Money Habits That Never Get Old

When it comes to money there are a number of habits that are worth forming. Here are money habits that never get old. 

Living Within Your Means

Living within your means is a good idea because you can stop yourself going into unnecessary debt, but there are times when debt isn’t bad. For instance, paying for further education to increase your future earning potential or buying a car so that you have transport to your job are times when you can go into debt. 

Also, spending less than you earn may not build wealth. How you use your extra money will determine your future wealth. For instance, putting your extra money into a savings account instead of investing in markets will do little to create substantial wealth. 

Living within your means may require you to use good debt wisely so that you can get ahead. 

Watch Your Spending

When it comes to budgeting it requires more than just keeping track of your expenses. You will need to get into the habit of record keeping, checking your debit orders and bank balances as well as querying any fees. You should be strict with your budgeting by shopping around for the best interest rates, query your bank charges, examine your cell phone contract and read the fine print. 

If you have a loan, credit card, retail debt or other financial contracts then it helps to know your rights in terms of consumer protection. 

Pay Your Bills Ahead of Time

You should get into the habit of paying your bills ahead of time and try to pay more than the minimum amount required. This helps to reduce the principal amount owing sooner as well as the amount of interest you pay over time. 

Read A lot

There are so many resources about financial planning that there isn’t an excuse to not educate yourself. You should continuously read about financial planning and personal finance. 

Don’t Give in to Your Kids

Even if you can spoil your kids with material possession, you should actually deny your kids wants once in a while. You need to teach your children the value of money and that they are not able to have anything and everything they want. 

Make Savings Automatic

You will need to find a balance between having cash readily available for an emergency and long-term investing.

A retirement annuity is a great financial tool, but you can’t put all your money into one and then not have cash readily available for an emergency. Once your emergency fund is built to a suitable level then use those monthly savings for something else like increasing home loan repayments so that you can pay it off quicker or set up a unit trust portfolio. 

Review your savings debit orders regularly, especially when you receive a salary increase, bonus or if your life goals change. 

Delay Your Gratification

You need to practice delaying gratification because every purchase that you make today is withdrawing from your future financial security. When you are considering a purchase you need to decide between what you want now and what you want in the future. Impulse buying has been made even easier with online shopping, but learn to deny your wants and think before you buy.

Communicate Openly about Finances

You should be open about your finances and speak to your partner and children about money. You need to be open with your financial goals, what you are working towards and your financial plan. You shouldn’t keep financial secrets from your partner and should rather embark on a joint financial plan so you can achieve both of your goals. 

These are timeless financial habits that you should make a point of getting into so that you can achieve balanced finances now and a prosperous financial future. 

Moody Says that Extra Bailout Won’t Bring an End to Eskom Challenges

South Africa is providing extra financial support to Eskom to the tune of R59 billion, which is credit positive for the company, however, according to Moody’s Investors Service, the debt outlook for Eskom will depend on whether it’s able to curb cost growth. 

Moody analysts have said that they expect Eskom’s debt to largely stabilise due to government capital transfers in financial years 2020-21. The future debt trajectory of the company, however, will depend on if it’s able to contain operating costs that are likely to remain under upward pressure and capital spending. 

Eskom is currently seen as the biggest threat to the nations’ economy, but will receive R26 billion of the money this financial year and will receive R33 billion in 2020-21. This comes just five months after Tito Mboweni, finance minister, announced a three-year cash injection of R69 billion. 

Currently, Eskom has over R440 billion of debt and this month it’s expected that another annual loss is to be reported due to cost overruns on new plants as well as unreliable generation from old coal facilities that caused power outages in the first quarter. 

Eskom provides 95% of the nation’s power and the government has vowed to help as the disastrous finances of the company have become clear. 

The sustainability and longer-term evolution of Eskom’s capital structure will be dependent on a plan being in place for its turnaround, but this is yet still to be created said, Moody. At the moment, Moody is the only credit rating company that is still seeing South Africa’s debt as investment grade. However, the extra bailout doesn’t have an accompanying plan that will make Eskom more sustainable, which is then credit-negative for the nation. 

The assessment by Fitch Ratings cut its position of South Africa’s debt to negative, which means that there is a risk the nation will drop further into sub-investment. The reason for this was cited as the additional support for Eskom. 

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Do You Have an Emergency Fund? Here is Why You Need One

More and more people are living pay cheque to pay cheque, but what happens in the case of an emergency? Only 30% of South Africans are saving for an emergency according to new data from the Old Mutual Savings and Investment Monitor, which is based on 1000 South African households living in metropolitan areas. Also, according to a Budget Insurance survey, only 19% of South Africans have enough to survive for three months in the event of job loss. 

