I have never seen anyone who was able to save to become wealthy and prosperous (sleep is a different story).
There are countless ways to explain how wealth is created.
Please forgive me for having a mathematical inclination, for some reason fractions, decimals and formulas speaks to me.
In my mind, the formula for success is the following: Ca+Pi-Ti=S
Ca, is the accumulated net income that you earn from the work that you do and ventures that you are running. It’s the income that you are generating and that you use to either take care of your family, your loved ones, procure your assets and pay your bonds and loans with.
If this number is too low, well then the S at the end of the equation is low. Even if you opted for the simplified version of maths (MathG), you should be able to grasp that for two things to be equal, they have to be in balance. See, this is where the fundamentals come in that you cannot save yourself into prosperity.
Pi is the invested capital and the return on the investments that you are getting. If you don’t have Ca, then the Pi is too low. Your Ca, and the Pi, have to increase over time.
Now please remember, that unless you are in control of the investments that you are making and running them, your investments returns are in the hands of “professionals”.
Joostes, Enron, VBS vs Sanlam, IOL, SA Breweries. Be careful who you entrust your hard-earned CA with to invest. If something is too good to be true, it usually is.
Ti is the tax you pay on the returns you receive from your investment and income from your labours (Ca).
There is a thing called tax planning (well 50 shades of it), and there is tax arbitrage.
In short, however, this little Ti can vary from 18percent to 45percent, depending on the extent of your income, and if you get it wrong it can be in excess of 135percent in the event that SA Reserve Service is of the view that you willingly and knowingly committed tax fraud (you did not declare all your income with the intention to evade taxation).
S is the success we are all working towards, having enough dollars to retire on, to buy the 3D Curved Ultra HD television you wanted, the 911 of your dreams, and the house that can become a home.
If you do not start there is no Ca. If you make poor investment decisions your Pi might just erode and take away the Ca you have built up. If you get it wrong on the Ti side, the penalties and interest may well bring you to your knees.
What does this mean? Have a damn good tax adviser, consider your investments very carefully, and work! It all starts with the work. If you work for what you have, you appreciate it more than when you get it mahala. If you work for it, you will invest it wiser, and if you worked for it, you would want to plan your taxes, and you will want to pay unto Caesar what is due unto Caesar. Not a penny more, not a penny less.
That is that. ABC. Apply Bum to Chair, and see what happens. Don’t focus on the S, it’s what goes before it that matters.
Willem Oberholzer is a CA (SA), MCom (Tax), he is the tax director of Probity Advisory and executive director of Kreston South Africa.