The New Driver Demerit System

Cyril Ramaphosa has signed in the Administrative Adjudication of Road Traffic Offence (Aarto) Bill into law and it is facing opposition. The way we drive in South Africa could fundamentally change due to this amendment act. 

With the new act comes changes.

  1. Firstly, if you fail to pay a traffic fine then it may result in a block on obtaining driving and vehicle licenses as well as an administration fee in addition to other penalties. 
  2. Documents that were once delivered by registered mail via the post office, can now be served by authorities electronically plus they can send reminders via SMS and WhatsApp. 
  3. There will be a new demerit system. This system works on points and depending on the severity of the offence, 1 to 6 points can be allocated. If you have more than 12 points, then it will result in a suspension of the driving license. If you receive three suspensions, then it will result in cancellation.
  4. With the new act, a new Appeals Tribunal will be created which will preside over issues that are raised in terms of the act. 

The demerit system is the biggest change and has the aim of making South Africa’s roads safer by being harder on violators. 

Points of 1 to 6 are allocated depending on the severity of the offence and if the infringer has more than 12 points then the driving license will be suspended and having three suspensions will mean that the license is cancelled. 

There has been support for the demerit system, but there has also been many organisations that have argued that the current lack of enforcement of current laws as well as the capacity of traffic authorities means that the new point system will likely be ineffective. 

The Automobile Association has said that the focus seems to be on revenue collection as the act also makes provision to make it easier for authorities to deliver fines as well as hold licenses to ransom due to unpaid fines. 

The constitutionally of the act will be challenged by Outa. They also believe that motorists will be forced into paying Gauteng e-toll fees by making it an offence to ignore road signs, which would then include e-toll fee signs that are next to the highway. 

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The New Debt Relief Bill has Been Signed into Law and this is What It Means

The controversial National Credit Amendment Bill otherwise known as the debt relief bill, has been signed into law by President Cyril Ramaphosa. The new act aims to provide relief to South Africans that are over-indebted who have no other way to remedy themselves of being over-indebted. 

With the act, certain applicants can have their debt suspended in part or in full for up to 24 months. If the financial circumstances of the applicant do not improve then the debt may then be erased altogether. 

The debt writes off criteria includes:

  1. Unsecured debt that is not more than R50 000
  2. Unsecured debt which was accumulated through unsecured credit facilities, unsecured credit agreements and unsecured short term credit only
  3. A person who earned no more than R7500 a month over the last 6 months. 

Not only that the bill will also hold new offences that are related to debt intervention. It will now become an offence for a person who deliberately submits false information related to debt intervention. Any person that alters their financial circumstances or persons that alter their joint financial circumstances deliberately in order to qualify for debt intervention will be found guilty of an offence. It isn’t clear yet though when the new bill will come in effect or whether it will be applied retrospectively. 

Concerns were previously raised by the banking industry after the bill proposed to write off billions worth of debt from every day South Africans. It has been made clear by the Banking Association of South Africa (Basa) that it does not support the principle of debt forgiveness. 

The banks would incur costs for writing off debt, but according to Basa, the most likely reaction from banks is that it would make lending conditions tighter, which would then make it even more difficult for the poor to secure credit.

How much this bill would cost South African lenders hasn’t been pinned down, but according to Peter Attard Montalto an Intellidex analyst, the bill could force losses in the region of R25 billion at local banks. He went on to say that the bill is a serious concern to the banking sector.

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Stuck in a Debt Cycle? Here is How You Can Get Out

When an unforeseen emergency crops up then borrowing money can help, but if you start to rely on debt for your day to day living then you are getting trapped in the debt cycle that will become harder to escape. 

The debt cycle starts when you take out a loan like a personal loan to pay for an unexpected expense. Your plan might be to pay it off before you take on any further credit, but life is full of surprises and another emergency may crop up or you may find that your living expenses have increased and you feel the need to apply for another loan. However, the weight of your increasing debt and the interest that is attached starts to put pressure on you. This may force you to get faster access to money and you may find yourself applying for a credit card or an overdraft facility. 