So what are the benefits of an emergency fund?

You Don’t Need to Go into Debt

An emergency fund can help you to stay out of debt. When you don’t have an emergency fund, you will have to borrow money in order to pay for an emergency whether its car repairs, to replace a broken appliance or an unforeseen vet bill. When you have a nest egg available then you can avoid borrowing money to pay for an emergency.

Protect Yourself in the Event of Job Loss

Job losses and retrenchments are on the rise in South Africa and if you lose your income then an emergency fund can provide you with much needed protection. If you work in a highly volatile industry, then you may want to increase the size of your emergency fund. 

Irregular Income Buffer

If you are a freelancer, a contract worker or starting your own business then you can use an emergency fund as a financial buffer for times when your income becomes irregular or until you are able to build up regular cash flow. 

Your Home Costs Money

If you are a homeowner then you will be faced with ongoing maintenance and repairs, which can expensive. Your short-term insurance may cover some costs like damage caused by a burst geyser, for instance, but the ongoing cost of upkeep and ongoing maintenance you will need to pay. 

Medical Aid Doesn’t Pay for Everything

Even having a comprehensive medical aid can leave you with shortfalls that you will need to pay. Some procedures that come with a co-payment or a shortfall and your emergency fund can help to cover these costs. 

Avoid Dipping into Your Future  

When you are faced with an emergency, you might be left with no choice but to access your retirement fund, which is never a good idea. Taking money from your retirement fund interrupts the process of compound interest and will affect your retirement plan. 

Travel with Short Notice

Families are now scattered all over the globe and there could be a time where you will need to travel internationally at short notice. International travel is not cheap when you add up the costs of visas, flights and more, but you can cover these costs with your emergency fund.

Your Emergency Fund Earns Interest 

Having your emergency fund in an account that has an interest rate that matches or beats inflation will ensure that your money doesn’t lose value. Have a look around for an account that has favourable interest rates and offers easy access. 

Get into the Habit

Putting money away each month is a good habit to have and once you have built an adequate emergency fund, you can use that money you put away each month towards something else like boosting investments or paying off debt. 

Rest Easy

Being worried about money can put you under stress, but knowing that you have an emergency fund tucked away will give you peace of mind and reduce your financial stress. 

It takes time to build up an emergency fund, however setting aside any amount no matter how small can help you in the long run. It is advisable to have an emergency fund that is equal to at least three months’ salary. 

Open a separate savings account with a good interest rate that allows you to access your money when you need it and build your emergency fund to your desired level. 

Start Your Tax-Free Savings before Retirement

Tax-free savings are still relatively new in South Africa as they were only introduced by the National Treasury in 2015 and are still not used effectively in client portfolios. Tax-free savings are mainly used as a sales tool without thought as to how an investors existing portfolio can be reorganised so that they can gain from the tax advantages that a tax-free savings account can offer. 

With a tax-free savings account an investor is able to contribute R33 000 per annum or a maximum lifetime limit of R500 000. The main benefit is the growth on these accounts and withdrawal or income generation is tax-free.

During the tax investment, there is no income tax, dividend withholding tax or capital gains tax. Also, once you start to withdraw an income from the investment it is tax-free. If a tax-free savings is used appropriately then it can be an excellent retirement planning tool, especially if it is started early enough but it can also be used by those approaching retirement or already in retirement. 

The earlier a tax-free investment is started, then the bigger the difference it will make to your retirement plan. 

Contributions to a tax-free savings plan can be done as either a new investment or by annually re-balancing part of a portfolio that you already have to benefit from the tax advantages, that is you can transfer R33 000 annually from an existing investment to a tax-free savings plan. 

When you are planning for retirement or are planning in retirement, then it is important to use the tax exemptions that are available in the most effective manner, which includes tax-free savings, retirement annuities and interest exemptions. Retirement annuities remain the most effective tool for your retirement plan as they offer tax-free growth within retirement annuities and ta x deductibility of premiums.

The real value of a tax-free savings account emerges over time, so its best to start investing sooner rather than later in order to access these benefits. 

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Do You Know the Difference Between Medical Aid and a Hospital Plan?

No matter if you are healthy now or living with a long-lasting medical condition, you will need to have the resources in place to pay for both your current and your future healthcare expenses. You will want to protect both yourself and your family’s wellbeing. 

In South Africa there are two main options available, those being medical aid and hospital plans, which can both help to give you cover when medical costs arise, however, they do not both offer the same level of cover. 

