888 My Money ? Investing, retiring and the Budget

Your Guide To Personal Finance Responsibility

March 05, 2012

Although you may not want to think about the state of your finances, there is no getting away from the fact that money is an essential part of everyday life. This article is full of tips that will help you get your finances under control.

Be sure to include your post tax income. For starters, include all after-tax money that you get each month from your salary, alimony, child support, rental income, or other sources. Make sure your expenses are less than your income on a monthly basis. A great way to consolidate many bills into a smaller payment is by getting personal loans and these loans are typically desired because they offer a much lower rate of interest. You can imagine how much money you will save by consolidating higher interest loans into a personal loan with a lower rate.

To make this process effective, you should compose a detailed listing of your expenditures. You need to also include quarterly and yearly payments. Some of these expenses may be home improvement and repair costs, or car maintenance and registration payments. You need to also write down other, smaller things that you pay for daily or weekly, such as child care or grocery shopping. You should make sure that your list is as comprehensive as possible to ensure you have a true picture of what you spend.

There are always things you can eliminate from any budget. One easy thing you can do is bring coffee from home instead of stopping for expensive lattes on the way to work. Seek out anything similar to this that you can get rid of without difficulty prior to putting together a lasting financial plan.

See what improvements you can make to help you lower your utility bills. Windows can be a weak link in your homes armor by letting out heat in the winter and cool air in the summer. Make sure your windows are properly insulated. An on-demand hot water tank is a good way to reduce spending. Have a plumber come out and fix any leaky pipes you have to help lower your monthly water bill. Be sure to run your dishwasher only when it is full, so you can make the best use of it. If you can, purchase new energy efficient appliances. These energy-saving appliances help you save on your utilities. Also, when you are not using something, unplug it. You can save both money and energy by doing this.

Some home improvements pay for themselves over time with the reduction in utility expenses. For example, replacing your roof and installing new insulation prevents you from losing energy for both heating and cooling because of insufficient structural materials.

Try to save money by being careful with appliances. Even though you are spending money to repair or replace items, you will see a savings in the long run.

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Investing, retiring and the Budget

March 4, 2012

Tax and tax policy are important
considerations in most individuals investment strategy and retirement planning,
and personal tax relief of R9.5 billion was given. However, the tax burden will
effectively rise by R74.6 billion, aided by inflation, the imposition of new
taxes and an increase in other taxes such as CGT (capital gains tax).

Investment and retirement planning received many mentions in the Budget
speech and some initiatives were announced. However, the speech was more
ambitious than the actual provisions in the Budget. Taxes were in effect raised
on saving and investing, with some measures thrown in to mitigate the increases.

The dividend tax, which will replace the 10% STC (secondary tax on
companies), was set at 15%, and while it has certain exemptions ? such as when
paid to companies and retirement funds ? it is taxable when received by
individuals. For people dependent on dividend income, the effect of this tax
will be to reduce their income by 6%, which will be particularly painful when
viewed against an inflation rate of more than 6%.

CGT was also raised
from an effective rate of 10% to 13.3%. Some thresholds were raised, such as the
R2 million exclusion of the disposal of a primary residence. CGT is effectively
a wealth tax as there is no indexing to inflation, which has been creating
nominal gains, boosting taxes but eroding value.

Transfer duty on the
purchase of property was unchanged, meaning it remains expensive to buy property
costing more than R600,000.

Essentially, this was not a good Budget for
the saver, although there are measures in the pipeline that could help.
Provisioning for retirement will change in 2014 to a ceiling of 22.5% of income
for taxpayers under 45, limited to R250,000 a year. For taxpayers over 45, the
ceiling rises to 27.5% of taxable income with an annual limit of R300,000. There
will be other changes to the rules regarding provident funds, retirement
annuities and pension funds.

The allowances for interest earned did not
change, which places people dependent on interest income under pressure due to
the low interest rates and higher inflation.

The minister introduced a
household savings incentive, which will be in place by April 2014. This will be
a vehicle for the tax-free accumulation of discretionary savings and is intended
to boost household savings other than for pension provisioning.

The
allowance will be R30,000 a year with a maximum contribution of R500,000. While
the concept is good, this vehicle will not be available for the next tax year
starting March 1 2012. The proposed allowance of R30,000 is also derisory given
the urgent need to boost aggregate savings levels.

On balance, this
Budget targeted savings and wealth accumulation. While the rich will be able to
absorb the burden fairly easily, the middle class will be hardest hit. This is
because the thresholds have been set at levels that will further hamper the
middle class in building up savings in an economy that is savings deficient.

Despite the challenges facing the saver, improving savings provisioning
needs to be a key focus of household budgets. The state of the global economy
means the individual is increasingly having to take on more risk, especially
regarding medical and retirement.

Governments are becoming increasingly
cash strapped and many state benefits currently promised (especially in richer
countries) will never materialise. This means individuals and households need to
pay attention to their financial position and understand how this will unfold.

One of the biggest financial planning mistakes is to assume pension
provisioning is adequate or that there is sufficient time to rectify any
projected shortfall. Inflation is an insidious cancer that hampers wealth
accumulation, and financial-market returns are under pressure. Most retirees
find they have under-provided for their so-called golden years. One big mistake
is to allow current expenditure to hamper adequate retirement provisioning. If
this is the case, the current lifestyle is overstated.

It is recommended
that everyone ensures their pension deductions are at the level that accesses
their maximum taxable allowance. This is essential, as even this is not adequate
to maintain your lifestyle after retirement. Further discretionary savings have
to be made above what is being set aside for a pension.

It is also
recommended that full use is made of the household savings incentive when it
becomes available. Hopefully, the annual threshold of R30,000 will be raised to
a more meaningful level.

Increasing savings in this new tax year will
prove more difficult as economic growth lags behind inflation. Tariffs will
again increase at levels way above inflation to pay for government
infrastructure investment plans, and inflation will also remain relatively
elevated in 2012. Investment returns may also be subdued if systemic issues in
Europe and Japan drag the global economy back again. However, increasing savings
is an essential part of reducing the risks associated with retirement
provisioning.

Chris Hart is chief strategist of Investment
Solutions. This article is to inform and educate, not to advise.

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