Att: Financial Geniuses - what would YOU do?

[jpg7n16]

Well you only need to come up with 3k/month. So if you switched to homeschooling you'd make it on that change alone.

You could also: switch to homeschooling, cut the food/clothing expense in half, shop around on insurance rates, and cut out the hired help.

As far as your life insurance, I agree with DS that it seems high. What type of policy do you have? Let me give you a quick comparison: for a 40 year old non-smoker in relatively good (but not excellent) health in the US (Texas - TX), a $2 million 30 year term policy costs around $250-275/month. (see https://www.zanderins.com/term/instantquote.aspx ) Your rate is right at 8 times that amount.

So you should likely shop around on your insurance rates regardless of the other changes you decide to make.


Please keep in mind that eariler I suggested selling the house was an option for clearing this up; Not the only option. So there are ways to keep you in the house, but like DS was saying, you've really got to get a handle on that other 80%


By making all the changes suggested above, not only could you 'make it' - but you could even begin saving 10% for retirement and have money left over to pay off these debts.


And I don't know what the food costs in South Africa, but I do remember going on a mission trip to Swaziland, and food was cheap by comparison to what I pay in the US. Not sure if that's just a Swazi thing or not. And I'm not even in a high cost of living area here. Texas is relatively cheap overall.

Typical food costs should be from 5-15% of your income. The higher the income, the lower the percent. So it is very possible to cut your grocery expense in half. (You're at 20%)

[Money Gal]

If you are available for home schooling, then that suggests that someone is not working. If one of you is not working, then I would wonder why household help is necessary?

I would suggest shopping your insurance rates as they seem high. I would cancel household help before private education, but you should probably shop the rates for other private schools too.

[DebbieL]

jpg7n16 - His price for the insurance (once you convert the currency) is right around what you say that policy would cost in the US.

I actually converted a lot of the numbers into what they would be in my own currency (Canadian), and found that some of the things are actually quite cheaper than we pay here (in Canada).

Approximate amounts converted into Canadian:

Mortgage $738 (sounds like a dream come true - since average house is currently $600K where I live)
Life insurance $284 (this is for both the husband and wife's policies)
Medical insurance $284 (this is way more than Canada - but really not an option IMO - you need it)
Household/car insurance $113 (this is way cheaper than what we pay in Canada for 2 older vehicles)
Phones/internet $156 (for 3 cells and a land line - we pay this much just for 3 cells in Canada)
School $497 (I have no idea what it costs here - I sent DD to public school)
Food, clothing, etc $710 (this would be about the same here in Canada - don't forget food is way cheaper in the US than it is here in Canada - and presumably where this guy lives)
Gas $170 (we pay more than this for our 2 cars - gas is really cheap in the US - it isn't cheap other places)
Utilities $270 (this sounds about right - I'm not sure what size of house, etc)
Animals $142 (we spend more than this per month on our little Jack Russell - so pretty cheap for 7 animals including a horse)
Staff $250 (well, I pay a cleaning lady $40 every week for 2 hours - this sounds cheap for what he's getting - although he currently can't afford it so it should go for now)


I would guess that Canadian prices are probably more in line with this guy's expenses than US prices. Actually, many things are more expensive here in Canada, so I'm envious of some of it. The big thing jumping out at me is the schooling (as others have also mentioned). The insurance is probably okay, but it is way more than what I spend for life insurance (although I'm not as heavily insured).

[jpg7n16]

jpg7n16 - His price for the insurance (once you convert the currency) is right around what you say that policy would cost in the US.

I actually converted a lot of the numbers into what they would be in my own currency (Canadian), and found that some of the things are actually quite cheaper than we pay here (in Canada).

Did you convert the face amounts of the insurance as well?

I didn't actually do all that.

I just put in "well if he gets 2 million SAR, let's compare that to 2 million USD."

His 2 million SAR policy costs 2000/month, where a 2 million USD policy costs only 250/month.

In essence, the USD policy has a cost of 0.125/month base currency per 1000 of base currency benefit. While OP's policy has a cost of 1.00/month base currency per 1000 of base currency benefit. Which is 8x the cost of the American policy.

