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About mogiletsi

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  1. I like this cashflow system. Using credit facilities as they should be. From the terms you've used it seems that you're with FNB... I had a similar setup, but after realising that MOC interest is lower than linked savings account interest, I shifted my cash around and closed the MOC. At R5-10k in the account, you're looking at an interest rate of 3.15% in MOC versus a minimum of 5.25% in the linked saving account (it goes to a nice 6.2% if over 25k in account - I keep this as my lower limit. Now I know that you're probably not looking for growth in these accounts, but interest is still relevant. The only plus for MOC over the linked savings account is 3rd party payments and transfers, which I don't think you require for your purpose for the account?
  2. This idea of holding back on buying a car (depreciating asset) in cash and investing it in a lump sum/DCA is too risky. The minute you get into that brand new car, that car depreciates by at least 20% - that's an immediate loss. Further depreciation and along with added interest on top (with interest added to principle) is crazy. Buying cash will only result in the depreciation being the contributor to loss and not interest as well. Let us imagine: buys car cash @ R200k - 20% depreciation = R160k; day 1 year 5 (further depreciation) = R80k value *invest what would have been monthly repayments (excl insurance) using dollar cost averaging @ 4k per month in broad ETF (SWIX40 2012-2017 getting 9% pa (conservative)= 300k total - (240k principle) = 60k growth return on investment = R80k(car value) - R200k(deposit) = -R120k (loss on car) + 60k (DCA INVESTMENT profit) = -60k in assets (car + shares) buy car with 0% deposit at 10% p/a interest (pretty good rate) invest 200k cash in broad ETF (SWIX40); 2012 - 2017 = getting 12.5% pa (pretty good) = R360k total - (200k principle) = 160k growth bank loan amount = -R200k (principle loan) + (-R120k (total interest after 5 years) value of car after 5 years = R80k return on investment = R80k (value of car)- (R200k (principle loan)+R120k (added interest)) = -R240k + 120k (LUMP SUM INVESTMENT profit) = -R120k in assets (car + shares) -R120k (100% loan, invest lump sum) > -R60k (100% deposit, invest monthly repayments. Even with DCA growth) You've lost double the money than with lump sum deposit, even with performance of lump sum investment being good compared to conservative DCA and a good interest rate for car. Also DCA investments were low in comparison to what would've been true monthyl repayments (over 5k) - in other words, interest rates favoured the lump sum investment + 100% finance - imagine if it were the same, not pretty Moral: avoid taking a loan that incurs interest, which would eat away at the performance of other investments. Settle your debts on depreciating items (car, credit card), then invest. There is no balancing of bad debt and investments, really. Kill the bad debt and work on growth from there. NOBODY CAN ASSUME THAT THE PERFORMANCE OF THE MARKET WILL BEAT THE INTEREST RATE THE BANK GIVES YOU - just look at the last 3 years
  3. I believe a balloon payment is subject to interest too, get rid of it. It does reduce accumulated moonthly payments at end (slightly), but deposits kill interest. Balloon payment is like the evil brother of a deposit, always aim to give a deposit, else you simply cannot afford the car. 100% finance is stupid Interest thrives with more time so get refinanced over a shorter period, averaging out the extra cash over given periods to increase monthly contribution. This may get you a reduce interest rate.
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