8 things you shouldn’t skimp on

With apologies to Isaac Newton, but what goes up hardly ever comes down, except perhaps the fuel price and cryptocurrencies, which have seen more peaks and valleys recently than the points that Jared Leto films score on Rotten Tomatoes.

But energy prices are likely to rise soon, value-added tax increased on April 1 – the day on which the “sugar tax” came into effect – and, whether or not you’re living in a water-scarce area, you’re going to pay more for the precious resource. And although the economy is said to be improving, consumers are probably going to remain cautious about their spending. But there are some things you shouldn’t cut corners on, which include:

1. Cars: safety is paramount

Last year’s Global NCAP and AA South Africa launch of the #SaferCarsforAfrica campaign, which assessed popular compact and small cars, highlighted the importance of safety features in vehicles. Of the five cars tested – the latest models Toyota Etios, Renault Sandero, VW Polo, Datsun Go Plus and Chery QQ3 – two were outed as death traps: the Chery QQ3 and the Datsun Go Plus. The Chery achieved no stars and had no airbags. Costing about $200 (about R2 400) each, car airbags should be standard, not nice-to-haves.

2. Get the right cover

Read your insurance policy documents. Ayanda Mazwi, the senior assistant at the Ombudsman for short-term insurance, says you should not overlook the details when buying cover. “In this economic climate, there is an inclination to seek the cheapest premium and you will get what you pay for. A cheaper premium may come with multiple excesses, limited cover and under-insurance, leaving you with a huge bill in the event of a loss. Shop around for the right cover that comes at the best price.”

3. Don’t hesitate, vaccinate

The flu jab has become imperative. The Centers for Disease Control said in December 2016 that seasonal flu-associated deaths in the US ranged from 12 000 (from 2011 to 2012) to a high of 56 000 (during 2012/13), while Bloomberg said one in 10 deaths in the US were caused by the virus and the New York Times called the current flu season “the worst in a decade”.

People at high risk of flu complications, such as the young, the elderly, asthmatics, diabetics and those with compromised immunity, are advised to get vaccinated.

4. Know your credit status

Take charge of your finances by knowing your credit rating. Avitha Nofal, a senior legal adviser at the Credit Ombud, says consumers must be proactive and alert to any fraudulent activity.

“We recommend that consumers take advantage of obtaining their free credit report from the credit bureaus… Go through the report to establish whether there is any incorrect information, such as possible fraudulent accounts,” Nofal says. If you have a dispute, lodge it with the credit bureau.

5. Don’t be in for a shock

Hans Kittel, an electrician and owner of Umduzu Maintenance and Services in Gauteng, says one of the biggest mistakes people make is to opt for the cheapest quote for electrical work.

“Don’t take a chance with electrical work on your private or business premises. Saving money here can end in tragedy,” Kittel warns. “Don’t pick up someone off the street to do electrical work on your premises. Make sure your electrician is registered and licensed with the Department of Labour and has good references.”

He says you should never allow your handyman, husband, plumber or gate-installer to work on any electrical installation. “All electrical work has to be done by a registered person or under the supervision of such a person. It’s the law and it could save your life. Rather save money elsewhere.”

6. Invest in your future

Nicky White, a senior financial planner at Sanlam’s LightHouse BlueStar, bases her advice on Warren Buffet’s exhortation to save for your future needs before spending on your present wants.

“In order to do this effectively, get your finances in order. Stick to a budget. Take ownership of your financial life and upskill yourself. Establish a relationship with a financial planner, who can mentor and assist you to put plans in place for your financial future. Identify short-, medium- and long-term financial goals. Have an emergency fund of three months’ income. Draw up a will and file a hard copy where your family can readily find it, with the details of your financial plan,” White says.

7. Read the terms and conditions

The Consumer Goods and Services Ombudsman says reading the terms and conditions on any policy is a must, particularly when it comes to personal loans offered on internet platforms, because people are being duped into signing up for “loans” that they never receive.

“Never take short cuts if you’re in need of a personal loan. Read the terms and conditions carefully when you do a loan application.

“Our office has received an influx of complaints from consumers who thought they were applying for a loan, but, only after submitting the application, do they learn it was not for a personal loan but for different policies. The suppliers are debiting their bank accounts monthly, or, in some cases, they are receiving debt collectors’ letters. Rather approach your bank for a loan.”

8. Feed your soul 

Shannon Walbran, a spiritual mentor based in Johannesburg, says she never skimps on travel. “Every chance we get, we go away, inside South Africa or overseas. I’m constantly looking for the best value in trips. We don’t splash out unnecessarily, but we get the best deal for our money.”

She has taken the Shosholoza Meyl to Durban, stayed in a wigwam found on AirBnb in Los Angeles and splurged on Atlantis at the Palm in Dubai. “We have a beautiful country and an amazing world, and I intend to see as much of it as I can in this lifetime,” she says.

Source: IOL

Is travel compensation still worth the chase?