In an emergency or an accident where you are admitted to hospital then you will need a hospital plan. If you need cover for out-of-hospital expenses like visiting a private GP, dentist or optometrist then a medical aid plan is probably better for you. 

Here is a look at both of these options, so you can choose the health plan that is best suited to you. 

Know More About Medical Aid

Medical aid is a healthcare plan where you will pay monthly premiums, so that you can access private medical practitioners. A medical aid scheme usually offers cover for procedures and related medication. Therefore, if you need medical attention due to illness or injuries then your medical needs will be taken care of. 

Medical aid generally offers minimum health benefits no matter the level of coverage that you signed up for. These benefits include emergency medical conditions, a defined list of 27 chronic conditions and a list of 270 diagnoses. If you have a comprehensive medical aid policy then you will also get cover for dental procedures, GP appointments and chronic prescription medication. 

Medical aid can give you peace of mind as your healthcare needs are paid for when you need it. Funds are readily available so that you can get quick access to healthcare and you will be able to access private healthcare that usually offers better quality care. 

You can get medical aid quotes online, which can help you to find the scheme that best suits your needs and your budget. However, when you are looking for medical aid first evaluate you and your family’s general health that includes past illnesses in your family as well as the level of cover that you can afford.

You will need to consider hospital cover, chronic medication cover, day to day benefits, if co-payments are required and if you are restricted to only going to certain hospitals. 

So, What About a Hospital Plan?

A hospital plan will require you to pay a monthly fee, but you are only covered for admittances to a private hospital. You are only covered for inpatient hospital procedures and treatments excluding visits to a trauma unit and hospital based clinic. Any day to day, out of hospital costs like a GP appointment or prescription will need to be paid for from your own pocket. 

A hospital plan provider will need to be notified before you are admitted to hospital and you will need to get approval. On approval the provider will send the hospital a payment guarantee so you can access healthcare. In the event of an emergency, admittance is arranged between the hospital and your provider. 

A hospital plan is able to give lower income individuals access to private healthcare. It is able to bridge the gap between what medical aid covers and what it doesn’t. You are able to get hospital cover as part of your medical aid. There are hospital plans that will allow you to go to the hospital of choice, but is dependent on provider approval. 

If you need various day to day benefits, then a hospital plan might not be the best option for you. A hospital plan works best in the event of a large procedure, but it’s still wise to have the cash benefits of a medical aid available for other medical expenses, especially if you have dependents. 

A hospital plan then offers fewer benefits when compared to a medical aid. A hospital plan will only pay for medical expenses that you incur in hospital. All other medical expenses will need to be paid by you. 

With a medical aid you are covered for a set of prescribed minimum benefits and with a comprehensive plan, you will also be covered for a number of other treatments and procedures. 

Regardless of your lifestyle you or your family can become ill and a medical aid and hospital plan makers it easier for you to receive the healthcare you and your family need. 

The Price of Petrol May Stay Flat this August

It is expected to be a flat month in terms of petrol prices for August according to the latest data from Central Energy Fund, but diesel drivers could be expecting some good news. 

As it stands, it seems there will be a small increase for 95 octane of 2 cents per litre and 93 grade will decrease by a single cent. Diesel, on the other hand, is currently being predicted to decrease by 22 cents per litre. 

The flat rate in petrol prices expected for August is due to a reversal in trends for both international petrol prices the rand/dollar exchange rate. 

Rand Has Gained New Strength

The rand has gained new strength the past week or so mainly due to the local sentiment improving after the government announced bailout plans for Eskom and international movements that restored the appetite for investors to go for riskier assets. 

A new rescue plan has been announced for Eskom by the National Treasury. The plan would see Eskom being allowed to access funds set aside for its turnaround a lot sooner.

This plan has put investors at ease due to the government not leaving the power utility in the lurch and that it would be receiving the support it needs in order to improve its financial situation. 

On top of this governor, Lesetja Kganyago has been reappointed for another 5-year term. This has reinforced local sentiment and has also backed the government stance on continuity at the central bank, starving off talk of nationalism and mandate change. Also, the Reserve Bank’s Monetary Policy Committee could possibly be announcing a rate cut this Thursday.

Further afield, a mix of contradictions has come from US data, but from the latest reporting, it would seem that the FED will be cutting rates at the end of the month.  With the US economic data pointing to a stable market, investors have rekindled their appetite in riskier assets in emerging markets. 

Oil Prices Are on The Rise Again

Oil prices have been in decline for weeks, but the international oil costs are on the rise again. 

