Johannesburg- As the new tax year approaches, most people’s thoughts turn to whether there is any way of saving more of their hard-earned money and reducing their tax burden.
The good news is that there is an easy way to do both with a tax-free savings or fixed deposit investment account.
Since the tax-free savings allowance was first introduced by the government in 2015, there has been a lot of excitement about the opportunities that South Africans now have to grow their savings in the long term without having to pay any tax on the interest they earn.
Before tax-free savings and investments options were made available, anyone who saved or invested their money, and earned more in interest than the annual interest exemption would have to pay tax on the growth of their savings or investments above that exemption.
The incentive about tax-free savings is all proceeds including interest, dividends and capital gains on the disposable of these investments are fully exempt from tax. T
The interest exemption basically means that any interest or capital growth you make on your total savings and investments in a tax year, which, in 2021 was R23 800, won’t be taxed if you are under the age of 65.
Any amount you earn in interest over R23 800 will be taxed at your tax rate for that year. Persons who are 65 years and older will be taxed R34 500. To get the most out of your tax-free savings, it’s worth making sure that you understand how the different savings and investment products work, and what benefits they can offer you.
Here are a few guidelines:
• Tax-free accounts are simple to open with little to no fees Many people are hesitant about saving and investing because they are worried about the costs (stated or hidden) charged by the account provider. Some also fear that the interest rates offered on money deposited into these accounts are too low to achieve real growth.
A good tax-free saving By Kabelo Khumalo A study by TymeBank has given insight into how South Africans use their credit cards. The fledgling bank conducted an online survey that zoomed in on 1 000 consumers to gauge how they use their credit cards. The study found that 74% of respondents were using their cards to shop online. Some of the key findings of the study include:
• Sixty-three percent of the respondents use credit cards for big purchases like appliances, furniture and renovations. • This is compared to 46% who pay for special occasions such as weddings, birthdays and funerals.
• Forty-one percent said they used their cards to pay for holidays and to travel, although this is far more likely among those earning over R30 000 a month and older than 50. Credit card ownership among respondents in the 18-24 age group was high at 46%. The younger consumer tends to pay for their entertainment needs, while the majority buys clothes.
TymeBank CEO Tauriq Keraan said when choosing a credit card, low fees were the most important feature for 77% of the sample, while 61% looked for a good loyalty programme. “Interestingly, the card’s design is an influencing factor for 16%, while 6% said they liked the status that comes with having a credit card,” he said. By Daryl Coker One of the most significant financial relationships, one can have in life is one with a life partner or spouse. Partners need to plan for financial security and success together.
Joint financial planning for all the milestones of life is the secret to a sturdy and harmonious financial relationship with your other half. How to create financial cohesion as a couple 1. Financial communication There is a saying that “love cannot make a home where lies and secrets sleep”.
It’s important for partners to be honest about their financial realities and vision for the future. Communication around financial needs, worries and goals will become more important as you work to build a partnership that meets the requirements of all life’s phases, from early marriage to parenthood, sickness and health, retirement and old age. 2. Joint budgeting A budget is the foundation and starting point of any financial plan, even for high net-worth couples.
The trick to making it work is ensuring that both partners can and want to stick to it. Both parties should agree that the budget is fair and just. Whatever may be leftover of the monthly budget can be saved or invested to meet bigger financial goals in the future.
3. Joint financial goal setting Couples need to agree on their financial goals and what they wish to prioritise. Be conscious about how much is needed for retirement, property investments, vehicles, education, travel or savings. Working in tandem can build trust and unity, and significant long-term prosperity.
4. Career and family planning Globally, it is outdated to think that only women tend to take a hiatus from their careers to raise children. Where childcare can be expensive, whoever earns the most between the couple often becomes the sole breadwinner while the other stays home with the children. If you and your partner are planning to have a family, it is important to have discussions about family planning in relation to each partner’s career and earning power.
5. Setting joint investment goals, including retirement goals To achieve long-term joint financial success, couples must devise a unified investment strategy. This could include having an overall view of their collective investments, knowing what each partner is invested in, etc.
6. Be clear about bank accounts and boundaries Depending on your circumstances, you may decide to keep separate bank accounts, have a joint account, or a combination.
7. Establish your will Ensuring that your partner and children will be cared for in the event of your death is one of the most important acts of love for any couple. It is also important to talk about estate planning when entering a second marriage. Equally, it is essential that your partner can find the details of any life policies, retirement funds or other investments you may have, and also knows who the beneficiaries are.
• Coker is a wealth management specialist at Citadel account that addresses both these concerns by charging a competitive interest rate that delivers solid capital growth over the long term.
• Saved money is smart money When placed in an interest-bearing account, saving can yield great returns. Blindly following the latest financial trend is seldom a good way of growing your money.
Those who have savings in tax-free accounts are still seeing steady growth, and have the peace of mind of knowing they will never be asked by SARS to pay tax.
• Saving can start now The most-common reason most people have for not saving is that they think they don’t have the money to start. In fact, a tax-free savings account lets you start saving from as little as R500 a month.
• Cikido is head of retail investments at Nedbank
By Sisandile Cikido
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