If you had to choose, would it be company car or travel allowance? It’s a question that regularly plagues both employers and employees. In light of new Sars requirements for travel reimbursements, it needs to be carefully revisited.

Important changes

The limit of 12 000km that was previously applied to reimbursements has now been removed. If travel exceeded this distance in the past, it was reimbursed at a per kilometer rate higher than that prescribed by Sars and the total amount needed to be reflected under code 3702. However, reimbursement paid at or below the prescribed rate was declared under code 3703. Either way, PAYE was not deducted from the employee’s income.

From March 1, if an employer reimburses staff at a per kilometer rate higher than that prescribed by Sars, they have to split any reimbursement into two components. The portion that falls within Sars’s rate must be declared using code 3702 while the portion above that rate must be reflected under a new code, 3722. If the employer also pays a fixed travel allowance, this is declared separately with code 3701 as usual.

Under this new system, the excess reimbursed portion is subject to PAYE just like a fixed travel allowance or fuel, garage and maintenance cards. Reimbursement at or below the prescribed rate is reported using code 3702 as before.

More important than the new code and method of calculation, is the removal of the 12 000km limit and the introduction of PAYE on the excess portion. These changes affect the reward dynamics significantly.

Employers should therefore review the new rule to ensure their workers are enjoying the best tax and cost benefits, especially those who reimburse certain segments of personnel well over the prescribed rate.

It may be that a lower reimbursement rate puts more money into an employee’s pocket, as there is no PAYE thereon and the reimbursement does also not have to be substantiated by a logbook on filing of the employee personal income tax return.

Either way, the compliance around the new rules makes it important for all employers to enforce compulsory employee logbooks, even where the employee does not claim on a tax return. We know employer PAYE audits is a Sars focus area and employee logbooks is critical for the employer to evidence tax compliance.

Is it time to offer a company car?

In seeking travel compensation that is fair and rewarding to a worker, it is a good opportunity to decide if they would benefit from a company car. As a rule of thumb, if more than 60% to 65% of an employee’s travel is for business purposes, they are losing out by using their personal vehicle.

Typically, fuel only makes up 50% of the total cost of running a car. Additional expenses, like maintenance and insurance, or depreciation on the vehicle are not covered by travel allowances, reimbursements or fuel cards. A highly mobile employee may also have to bear the early replacement costs of their private car.

The vehicle buying habits of South African employers and employees remain routed in emotion and decisions are not made based on running the numbers. This causes the employer to be burdened with too high fleet costs, while the employee is mostly significantly out of pocket, often only realising the mistake when they want to trade in their vehicle.

There remains a sweet spot for travel reimbursement, reimbursement with travel allowance and company vehicles. The employers who care about the cost and staff allows all three, as part of their Total Package approach. Especially for employees on high business travel, the employee is severely disadvantaged where not on a company vehicle. If an employer does the calculation correctly, they will see that a company vehicle is the best reward strategy in this case.

I advise that organisations engage their reward specialist to ensure their employees receive the appropriate package for their needs.

-By Jerry Botha

Jerry Botha is the master reward specialist and executive committee member of the South African Reward Association.

Source: MoneyWeb

Boost your retirement savings by reducing your monthly tax burden

CAPE TOWN – If you earn R50 000 a month and were shown a perfectly legal way to save almost R800 000 in tax over 20 years, would you take it?

Niel Fourie, the public policy actuary at the Actuarial Society of South Africa, has a solution that can help you to achieve exactly that, while at the same time significantly boosting your retirement savings. But there’s a caveat: you have to be prepared to sacrifice a portion of your monthly take-home pay.

To illustrate this, Fourie crunched the numbers for monthly salaries of R50 000, R25 000 and R100 000.

“Obviously, the higher your pay scale, the more impressive the numbers,” says Fourie.

Take a salary of R50 000 a month. If you’re contributing 10%, or R5 000, to a retirement fund, your monthly tax is R10 683 (based on the 2018/19 tax tables). Assuming there are no other deductions, your take-home pay is R34 317.

If you doubled your monthly contribution to the retirement fund to R10 000, your tax would drop by R1 800 and your take-home package to R31 117, a reduction of R3 200. Fourie says that, effectively, the government is sponsoring the additional R1 800 towards your retirement savings, by reducing your tax rate as an incentive to save more for your retirement.

Over 12 months, your tax saving would amount to R21 600 and over 20 years to R794 568.77, assuming a 6% salary increase every year and the tax brackets adjusting accordingly.

Fourie says that, instead of sacrificing this money to taxes, you have effectively grown your retirement savings by at least this amount or more, depending on where you invested your money.

Here is how much you can save if you earn R25 000 or R100 000 a month:

• If you are contributing 10%, or R2 500, of your salary of R25 000 every month to a retirement fund, your monthly tax is R3 372 and your take home-pay is R19 128, Fourie says.

