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Wealth equation – illustrated

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Wealth equation – mini-blog

For most of us, the accumulation of wealth – to at least retire in some sort of comfort – is a life-long mission. Unless you’re lucky enough to inherit loads of money, or win a lotto, for most us the accumulation of wealth happens slowly, it is the end result of days, months and years of financial discipline. At the most basic level wealth is what is left over after you have consumed your income – the wealth equation. If you consume what you earn you do not accumulate wealth, and of course, if you consume more than you earn, you end up in debt. As a financial advisor, most of my effort has been spent in helping my clients look after their wealth and to use market forces to help them grow it. I also get involved on the ‘consumption’ side to help clients get a hold of their spending, but I rarely have got involved in the ‘Income’ side of the equation. No more. This series of miniblogs are going to specifically address how to increase your income, by identifying and taking advantage of new trends emerging globally. As nice as it sounds, if you blindly ‘follow your passion’ when it comes to earning an income, it rarely pans out. The phrase ‘poor artist’ did not come out of nowhere. If you want to be smart about earning more money, you need to find just the right product or service for you – with the greatest chance of success. This new miniblog series intends to do that. You can read full-blown blogs on the wealth equation HERE.

wealth equation infographic

10 Ways to Beat the Budget

in Economy, Income, Investment, Tax Leave a comment
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The 2018 Budget will impact your disposable income – what can you do?

The Budget 2018 might have looked tame on the surface– a one percentage point increase in VAT, wealth tax for the fat cats, no increase in personal tax and a bit of a fuel levy increase. This is an illusion, the people most affected by this budget are the ordinary middle class – the working class. There are about 1,9m taxpayers who earn more than R350k pa, contributing 80% of the tax. ( If we’re lucky this will just be temporary, and when the economy picks up (and the stolen funds are recouped) the VAT increase will come down again and the real tax rates decreased – but we all know that never happens, so what can you do to survive – or even thrive?

  1. Take a bit of time to understand your tax, and what allowances and deductions you can be taking advantage of to get a rebate or bring down your average tax rate. You can email me for the 2018 SARS tax booklet (also available on their website) and look at retirement investment allowances, interest and CGT allowances, car allowance, medical aid tax credits. It’s one thing to get help to file your taxes, it is quite another to abdicate the responsibility to someone else. I encourage everyone to at least try and do their own eFiling.
  2. You cannot build wealth if you consume everything that you produce (and then borrow to consume even more). This gives you two options, produce more income, or consume less – you choose. Cutting back on expenditure will have an immediate positive effect, increasing your income is not so quick or easy – but still possible.
  3. Investments and savings without defined objectives are almost meaningless. These objectives will dictate timelines and the asset allocation that should be used. Wealth is built slowly over decades, and if you don’t have a strategy from the start then that is time you’re never going to get back. Having an advisor to help is the best option, but if you’re just starting out you may not be able to get a qualified advisor to help you (because you just can’t remunerate them for their time, whether directly by paying for a plan, or indirectly via fees or commissions). Regulations in the financial advisory profession are becoming increasingly onerous, so this is going to become more of a problem, not less. The internet has made it much easier to upskill yourself (following my blogs for instance).
  4. Because the tax brackets have not increased in line with inflation, if you get a salary increase you are going to lose more to tax, and your take-home pay will be less in real terms. (real is the actual increase minus inflation). If you’re offered an increase or promotion with an increase, use the tax tables and your payslip to do the math. Perhaps you could negotiate more leave instead (there are 260 working days in the year, about 10 of which are public holidays, perhaps another 15 are annual leave.) This is a real problem on income above R555,601pa (R46,300 a month – guess what – if you’re in this tax bracket you’re considered a wealthy by SARS.) This tax bracket increased a whopping 1%, so any salary increase above this is going to be taxed at 39%. Even if you’re in the R423k range (R35k pm) the shift was only 3%. Inflation is currently at 4.5% – roughly equivalent to one day’s extra leave. These are the current tax brackets:brackets Read more