IN BLACK AND WHITE

 

And another one down...

I am contacted by many people during the course of the year who express a desire to set up an investment plan (retirement, kids education, wealth creation) but many do not follow through, in most instances, because ‘life just gets too busy’.

So this holiday season why not sit down and list some financial goals you want to achieve in the next 12 months, 5 and even 10 years from now and commit to actually implementing the plan in 2014. Keep the tasks manageable, or bite-sized, rather than aiming for some overwhelmingly impossible full financial revolution. Get the ball rolling slowly now and make sure yet another year does not pass you by without making progress.  

No plan, no progress

A few thoughts to ponder over the holidays:

What happened in 2013

Did you follow through with your plans you had at the start of the year? If not why not? Can you still achieve any of them before the year is over or can you make some good headway so that 2014 becomes a year of real action? What areas can you improve on?

What to do with the annual bonus

If you are coming into some additional cash towards the end of this year (annual bonus or recent tax refund from SARS), and you want to protect it from those impulse buys that tend to accompany the festive season, you could consider contributing an additional ‘top-up’ lump-sum to your retirement plan (or starting a plan if you just raised your eye brows at that suggestion).

If you do not contribute to any form of retirement savings product through your employer you can contribute up to 15% of your taxable income to a retirement annuity fund which will further reduce your tax bill for the year ending February 2014.

Let’s say you expect to earn a bonus of R20 000. If you take that money and spend it all on Christmas festivities then come the end of February 2014, you will pay income tax on that amount at your marginal rate as per SARS tax tables.

This means if your marginal tax rate is 30% you will pay R 6000 to SARS and only effectively have had R14 000 to spend.

However, if you opt to take a prudent approach and contribute the money to your retirement annuity, you can pay the full R20 000 into your annuity fund. Essentially, SARS contributes the R 6000 you would have paid them in income tax, into your retirement plan.

Of course this R20 000 will be locked away for your retirement up until a minimum age of 55 years old but all the investment returns you earn up until retirement will also be tax free.

Wipe out short-term debt ASAP

If you have outstanding short-term debts, make a plan to reduce those as quickly as possible in the New Year before considering investment options. It’s usually really hard to earn real returns (after inflation, fees and taxation) in excess of the cost of your short-term debt.

Invest in Knowledge

If you do not have additional funds available to invest at the moment then perhaps you can use some of your time and energy this holiday season to invest in your financial knowledge. Read some personal finance magazines or newspaper sections, books or websites – the more you learn and the more financially literate you become, the more motivated you will be to action your plans rather than let another year fly by.

 Finally, as we enter a new era for South Africa, without the physical presence of Nelson Mandela to inspire us, I hope we can take some lessons from his life, have the patience and motivation to overcome seemingly insurmountable obstacles and create a better future for ourselves (both individually and as a Nation).

I wish you all a very peaceful festive season and a 2014 filled with success and happiness.

Dominic White

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