FINANCIAL WISDOM

January marks the start of both a new year and a fresh and exciting new decade with many more challenges and surprises in store.

  • THE REAL DANGER OF DEBT

One of the hardest lessons has been the importance of getting rid of unnecessary debt and doing your best to repay your debt as quickly as possible.

Many people underestimate just how much money you can save in interest charges by repaying debt more quickly.

For instance, if you have a home loan of R1 million with an interest rate of 10.5% and a 20-year term, by only repaying the minimum amount due each month, you would pay the bank a total of nearly R1.4 million in interest charges alone over the 20 years.

If, however, you topped up your repayments by just R500 each month, you would shave nearly three years off your repayment period, and save over R230,000 in interest payments. And by increasing your loan repayments by R1,000 each month, you could cut your repayment period by nearly five years, and save nearly R390,000 in interest payments.

 

  • THE BEST DEFENCE AGAINST WASTEFUL SPENDING

Having a clear-cut budget can help tremendously, as you will know exactly where your money is going, what your limits are on spending, and where you need to cut back.

Without a budget, it is difficult to monitor your spending, and many South Africans overspend perhaps without even realising it. According to the 2019 Old Mutual Savings and Investment Monitor, for example, 72% of the South African households surveyed were unable to consistently make ends meet every month, as their expenses outpaced their incomes.

The best part is that creating a budget is actually very simple. All you need is a pen and paper, or you can also create a spreadsheet on your computer or use one of the many free apps that are available – whatever works best for you.

Your first step, then, is to record all your expenses for one month. Next, group these expenses together, look for any problem areas, and set yourself some spending limits, remembering other financial goals such as saving and investing.

  • GIVE, AND YOU SHALL RECEIVE

There are so many people in our country who do not have the means to see to their own basic human needs, this is the perfect time to give back to those who are less fortunate – whether this be the gift of your time through volunteer work, clothes, food or a financial donation.

Those who make financial donations to recognised non-profit organisations (NPO) may also be able to claim a tax deduction, making donating a win-win.

In order to claim a tax deduction, the NPO needs to have received approval from the South African Revenue Service (SARS), and must provide the donor with a Section 18A certificate confirming your donation. A list of approved NPOs is available on the SARS website.

Deductions for donations to NPOs are limited to 10% of your taxable income, and not many people can afford to give money. But again, if you don’t have money, you can give in other ways, including the sharing of experiences and investment knowledge to help others get into healthy financial shape for the new decade.

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