Hi guys my name is Desmond, I'm also known as the Dish. Welcome guys, I’ll be talking all things or rather we asking this question should I be paying off my debts first or should I be investing? And remember that none of my posts constitute as financial advice, speak to somebody who is certified and registered with the FSCA. So let’s talk about a typical budget. On a typical budget what you would have there is your living expenses, savings technically, you would also have a contractual debt. A contractual debt is one where you have a credit agreement in place. So you have an obligation to make those payments every single. This may include a bond, it may include a car this may include a credit card and all sorts of other things. Those are what we call contractual date on many people's budget.
Those things already exist what might be missing is one portfolio investment funds. Investment account however some people may have things like life insurance they may have things like funeral cover. Well those things fall under insurances, they can double up also as a savings account. The other things that people may also have is that they may be paying for instance R300 towards a company like old mutual or R300 to Sanlam and they may call it an investment. Is important to understand that where ever you are putting money away for growth it is indeed an investment. So already you might find that this question is already answered. Are you going to be paying off the debt so that you can free up some money to invest or are you going to be doing these two things into changeably at the same time?
Well in my opinion there are two ways in which you can look at it. You can either do both at the same time depending on the type of data that you actually have secondly you could choose to pay off the high interest rate debt. The most expensive debt is taking away a big chunk of cash flows. What do I mean when I say that what you say is true? What I mean is you may find that you've got what is called unsecured lending or i'll trade it's not a cold life such as how overdraft or credit card you personally I would say it is hard because the store card also really doesn't prescribe an effort for you to be able to gain access to that facility. Even though you are using it to buy specific things from a specific shop a network of shops so that is what is called unsecured lending.
If you cannot take a home loan and they want to use that money to buy a car because the bank prescribe the type of assert that specific credit line must be used for the reason for this is that if you do default on payment on that specific credit line there is an assert that can be repossessed and sold sold at the bank and recover its money. But generally what happens with these two types of supplying or credit lines, credit generally attracted very low interest rate when you do the calculation is because of a lower interest rate. It means that make sure that you have a higher cash flow even after you have paid all of your liabilities and that is called disposable income so that you can use that money to be able to save and invest. So ultimately we need to get you to a point where your cash flow is quite high and the only way you can do that if you do have data is by insuring that instalment that you pay the monthly repayment that you paid back to the bank right now.
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