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“The reality is that while 28 February - the end of the tax year - is a key date on the economic calendar, some consumers are still recovering from poor money decisions taken especially during the holiday season,” says Lizl Budhram, Head of Advice at Old Mutual Personal Finance.
"Although this means that many South Africans won’t be able to take advantage of the tax benefits available to them for the 2018/2019 tax year, it’s important to remember that it’s never too late to learn good habits. The start of the new tax year gives you a fresh opportunity to put the right plans in place and make the most of tax efficient savings vehicles."
The 2018 Old Mutual Savings & Investment Monitor found that 38% of households earning R14 000 – R19 999 per month would not be able to deal with an emergency of R10 000, and even in the R20 000 – R49 999 per month household income bracket, 28% said they would run into financial difficulties if an emergency arose.
“The time is now to get the basics right so that the 2019/2020 financial year can be a foundation for your financial success,” says Budhram. “Being money smart includes being cash flow positive, having sufficient risk cover in place, living within your means, managing your debt responsibly and having the right mix of short, medium and long-term savings.”
Budhram outlines five steps you can take right now to build your financial wellbeing:
The pain of January may still be very fresh for many. But you can avoid this hassle next year by setting smart money goals for 2019. Your goals may include clearing credit or store debt, saving enough for an emergency fund, contributing monthly toward your retirement or simply to be cash positive in the middle of January 2020. Be specific about what you want to achieve and write it down. Make sure you can measure success and that your goals are attainable within your timeframe. The science is clear – various research studies have found that people who set clear written goals for themselves are around 33% more likely to achieve them.
Once you’ve set your smart goals, put a plan in place to achieve them. This is where financial advice can help. A financial adviser will partner with you to co-create a roadmap that eliminates unrealistic pressure and is grounded in the reality of your personal financial circumstances. Don’t be hesitant about asking for help.
To maximise your tax benefits, consider the best savings vehicles for your needs. There are several tax efficient options, but tax-free savings accounts (TFSAs) and retirement annuities (RAs) should be on everyone’s financial radar.
Tax-free savings accounts have an annual savings contribution limit of R33 000 and a lifetime limit of R500 000. The great advantage of a tax-free savings account is that it attracts zero income tax, dividend tax and capital gains tax.
When it comes to retirement savings solutions, the first 27.5% of taxable income/remuneration or R350 000 (whichever is smaller) of your contributions to retirement funds, i.e. approved pension, provident and retirement annuity funds, is deductible from your taxable income. Investment growth within a retirement fund is also taxed at 0% (i.e. interest, dividends and capital growth are tax-free).
Healthy financial habits will help you achieve your goals in the upcoming financial year. These include setting a budget and sticking to it, living within your means and committing to your financial plan even if it means trimming some excess from your budget.
Free apps like 22seven can help you monitor your spending on a daily basis. You can also learn about good money management through online tools like Moneyversity, which helps you understand and manage your personal finances better. Interesting and practical videos, calculators, infographics and articles are just a click away.
Many South Africans can expect an annual salary increase sometime during 2019. Make sure you pay yourself first by allocating a portion of your increase toward your financial goals, whether it’s to top up your TFSA or max your RA contributions. This need not be the full increase amount, but a percentage of it can go a long way towards boosting your 2019 financial goals.
Budhram concludes: “The lucky few who are able to top up their retirement annuity or tax-free savings before the end of the tax year should seriously consider doing this. For the rest, 1 March 2019 is the opportunity to start over with better money habits and starting the journey to the long term financial freedom.”