The drop in price is due to general global economic slowdown putting pressure on demand, which has been further aggravated by the volatile US-Iran relations and an extended production cut in OPEC regions. 

However, there has been a price increase in oil over the last week due to geopolitical tension in the Persian Gulf, outrages in Venezuela and Iran, the brewing storm in the Gulf of Mexico as well as the rate cut by US FED.

The rally may run out in the medium term, but it could top out with Brent Crude rising above $70 a barrel again according to the Standard Charted.  

The recent petrol price decreases in South Africa have been driven by falling oil prices, so the rally and any further increases will then have the opposite effect. 

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Do You Know About Debt Review?

There are many South Africans that are struggling with debt, so if you are facing debt that you can’t manage then you are not alone. It is estimated that over 8 million consumers who are credit active are over-indebted. This means that more than half their salary is put towards paying debt and many of these people have missed payments and found themselves in arrears. 

But there is help available to those struggling with debt, so if you are one of them then don’t be afraid to ask for help. 

Debt is What You Owe

Debt is a sum of money that you owe to creditors. If you do not have the cash, you need in your account to buy something then you are able to take out credit in order to buy the thing you want. We use debt to serve our instant gratification need. We are able to get what we want now without having to save and wait to purchase what we want. 

It’s easy to fall into the trap of using credit to pay for things. You may start with one store card and then get a credit card and then another and so on and before you know it, you find yourself in a downward spiral of debt. But there is help out there if you are over-indebted and struggling to keep up with your debt repayments. 

Debt Review is a Solution to Your Debt

Debt review is also called debt counselling and was introduced by the National Credit Regulator as a solution to help South Africans that are struggling with their debt. 

The debt review process involves a debt counsellor that will assess your income, your expenses and your debt repayments, which helps them to understand your affordability. If they find that you are not able to afford your debt repayments in full then your debt counsellor will contact your creditors on your behalf and negotiate lower monthly repayments and interest rates. They will then restructure your debt and create a repayment plan that you are able to afford. 

Your debt counsellor will manage your repayments and handle all communications with your creditors. This will help you to pay off your debt in a manageable way that doesn’t leave you short every month. 

When you enter debt review, you are not blacklisted, but whilst you are under the process, you will not be able to take any further credit. At the end of the debt review process, a clearance certificate is issued that confirms you are debt free. Your debt counsellor will then contact the credit bureaus on your behalf to have your credit record updated and your credit record will not contain any negative information. 

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When Don’t You Need to File a Tax Return

It’s tax filing season and even if you are not required to file for tax, you will still need a tax number. So, when don’t you need to file a tax return and why is your tax number important?

You will not be required to file for tax if:

  1. Your annual income is below the R500 000 tax filing threshold 
  2. For the full tax year, you only received an income from one employer
  3. You have received no other income like a car allowance, rental income, income from another job and so on.
  4. You are not claiming for any additional deductions like travel expenses, medical costs etc. 

However, even if you don’t need to file for tax, there are other reasons as to why you may want to engage with the taxman. 

Firstly, providing your tax number is part of the payroll take on process as your employer has a duty to deduct to PAYE tax and without a tax number, SARS are not able to allocate this to you.

If you are self-employed or work as an independent consultant, you should still have a tax number and file returns. 

If you need to get your tax number still, then you will just need to visit your local SARS branch with your ID and proof of residence. If you are employed full time and are not aware of your tax number, then it is possible that your employer has applied for it on your behalf. 

Without a tax number, you are not able to function properly in the financial system. This is because you will need to provide a tax number to open a stock brokering account, join an annuity fund, to apply for a property loan or to invest in a unit trust. 

If you only plan to invest your money into a savings account then your bank will forward a copy of the IT3(b) return, which is a confirmation of the interest that you earned for the tax year to SARS. This is then linked to your ID number. SARS will follow up if the amounts are material and there is no corresponding tax number. 

Also, under certain circumstance, you might be required to provide a Tax Clearance Certificate. This may occur if you plan to undergo the financial emigration process, if you are a shareholder in a private company or if you want to take money offshore that is more than the annual allowance of R1 million.

Just because you take your money offshore, it doesn’t mean that you don’t need a tax number. You will need to provide your tax number for your country of residence if you plan to open a bank account elsewhere, according to the Organisation for Economic Co-operation and Development’s Automatic Exchange of Information agreement.

Having a Complete Tax Record Goes a Long Way

If you only apply for a tax number when you need it then you could cause suspicion as it could lead to queries and an investigation, which could result in sanctions and penalties. This will further delay your application. 

