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When you retire, you must own your own house or have enough investment income to pay your rent. You must ensure that you are not continuously making secured debt payments after you have stopped generating a regular income.
Is owning a home an asset?
An asset is something you own that has monetary value. So, yes, owning a home is a valuable asset… However, your mortgage is not. Debt, especially secured debt, is a liability since you must repay the loan and interest before you can truly own the home.
A secured debt is a loan used to make a purchase, such as a house or a car, that a lender can repossess if you fail to pay. Most individuals take on as much debt as they can, but it is far more prudent to buy and borrow within your means. The more money you spend repaying debt on a house or a car, the less money you’ll have to spend or invest.
Avoid common financial mistakes with secured debt
It’s useful to be aware of frequent financial blunders that could prevent you from paying off your secured debt before retirement. One of them is never owning your home outright since you are constantly upgrading to a larger, better home. Over-improving your home and spending more than you need to are both classic blunders.
Another blunder is overspending on a vehicle. You could greatly gain from simply driving a less expensive vehicle.
For example, if you purchased a house for R1 million and a car for R300,000, and replaced your car every five years, your bond payment would be roughly R9 600 per month for 20 years, and your car cost would be R6 700 per month for five years.
If you bought a different car for a third of the price (say, R200 000 rather than R300 000), your monthly car payment would be R4 400. Putting the money you would have spent on car payments into a bond instead will let you to pay off your property in 12 years, saving you R580 000!
Even better, for the next eight years after paying off your mortgage, you’ll have an extra R14 000 to invest each month.
Building wealth is a delicate balancing act. Choosing to manage your lifestyle spending in order to achieve financial independence can result in significant savings – and the extra cash gives you options.
Vitality Money
Property Points help you prepare for retirement
Vitality Money uses property as one of five indicators to determine your current financial situation. Your property points monitor how close you are to retiring, so you can quit working, have a place to live, and no secured debt.
The points are determined in two ways, depending on whether you own or rent your home.
If you own your home,T he points are awarded based on the amount of outstanding secured debt you have in comparison to an age-related benchmark. This means that as you get closer to retirement, you should pay down more of your mortgage.
If you rent your home, The points computation will take into account investments not included in your retirement lifestyle funds, which can be utilized to cover your living expenditures. In other words, we make certain that you can continue to rent comfortably in retirement. Vitality Money also employs an age-related standard to calculate this.
There are two ways to boost your property points: Pay off your secured debt every month and Build up your savings.
Thank you for reading our todays post on discovery bank home loans. We hope to see you again soon.