I'd like to start saving more this year, is a declaration we hear only too often at the beginning of the year. Soon after we have recovered from the shock of Janu-worry, we quickly forget our new year's resolutions and start splashing out on things we clearly don't need.
Whether it be a lilo shaped like a pizza, or a spaghetti maker that we'll probably only cart out at dinner parties, people are addicted to credit.
Matthew Chapman from NFB financial services says South Africans often can't afford to retire as they don't save enough. Chapman suggests tax efficient products like retirement annuities or tax-free savings accounts in order to provide for retirement savings.
Dean Gerber, Director of Prop93 Property Investments says idle deposits are by far the most profitable type of deposit for a bank. What is an idle deposit? This is money that an account holder leaves in their current account earning very little or no interest.
The majority of that money is lent out as short-term loans and the bank makes a fortune on the difference between the interest charged and the interest it pays (or doesn’t pay).
We are guilty of leaving money lying around in current accounts, which earn 0% interest. Gerber suggests either moving the money in and out of your bond for short-term purposes (if you have a flexi-bond) or moving the money into a money market account, or seven-day call fixed deposit. This will ensure your money is actually growing, instead of simply laying about.
Tax-free savings accounts are a new savings product introduced in South Africa in 2015 through government legislation. This savings product allows you to save a maximum of R30 000 per year (and R500 000 in your lifetime) in a specially designated fund / account. You may already be investing in a specific fund, but not a tax-free version. If you are looking to save long term, a tax-free savings account is a must. With no tax payable, it does not affect your capital gain.
Gerber says, In my opinion, it is ideal for younger investors to invest this R30 000 in high risk / high yielding funds, as opposed to stable funds / fixed deposits. Firstly, the larger the gain you can potentially make, the higher your potential tax saving will bewhen you eventually cash out. This is different to a pension / retirement annuity where your main tax saving is on your upfront contribution.
Secondly, we all already receive an interest exemption annually, which should be exhausted on your more stable, interest-bearing investments. The tax-free savings account could then be used for dividend-yielding investments.
Lastly, if you have a family, I would consider investing the R30 000 per year for every family member on the first day of the year (giving your money as much time to compound as possible). Keep in mind that you are only allowed to donate a total of R100 000 per year to your children / spouse tax-free. So, if you have more than three dependents, don’t forget about the donations tax implications.
Although an obscure saving tip to think about, by paying your DSTV account upfront in January, you are side-stepping the annual fee increase, which occurs in April. DSTV recently referred to this option as Price-Lock.
This means you will effectively be paying 'last year's prices'. What is even better is that you will receive one month free and only pay for 11 months of viewing.