In the end, you have multiple instalments to pay off and you start to rely on credit to pay off your daily expenses. This is the cycle of debt and the further in you are the harder it is to get out of it, but it is possible. 

Here is how you can break the debt cycle. 

Get to Know Your Situation

The first thing you need to do so you can get out of a bad debt situation is to admit to yourself that there is one. When it comes to personal finance, consumers are often in denial and won’t acknowledge that things have got out of hand, but hiding from the situation won’t do you any favours. Acknowledge your debt, know where you stand and be open to your family about it. You can also get advice from a reputable professional. 

Say No to More Debt

When you can access credit, you can easily fall into the debt trap. It becomes easy to overspend on credit cards and using your overdraft facility when you run out of cash in the middle of the month. The best thing you can do is to close your overdraft accounts and leave your credit cards at home. You will become more aware of what you are spending and will be more careful with your money. 

Your Money Only Goes So Far

You can only pay for so many things with your income, so you need to learn to live within your means. If you want to buy something, first think about how the purchase will effect the rest of your finances and if you will have enough for the rest of the month, if not, then rather leave the purchase. 

You also need to make a conscious effort to save money so that you can avoid relying on credit if an emergency comes up. 

If your dreams are larger than your earnings, then you may want to find ways to boost your income. 

Have a Budget in a Place

Having a budget is important as it will show you what your income is, what you need to pay each month and what will be left once all your expenses are paid. This can help you to spend less, see where you can make cutbacks and see where you have cash available to pay off your debt or save. 

Put a Debt Strategy Together

When you are paying off your debt, you need to have a plan in place, pay your monthly repayments consistently and you should try and pay more than the minimum. 

If paying for your monthly living expenses is becoming increasingly difficult because of your debt repayments, then you need to seek help instead of borrowing more money. A debt counsellor can help to create a payment plan to provide you with relief. They can also help negotiate lower instalments and interest rates with your creditors. 

If you are struggling with debt and feel like you are trapped in the debt cycle, then don’t ignore it. Acknowledge the problem and face it head on and get help from a debt counsellor if you need it. 

How You the Taxpayer Will Be Paying Up for the NHI

On Thursday, the new National Health Insurance (NHI) Bill was tabled in parliament and sheds some light on the creation of the controversial new NHI Fund. 

It is explained in the memorandum that the reforms will be implemented in six phases. The Department of Health will release the details of such in a series of implementation plans. 

However, the burning question for taxpayers and medical aid members is if they will still be able to belong to a medical aid and if they can, will they have to pay medical aid contributions and a contribution to the NHI. 

In short, the answer would be yes, but the details of such have not yet been released. 

The NHI will be funded in the following ways:

  1. General tax revenue where funds from provincial health budgets are shifted to the NHI fund
  2. Medical scheme tax credit will be transferred to the NHI fund.
  3. Payroll tax
  4. A surcharge on personal income tax

At the moment, it’s unclear as to what this will actually cost taxpayers, but through a money bill, the minister of finance will introduce these taxes. 

According to the memorandum only in the final stage will these tax options be evaluated, so it would seem that it won’t be before 2022.

Also, it is thought that it will be a small payroll tax, but it’s unclear what this means. 

In the memorandum, there is a part that deals with the financial implications for the state and refers to various financing options, but it also refers to imposing further taxes at a later stage after an evaluation of the potential impact and it will take into account the economic and fiscal environment at the time.

What does seem to be certain is that taxpayers will no longer receive medical scheme tax credits. 

Even though things are still unclear at the moment, one thing that isn’t is that taxpayers will find the additional tax burden a hard pill to swallow. 

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Boost Your Savings with These Tips

As electricity and fuel prices being on the high side, our money is being stretched even further and trying to save money and build wealth seems harder than ever. However, when it comes to keeping your financial goals on track in tough economic times, you need to be smarter. 

Here are three simple tips to boost your savings. 

