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.