Fast little loans
To encourage savings, our minister of finance has proposed a tax-preferred savings and investment account to come into effect in March next year.
This will help lower-income earners save R30 000 a year and R500 000 in a lifetime free of any tax on interest, dividend and capital gains. Although this is two years away, it is heart-warming to see encouragement for us to save.
Even better news is something that will also encourage saving: from the same date, the tax deductible portion of contributions to retirement annuities and pensions will be increased from 15 percent of income today to 22.5 percent – and to 27.5 percent for people over the age of 40.
What these announcements are saying to you and me today is that the government is giving us notice that we should take responsibility and begin making our own provision for our old age.
This may be an early warning that the government may take less care of us later in life and is providing incentives for personal saving.
If one looks at the rest of the Budget, it makes one wonder how it will ever be possible to save.
Gauteng drivers will be paying 30c a kilometre to travel on roads that were, in the first instance, built with their money.
The fuel and road accident funds will increase the price of fuel by a further 28c a litre.
Readers who commute from the Soweto Metropole to Randburg and Sandton will have to fork out an additional R26 a day on an average round trip of 80km (assuming their cars do 10 kilometres to a litre).
Thank you, sir, for the incentives, but may we ask: how do we save more when you are reducing my budget by more than R500 a month?
When one has an income of R40 000 a month, the R500 does not appear too daunting, but when many commuters earn only R10 000 or even R5 000 a month, one realises that this increase will account for 5 percent and 10 percent of their salaries – a figure much larger than most people’s savings percentages.
I think SA can expect to see demands for increased salaries and possible labour disputes, strikes and other reactions to the daily financial pressures that average people face.
Our same commuters will also now have to pay more for their food and other commodities, delivered by suppliers who travel the same roads in the opposite direction, who will have to increase prices to meet their increased transport costs.
I cannot see our readers, who have to do this daily trip, getting away with much less than R600 a month in additional costs.
That scares me when I am trying to motivate readers to start creating wealth for themselves.
While writing this I can just sense how many readers will raise their eyebrows and want to ask me how we can do this, so allow me to suggest the following:
1. Rebalance the budget – this means you will have to:
a) Re-list each item of the budget.
b) Increase travel expenses by R500 and see what the shortfall is.
c) Shave enough off each item on the list to make up the deficit.
2. Reroute your travels and find routes that will lead you around toll points (you may have to leave earlier to avoid congestion).
3. Re-plan and join friends and relatives who drive the same routes in sharing cars and costs.
The situation is not hopeless if we remember to apply the correct principles, in the correct order, to our money as suggested in the book Richest Man in Babylon.
My favourite principle is the one that says “pay yourself first”. By paying yourself first, you will, among other things, secure savings. There is no reason not to save, and there is enough motivation to continue with your wealth plan.
l Deon Hattingh is a certified financial planner and trainer. Visit www.makingSENSE or e-mail firstname.lastname@example.org