Get Rid of the Excess 

It’s usually harder to increase your income then it is to cut your spending. So, take a look at your budget and cut the excess by getting rid of any unnecessary expenses. You should shop around and compare monthly premiums for insurance and cell phone contracts as well as cancel any subscriptions that you are not using, cut down on nights out and takeaways and also look at ways you can maximise your savings through retail loyalty programmes. 

Once you have made room in your budget, use these funds for your savings. Set up a monthly debit order for your savings and investments that is realistic and is a comfortable amount that doesn’t place strain on your finances. Over time you should aim to increase this amount. 

The savings account that you use should earn interest, so that your savings grow over time.

Put Your Funds to Work

No matter what you are saving for whether it’s for your education, a home deposit or a rainy-day fund for unexpected emergencies, you should think about putting these short-term savings to work in a money market or a capital preservation fund. You can also put these fund in an interest bearing bank account like a call deposit. 

Compound interest is powerful and your initial capital and the interest earned on the capital will earn additional interest. This means that your savings will grow and generate more wealth. 

You will need to do your research, compare different financial products and choose one that will make the biggest impact on your savings. 

Invest Your Money

Tax efficient investment vehicles like tax free savings accounts or a retirement fund like a pension fund, provident fund or a retirement annuity are free of dividends withholding tax, capital gains tax and tax on interest. Also, with compound interest, the benefit of these tax savings over time could really make a difference to your long-term investment outcomes.

Your annual tax burden can be reduced with contributions to a retirement fund because you can have tax deductions of up to 27.5% of your salary to a maximum of R350 000 per year.

However, after you retire the income that you withdraw from these funds can be taxed. 

With a tax free savings account, you are allowed to invest up to a maximum of R33 000 each year and up to R500 000 over its lifetime. Contributions are not tax deductible and you will not be taxed when you withdraw from the fund. 

Using your savings, the smart way can boost your savings over time and the process is simpler then you may think so start making your money work for you. 

Next Year Expect a Large Increase in Medical Aid Prices

A recommended price increase of 5.4% for medical aid members has been put forward by the Council of Medical Scheme (CMS) for 2020. 

Jill Larkan, head of Healthcare Consulting at wealth and advisory business GTC said that whilst medical aid schemes have been cautioned not to go above the proposed increase, South Africans should expect to pay more. Medical aids generally go above these guidelines by 3.4% on average. 

A good part of this increase is mainly due to the differences seen in how medical aid is used, according to CMS data, which shows usage patterns of members of different providers annually. On average, members should expect an increase of 8.8% on their premiums next year. In 2020, both companies and individuals will need to consider their plan types. 

Employers as well as individuals that do not form part of an employer group start their annual assessments in terms of the schemes and plans offered. 

In 2020, salary increase percentages are unlikely to match an 8.8% increase in medical aid premiums. Employers should then assess the best value for money options available to employees who are most likely under increasing financial pressure. 

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Got an SMS from SARS? You Don’t Need to Submit a Tax Return

Did you get an SMS from SARS? If you received a simulated tax calculation from SARS, you could get to skip submitting a tax return. 

The revenue collector has said that it has access to many sources of information about taxpayers, which includes information that is already on the SARS system. 

This means that SARS can make a tax calculation and arrive at an outcome without you having to do anything. The outcome will show if you would receive a refund or if you would owe SARS money if you were to file a tax return. 

The reason that you are getting a tax calculation this year is because last year you filed a tax return when you were not required to do so.  The tax calculation was introduced as a way to assist taxpayers so that they can avoid unnecessary visits to branches during tax season. 

According to SARS, if your financial circumstances haven’t changed since February 2018 then you will not be required to file a return. If your circumstances have changed then you may file a return still, however, it is a good idea to use the eFiling system or the SARS MobiApp to avoid the queues. 

No Refunds Under R100

Also, SARS went on to say that they are only allowed to refund an amount, which is more than R100 according to the terms of the current tax legislation. It’s not cost effective to collect or refund an amount that is below R100 as usually a cost is involved when doing this. However, the tax debt doesn’t just vanish, but rather it remains due by or to the taxpayer and is carried forward and will be added to a future a tax refund of more than R100 or is offset on future tax debt. 

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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.