients monthly fee of R365 is waived if you maintain a balance of R75 000 and the Private Wealth fee of R465 is waived if you maintain a balance of R100 000.

All are good offers compared to normal interest accounts.

Lastly, considering that most people maintain at least some sort of depleting balance in their current account throughout the month to cover living expenses after they receive their salary, it may not be a big step up for you to top up that balance and receive the benefit.

5. FNB “Move Your Home Not Your Home loan”

This is a very under-publicised FNB benefit, which has been around for many years now. If you have an existing home loan with FNB and you buy an additional property using another FNB home loan, the bank will pay your bond legal registration costs (not your transfer legal costs).

This is a significant saving. On a R1m home loan, for example, these legal costs would be in the region of R15 000 to R20 000. Also, the saving is not always applied automatically so you need to make sure that you tell the bank that you want to take advantage of the offer.

General hacks and ideas

6. Switch your Showmax payment method to DSTV Premium

This has been fairly well advertised by DStv itself, but I thought I’d drive it home since it’s a quick way to save money if you already have a DStv premium account.

Showmax is now free if you subscribe to DStv premium. So, if you have both services already, log in to Showmax and change your payment method. You’ll save close to 100 bucks a month. If you have a Netflix account instead, and you’re not too bothered as to which streaming service you use, it might be worth cancelling Netflix and making use of the free Showmax account.

7. Free hotel nights from hotel aggregator booking sites

When you're planning your annual family holiday or travelling for business, it may make sense to book your hotel through an online booking aggregator site rather than direct with the hotel or through a specific hotel group rewards programme. Hotels.com, for example, gives you one free night for every 10 nights booked on their site (to the value of the average of the previous 10 nights booked). That’s equivalent to a 9% discount.

So this year’s holiday/business trip can potentially earn you some free nights towards next year’s holiday! In my experience, the prices quoted on these sites are normally in line with direct hotel prices. If they aren’t in line, you can get the site to match the price by submitting an online price-match form.

To be continued in Part 2.

* Dean Gerber is a regular personal finance guest columnist on Fin24. He works at VAT IT and is a residential property investor. The views expressed are his own and do not constitute financial advice. Dean can contacted on: gerberarticles@gmail.com.

PREVIOUS ARTICLES by DEAN GERBER:

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dean gerber  |  money management

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