How to manage your money yourself, like a fucking grownup: Part 4
Find and open the right accounts
Just landed here? You might want to start with part 1. Here’s part 2, and part 3.
Now we’re going to go through the really annoying process of setting up and closing our accounts, to make sure our money is sitting in the right places. You might just have a bank account, and you might have half a dozen weird products that a broker sold you when you were 25 and didn’t know any better.
So, now you’re going to do a little bit of homework on the internet and move all your money around to the best accounts you can find. The bad news is that this process sucks because the financial services industry doesn’t want to make it easy for you to manage your money on your own (they want you to use their slimy brokers). The good news is, you probably only need to do this exercise once every few years. And this stuff really isn’t actually that complicated.
Accounts most people need:
A primary bank account, which has the lowest possible fees you can find. In South Africa, it’s pretty hard to beat the Capitec Global One account, but if you have some kind of weird loyalty to your bank for some reason (perhaps they kidnapped your first-born child and are holding it ransom) then please for god’s sake at least downgrade to the cheapest possible bank account they offer. Do you love that fancy platinum card? Do you love it more than having a cushy savings account that will let you do whatever you want to do with your life? No? Get rid of that thing. Extra R200-R300 a month. Boom.
(Optional, but a great idea): a separate bank account for your “fuckaround” money (more technically known as “disposable income”). If, like me, you have the impulse control of a squirrel on cocaine, it’s a good idea to put your actual day-to-day spending money into this account so that you never run into a situation where you can’t pay your really important grownup bills because you spent all your money on Lego sets and sushi.
An old-school legit Retirement Annuity that gets you those sweet, sweet tax breaks. If you’re lucky enough to work at a place that contributes to a retirement fund, congratulations! Take full advantage of however much they’ll match. For the rest of us, you’re looking for whatever fund has the LOWEST FEES. If you’re young, you want something fairly high risk, and the older you get, the lower you want the risk to be. I like this one in SA because the fees are low and you can open it yourself on the internet. This one is also pretty good. But shop around and choose one that looks right for you. Use the calculator from part 2 to work out how much you need to be putting in each month to not starve when you’re old. Open one of the funds and set up a monthly debit order with that amount (just go to their website and fill in the forms. It’s boring but it’s not rocket science). Done.
Only, ONLY if you’re playing the Get Out of Debt Right Now game, you’ll have at least one debt account:
So you’ve got all those debts, right? And each of them have different interest rates that they charge you. It’s worth doing some homework to figure out whether it’s worth consolidating them into one big debt. But, and this is a big but, only if you commit to continue to pay off the amount you were initially paying on all those loans, into that one big loan. Read this and this to help you decide. If you do have secure debt like a home loan, it’s an especially good idea to consider using this method.
Otherwise, if you want to keep your debts separate, then there are two basic strategies:
- Strategy 1: pay off the highest interest debt first. This makes the most financial sense.
- Strategy 2: pay off the smallest debt first, then the next biggest, and so on. This can be psychologically helpful, because it’s easier to feel like you’ve accomplished something. It’s often called the “Snowball method”.
Either way, it should be clear that the moment you finish paying off each of your debts, you close those accounts immediately. And then you burn those cards and have a party. No, you don’t need the store card because you get extra discounts at sale time. No, you don’t need to keep your credit card open because it contributes to your credit score. Things don’t work like that any more. Just remove the temptation that got you into debt in the first place.
If you’re playing the Fuck Off Fund game, you also need:
Sensible people say you need a place to put your emergency savings, that is low-risk, earns at least 5% interest and is available within 1–2 days. Again, you’re looking for the lowest fees you can find. Some decent options include a Money Market Fund or a Money on Call account. Don’t use a tax-free savings account for this if you live in South Africa, because you have a lifetime cap you use up when you withdraw money (save that for your investment account).
Or, you can live dangerously like me and skip this account entirely to stick all your money in an index fund investment. I don’t know. Do what you want. I’m not your mom.
If you’re playing the Freedom game, you need that savings fund and also:
An investment account. This can get super fancy and involve financial advisory firms and diversification and all that. Fuck that noise. For a beginner, just find a tax-free index fund with the lowest fees you can find. Hear that? The lowest fees. You can find. Don’t fall for those pretty funds that have grown at 10,000% over the past 3 years at the fancy investment houses. That shit does not matter, because you do not control the market and neither does your fancy fund manager. But you can, definitely control the fees you pay.
If you’re interested in learning more about this, this whole debate is one that’s about active versus passively managed funds. I side pretty strongly on the passive fund argument (that is, index funds), and the data supports this position pretty thoroughly.
Look at this graph. Or this one. See? Fees matter. Over time, you want to start thinking about diversifying (i.e. having your money spread out over more types of things than just stocks, and even getting some of it overseas in case your local currency plummets because you have a terrible president).
But whatever you do (unless you’re very, very good at this stuff in which case you’re not reading this), do not try to time the market. Do not try to become a capital “I” Investor who eats the Business Day every morning for breakfast. Just put your money in, every month, no matter what the market’s doing. In fact, try as hard as possible to completely ignore this money once you’ve invested it (for at least 5 years). Let it sit there, shrinking and growing but ultimately growing. Don’t look at it. Pretend it’s a basilisk.
Shameless plug: you can invest tax-free, with low fees, through 22seven for as little as R350 a month. And the application process is all online. You can do it on your phone. In 5 minutes. This is how easy it should be.
Don’t get paralysed finding the Perfect Unicorn Magic Fund (TM). Just find the Good Enough fund. When it comes to money, doing the not perfect thing is usually better than doing nothing. If you’re in S.A., I recommend you start your search here:
- Capitec — bank accounts.
- FNB — bank accounts and savings accounts.
- Satrix — investment and savings accounts.
- Sygnia — retirement annuities.
- 10X — retirement annuities and investment accounts.
- 22seven — investment accounts.
Lastly:
If you already have money lying around in accounts you opened in the past, possibly through one of those slimy advisor types, seriously consider closing them and moving all your money into the shiny new funds, that you’ve thoughtfully chosen, for each of the categories above. I mean, you might also still have a home loan or something. That’s nice for you.
You also need insurance, but maybe not as much as you think. A good rule of thumb is to only insure stuff that could actually bankrupt you if the worst happened. So, you definitely want to insure something like your own ability to earn an income and have third party insurance on your car, but you probably don’t need to insure your cellphone or fridge. Rather put that money into a nice big emergency savings fund and deal with those smaller things as they happen. Choose a strategy: emergency savings OR being well insured, and stick to it. Don’t try to do both.
Okay, that’s it! Your accounts are looking good. Now’s the fun part.
