In finance, more options are always better. The more competition there is, the lower prices tend to go. With three new banks entering the market, we are sure to see banking costs come down. Is that reason enough to change banks?
In this episode of The Fat Wallet Show, we consider when it’s a good idea to change banks and when it’s best to just stay put. We also spend some time talking about reward-driven costing.
I’m in the process of optimising costs.
What bank do you suggest for daily transaction accounts i.e. savings/current account and credit card? Of course reliability, security and convenience are important factors here too.
For my emergency fund I have a Money Market Fund that yields 7.8% currently. Can I do any better?
- What’s your take on all the new banks in South Africa (Tyme, Discovery, Bank Zero)
- How do we trust them compared to the “Big 4”?
- How do we know they not another VBS?
- How safe would our money be?
Clean swearing bleeped out show is below.
Win of the week is Julien. He had the following to say about tax and RAs.
I believe the idea that “you don’t pay tax now but you pay later” is misleading.
Yes you will pay some tax, but in all likelihood you will pay much much less tax during retirement:
1) R500,000 of your retirement lump sum is tax free.
2) If you are 65 or older, the tax threshold increases from R75,750 to R117,300.
3) If you keep your standards of living the same, you will never need to draw your full gross income, because you won’t be contributing to your RA anymore. You don’t need to contribute to any other forms of investment/savings either.
If you can save 35% of your net income now, in retirement your taxable income will be reduced by at least 35%.
4) The taxes you save before retirement come from your top tax brackets but the taxes that you pay after retirement are calculated from your bottom tax brackets.
For example, if you earn R700,000 per year, your marginal rate is 39%. If you contribute R100,000 to your RA, you will save 39% of this amount: R39,000.
If you retire at 55 and take R100,000 out of your living annuity, you will pay 0 tax on the first R75,750 and 18% tax on the last R24,250. This adds up to R4,365 – far less than the R39,000 you saved.
5) Not all of your post-retirement income needs to come from your RA. You can take advantage of your TFSA and the R40,000 exemption on capital gain to further reduce how much you need to take out of your living annuity.
6) As mentioned during the podcast, your cost of living can be lower during retirement if you have paid off your house, car, etc.
7) Let’s not forget than money now is better than money tomorrow. You can invest your tax rebate and even if you need to pay some of it back, you get to keep the growth 🙂
With a bit of planning you can pay way less tax after retirement compared to how much you get to save before. But most importantly, even without planning, using an RA is already very tax efficient.
Leigh got divorced recently and wants to figure out how to move forward financially.
With my divorce settlement I bought a one bedroom apartment in Paarl. I also have an apartment in a resort that we used in the summer holidays when we lived abroad. It is rented out by the resort. I own half my home. All these properties are paid for, the one in Paarl will be completed in June.
The Paarl property was R610,000 and the predicted rental is R6,400.00 per month.
I don’t work at the moment and I figured that at least I will have an income which I could put into my money market account as savings.
Is there a better way to use my money? I need to get myself financially sorted very quickly.
Tee has two RAs. She went to an advisor who put her in an Investec RA. She didn’t like that advisor and got another advisor through a family member who put her into an Echo Bonus RA with Sanlam.
I would like to only have one RA and after listening to you guys on the show, I would like to remove the financial advisor from the equation if at all possible.
Would you recommend moving the one to the other or move both to a 10x account or something like? I am still in the process of doing some research regarding the fees and benefits of the RAs, but just wanted to ask your opinions and expertise on the matter.
I am still paying off a student loan and a car loan. And I am in the process of looking at my finances and budget so that I can start with an Emergency fund and then later on start investing. I am already 28 years old so any help at this point will be much appreciated.
Frikkie has a question about blueberry tax.
I didn’t follow your advice and invested in Blueberries, Honey & Solar Farming. How does the taxes work on these Investments? Will it be taxed like Farming or Investing?
Investing in farming usually allow upfront deductions.
The market is getting Warren down.
In October 2015 I resigned after a decade at the same organisation and transferred my sizeable provident fund into a preservation fund. The fund turned out to be far too conservative, so earlier this year I transferred it to 10X High Equity provident fund.
It’s now over three years later and not taking currency or inflation into account I am down R2,000 from where I started. I know this is long term view but if it can do so shit in three years, it could do even worse in 30 years. It would’ve actually been better under my mattress and far better in a bank account… I’d rather make around 8% then a loss. Anyone else feel like they’ve been royally f*cked?
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The Fat Wallet Show is a no-nonsense personal finance and investment podcast hosted by Kristia van Heerden and Simon Brown. Every week we answer questions by a growing audience of finance enthusiasts. Submit your pressing money and investment questions to firstname.lastname@example.org.