You could adjust a little for his wife's policy, but wouldn't expect it to be anywhere near an exta 7x


Edit for clarification: What I'm saying is that a 2 million SAR policy should only cost around 250-300 SAR, rather than 2000 SAR. (Current exchange rate is $0.1428; so I mean $35.70-42.84/month instead of $285.60/month) And this may be slightly higher by the presence of a SAR 500k policy on his wife. So maybe 400-550SAR total.

[snafu]

By presenting a break-down of expenses here, you have an opportunity to review your spending decisions although the SAR 150,000. loan, purpose & payments are not mentioned.

In Canada, private schools, hired help, horses and restaurants are luxury items easily cut if the month outlasts the money. You are living a lifestyle your income can no longer support. What income can your wife earn during this down-draft until business income dramatically increases?

As has been pointed out, it isn't the house, it's the other 80%. Many of us remember life before cell phones. I'd classify these as utilities at the cheapest basic rate and cancel the land-line. If friends find your school fees incredulous are they paying less? I'm guessing you are carrying expensive insurance that earns major fees for the sales representative rather than truly protecting your family.

Can you rent your house for more than break-even and rent an apartment so that you can sell out in two years for that anticipated profit when major 'upliftment' has increased it's value?

[glr]

Thanks everyone for your comments.

Points comparing prices USA/CAN/RSA - prices do differ, eg. my life insurance is actually cheap, I've compared and shopped around. Life and medical insurance are linked and it makes it cheaper. I can get just pure life insurance cheaper, but much more likely for me to get cancer, get disabled, and that's where it becomes much more expensive.

What this is doing is making me think differently. Here in RSA having hired help is something you grow up with, it's almost unheard of not to have help. So you guys are helping us to think outside the box.

And I'm feeling like, yes, we can do this. We live in a really special spot, it's around 75km outside the nearest city, in apple farming country, in a residential estate that is save, has mountain views, we have 300 trees on our property (50 000sqf), we cycle / my wife rides the horse "Jet" out the front gate and we're in the orchards, forest and mountains. The kids play in the street. (In RSA believe me this is very unusual. Crime, drunk driving, rape, murder are all too common.) This overall experience is almost unique to the 50 houses in this estate. To not fight for that would be wrong.

House prices have slumped in the last 2 years. However ZAR1 billion is earmarked for development in this area with some high profile investors moving in here in the next 3 years. I can't help thinking that we'll thank ourselves later for keeping the house. My parents bought a home back in 1980. Sold it about 10 years later for around 400% gain. Almost 20 years later, when my father died he still had some of that money in his bank account.

Good property is worth biting the bullet for.

Thank you. I'm blown away by your willingness to comment and help. Much appreciated.

[scfr]

Sorry I am late to this thread.

Are there any lower priced houses in the area for sale? If you could sell your house, move to a $1.5M house, and keep a comparable mortgage, even after paying fees you could knock out all of the debt except the mortgage which might bring your expenses down below income.

Regarding bringing in some extra income, are the 300 trees on your property apple trees? Are you selling the fruit now? If not, could that be another source of income for you?
I vacationed in South Africa about 15 years ago and it is such a beautiful place. And the fruit I ate there was the best I have ever tasted!

Good luck. Keep us posted.

[glr]

Thanks scfr for pitching in here. And that's such a good suggestion. Unfortunately there are just no homes that fit the bill for doing that right now. But we'll keep on the look out.

There are other areas we could buy - but it'll be a big step down for us from a lifestyle and investment point of view. I know that sounds wrong considering we're spending more than we're earning, but when certain things are worth fighting for, I think.

Regarding our 300 trees alas none are apple trees, so that's not an income opportunity.

Thank you very much for your support! I'm finding that the chance to express things, the corresponding comments is really helping me to formulate a strategy that I think could see us through.

[thomsoad]

First off; thanx to whoever did the conversions ... i freaked out when I saw the original amounts!

But back to topic. It really is a simple equation... input and output. Looks to me like you got it down probably about as low as you can go on the output side. If selling the house isnt really a good option then all you really have left is private school and paid servants.

If you cant do those then the only option I got left is 2nd jobs.

[snafu]

Sadly, there is no magic action that makes income rise to meet spending choices. Bankruptcy is a very expensive procedure for your self image and business. When you lose the ability to stay current with existing financial obligations you risk losing credit worthiness which remains on your record for many years. The potential exists to forfeit your home to satisfy creditors.