If your tax affairs are not up to date or if you owe the receiver money, then you will not receive the clearance certificate you need. If you are in the process of claiming from a retirement fund, then SARS will take the amount owing to them. However, if you have a longstanding filing record then SARS will have confidence that you have not dodged taxes in the past. 

Keep a Record

You should be aware that SARS requires you to keep records for a minimum of five years, from the date of submission to the end of the 5thtax period. 

Even if you meet the requirements for exemption and are not required to submit a return, SARS is still able to request an audit of any or all your tax affairs.

Make sure you then have a record of any claimed expenses, income, medical aid, retirement and investment tax certificates. Keep them safe and make sure you understand them. 

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Putting Your Life Savings into a New Business? Here are 6 Pitfalls

If you have landed some unexpected money from an inheritance or a lotto ticket if you are lucky enough or maybe you have been saving and now you have a sizeable nest egg, but now you are not sure what to do with the money and what the best decision will be. Then a friend or a family member starts talking to you about a new business venture and you are tempted, but will it be a smart investment?

Within 24 months about 50% of all start up businesses in South Africa fail due to the inexperience and the inability of their owners. The key to the success of a new business venture is to make smart financial decisions and to safeguard the money invested. 

If you are thinking about investing in a new business, then here are six potential pitfalls that you need to be aware of according African Bank.

Guesstimation is Not Budgeting

When you are creating a budget for your business and your personal expenses there is no room for guesstimations. You will need to be as realistic as possible as your personal living expenses will also be high. You will not be able to survive on a skeleton budget. You will need to stick to your budget and you are able to adjust it as the month progresses. 

You Try to Diversify Too Soon

If you are making a profit and not sure where to invest it then why not in your own business? A mistake that many new business owners make is trying to branch out and diversify with their profits instead of keeping the money in their own business. It is best to focus on your business and use your profits to help grow your business.

Placing Focus in the Wrong Places

Your main priority should be revenue generation and everything else like your website, marketing material etc. can wait. You should be focusing on the things that will drive revenue. Having a positive cash flow will help you to make decisions and you will be in the good books of your creditors. 

If It Isn’t Working, then Move On

If something isn’t working, then you should move on. If you keep backing something that isn’t working, then you will just end up draining your resources and setting your business back. The sooner that you are able to make the right decisions and focus on what is working then the better it is. 

Don’t Ignore Reality

A good proportion of all start-ups don’t make it and you may find that yours isn’t working. You shouldn’t ignore this and rather deal with the reality that you may have to get a job again. If this is what you have to do, then just do it no matter what others may think of your failed venture. 

Recognise Investment Opportunities

Your business can sink with just one bad investment. If you are not sure what to invest in, then seek financial advice and also look for the best interest rates. 

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The Big Petrol Price Cut Swallowed by Electricity Cost Increase

For the first time in 6 months, petrol and diesel prices will be dropping on Wednesday, however, this is going to be swallowed by the electricity increase that starts on Monday 1stJuly.

Petrol 95 will be dropping by 95 cents per litre and 93 octane drops by 96 cents per litre on Wednesday. Diesel is set to decrease by 74 cents.

Cliff Johnston, SA National Consumer Union deputy chairperson said that if the price reductions are sustained then the effect will be beneficial for all consumers. 

Those that are buying petrol, diesel, gas and paraffin will benefit from the price drop immediately as refuelling a standard car should work out to be about R30 – R40 cheaper once the decrease kicks in. 

However, he also said that other consumers may not be as lucky, as taxi and bus fares are unlikely to go down. He went on to say that service providers generally cash in on reductions rather than passing the savings on to consumers. A lower fuel price, in the long run, should mean that the public transport prices and prices of general goods and services should not increase as much as long as the current fuel prices are sustained. 

Economists have said that the decrease in fuel prices is to neutralise the increase in electricity tariffs. 

Without a doubt the fuel decrease will come as a relief to consumers following the tightening of belts over the past few years due to low economic growth, higher taxes and the fear of retrenchment in a weak economy said Azar Jammine, director and chief economists at Econometrix. 

This amounts to a decrease of about 6% in the price of petrol and diesel according to Jammine, which then accounts for about 4.5% of disposable income for the majority of people. In essence, this will reduce the cost of living by R2.50 for every R1000 that people have. He also pointed out that the electricity tariffs are set for the whole year, whereas petrol and diesel prices are volatile. 

Mike Schussler, economist said that the decrease in fuel is good news and may strengthen the case for interest rate cuts as it will help to stabilise the inflation rate that was at 4.5% last month. 

However, the electricity price increase comes in to effect from 1stJuly for most municipalities, which then negates the petrol price drop. 

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