Cardboard boxes lay strewn across the living room floor, accompanied by a few too many empty wine bottles. Just like all “great nights” this one kinda just happened. As you turned the key and swung open the front door of your new home, family and friends had been waiting to throw you a quick surprise party. The idea was to raise a toast to the proud new homeowners, then help unload boxes and fill kitchen drawers with cutlery. The only real heavy lifting that took place last night was an all too familiar ‘lift wine glass to open mouth’ motion. Now as you sit on one of the unopened boxes nursing a small babalas, a sense of pride starts welling up inside of you. You’ve scrimped and saved for the deposit, spent countless weekends cruising the suburbs looking for the ideal home and today is the first day of the rest of your life. Ok, so which box is the dustpan in? Better get this mess cleaned up before the kids think we bought shares in a wine farm rather than a new home.
Owning your own home is a rewarding experience and often the single biggest investment any of us will make in a lifetime.
The only downside is that until we pay that last bond instalment, the real owner of the property “the bank” has title to our bricks and mortar.
The sad reality is that very few of us can ever save enough money to buy our homes outright. The best most of us can do is to grind out the deposit, required to secure a bond, and fund the costs of the registration and transfer out of our own pockets.
Then the long haul begins in earnest.
For 20 consecutive years, we wake up at 05H00 in the morning to get to a job we need to have to pay the bank back, one brick at a time.
Nowadays a house purchased for R1 000 000 with a 10% deposit will cost R8 685 per month in repayments, over a 20-year period (interest rate of 10%).
The fact that you need to earn a minimum gross income of R28 950 per month to qualify for a R1 000 000 bond suggests that you wouldn’t have too much money left over each month if more than 30% of your net income was going to bond repayments.
Even if you could manage to make the repayments every month, would it ever be possible to knock that bond off in less than 20 years?
That must be the plan, right?
The sooner you can get your bond paid off, the sooner you can be taking that R8 685 per month and investing it into a new investment or propping up your retirement funding.
If you could find it in your budget, what would the impact of an additional R1 000 per month make?
How many years does it shave off your repayment term?
If you paid an extra R1 000 into your bond each month (using the example above) you would shave off 5 years. Yip, your bond would be paid off in 15 years rather than 20 years and here is the kicker – you would have saved R346 876 in interest charges. That is a whack of money, right?
How do you go about finding the extra money in your monthly budget?
We’ve come up with a few ideas.
All of us have fixed and variable expenses in our monthly budgets. The only way to free up some extra cash is to look at how we can cut some costs. Finding some wiggle room in your budget is a little tricky, but it can be done if the incentive is big enough. We think R346 876 is a big enough incentive.
- When last did you evaluate your insurances?
When last did you get a real apples-with-apples comparative insurance quote? We don’t think it’s a great idea to constantly be hopping from one insurer to the next, but occasionally it makes sense to shop around to see if you are getting a fair deal. When it comes to car and home insurance you will be surprised at the rates you will be offered if you haven’t had too many claims in the last couple of years. That’s always a good place to start.
- Spend less on “stuff” you really don’t need
This is the big one. Consumerism has us all longing for the next shiny thing we think is going to make us feel better about ourselves. As soon as the new iPhone or Samsung is out, we need to get our hands on it. It’s tough to be disciplined enough to say No to the stuff our heart yearns for. If you can manage to rein in your need to spend on “stuff”, you might find the R1 000 you need quickly enough.
- Be a bit more prudent at the grocery store
We aren’t suggesting that you run your home like a military compound and only fill your cupboards with baked beans and bully beef. We are suggesting that you take your monthly food budget and scrutinize it. Food is costing more and more these days and represents a fair amount of household spending. Each extra bag of potato chips and chocolate chip cookies adds up. If you can find a few items you could do without, scratch them off your shopping list and be safe in the comfort that you are a few extra steps closer to owning your home outright.
- Do the smart thing with your bonus cheque
Maybe you can’t find an extra R1 000 in your monthly budget. If you are getting an annual bonus cheque, could we ask what your plans are with that? If your bonus cheque is R12 000 for the year after tax, without even knowing it you have already found the R1 000 a month you need to make a dent in your mortgage.
- Eat in, don’t eat out
You are entitled to treat the family to a nice meal out occasionally. Eating out all the time or making the takeaway thing a habit is costing you money that could be hard at work paying off your house. Now that we have illustrated what R1 000 can do against your outstanding bond, think about each time you reach for your phone or open up an App to order in some chow.
Wise About Life is all about helping you make better financial decisions. We hope that this blog post has left you with something to think about. If you are fortunate to own a home, make it a priority to settle your bond as soon as you can.
We would love to hear from you.
If you have made some personal sacrifices in order to be “bond free” leave a comment below.
Until next time
The Wise About Life Team