If you doubled your monthly contribution to the retirement fund to R5 000, your tax would drop by R650 and your take-home package to R17 278, a reduction of R1 850, Fourie says. In this case, the government is sponsoring an additional R650 towards your retirement savings.

Over 12 months, your tax saving would amount to R7 800 and over 20 years to R286 927.61, Fourie says.

• If you are contributing 10%, or R10 000, of R100 000 to a retirement fund, your monthly tax is R28 814. Assuming there are no other deductions, your take-home pay is R61 186.

If you doubled your monthly contribution to a retirement fund to R20 000, your tax would drop by R4 100 to R24 714 and your take-home package to R55 286, a reduction of R5 900. In this case, Fourie says, the government is sponsoring R4 100 towards your retirement savings. This tax saving would amount to R49 200 in the first 12 months and to R1.8 million over 20 years.

Fourie says that, by giving up a portion of your take-home pay, you end up with significant tax savings, which, if invested wisely, could grow into a sizeable nest egg.

“Even though you will be taxed when you start drawing an income in retirement, it will most likely be at a lower marginal rate. It is also clear that, the more you earn, the more compelling the argument to save in a pension fund or a retirement annuity,” he says.

Advice for if you are contacted by Sars debt collectors

Sars has appointed eight external debt collection agencies to recoup some of the current R16.6 billion tax deficit. These agencies will be on contract with Sars until February 2019.

Consider the following advice if you are contacted by one of these third-party debt collectors:

Firstly, make sure that they are in fact one of the enlisted agencies. These are:

➢CSS Credit Solution Services (Pty) Ltd
➢ITC Business Administrators (Pty) Ltd
➢Medaco Capital Services (Pty) Ltd
➢New Integrated Credit Solutions (Pty) Ltd
➢Norman Bisset & Associates Group (Pty) Ltd
➢Revenue Consulting (Pty) Ltd
➢Transactional Capital Recoveries (Pty) Ltd
➢Van De Venter Mojapelo (Pty) Ltd.

Unfortunately, there is the anticipation of some illegal activity around this announcement, with fake debt collection agents contacting people claiming to be from one of the above listed agencies. Due to this, advice is to not give any of your personal information to them – and do not confirm any information that they provide over the phone.

Under no circumstances should debtors pay money directly to the debt collection agency. All outstanding tax or duties must only be paid directly to Sars via authorised payment channels.

All South Africans who find themselves being contacted by a Sars debt collector should contact their tax practitioner immediately and provide them with the name and contact details of the agency.

It can be nerve-racking to receive a call from any debt collector. Stay calm, request that they send you all their details, both the agent and the agency, and the details of the claimed tax debt in writing.

This information, and any other communications received from any agency claiming to collect outstanding Sars debt, must then be forwarded to your tax practitioner (i.e letters, smses or emails) and your tax practitioner can contact the agency to verify their credentials and confirm the validity of any claimed outstanding Sars debt.

Colien de Villiers is a tax administrator at CAP Chartered Accountants.

Source: MoneyWeb

The dos and don’ts of life insurance

Life insurance is often the last thing that people think of when it comes to their financial well-being. Most would never buy it if they didn’t have a broker trying to sell it to them.

This is unfortunate because the result is that many people don’t understand why they need it.

“Most people don’t wake up in the morning and think that they need some life insurance,” says Michael Goemans, the CEO of Investec Life. “But everyone should be concerned about something happening to them that would affect their families or their lifestyle. If you can’t work you can’t earn an income, but you or the dependants you leave behind still need to live.”

Essentially life insurance, disability cover and serious illness cover are about protecting you and your family in the event that you can no longer earn an income or incur a major life impact, whether temporarily or permanently. Everyone should think about how they would manage if that were to happen.

“Our view is quite simple,” says Robin Gibson, a financial planner at Harvard House. “Individuals sell their skills and time in return for an income. This income meets their consumption needs, some of which funds debt. Life cover should do nothing more than settle debt and provide the difference between your current accumulated capital and the capital sum required to purchase a sustainable, escalating income for the family’s future needs.”

This is critical for everyone to understand. Life cover serves a very particular purpose, and it’s therefore vital to know what you should, or shouldn’t do when it comes to taking out a policy.

Know how much you need

“You shouldn’t buy cover you don’t need,” says Rudi Schmidt, the MD for short-term insurance and life at Alexander Forbes. “Think cautiously because it costs you money. Buy the cover you actually need and spend time determining what that figure should be.”

The question, of course, is how to know what is enough. Fortunately, there are many online tools that help to answer this question, and your financial advisor should also be clear on how they reach the figure that they are proposing.

“Typically, you look at what you are covering,” says Goemans. “This often doesn’t have to be an overly complex calculation, and the products that meet this need also don’t have to be as confusing as has traditionally been the case.”

For death and disability cover, this generally means paying off your debt and having enough cover to generate an ongoing income.

“Severe illness cover is however often a more subjective assessment of what you want extra money for,” says Goemans. “Maybe your medical aid won’t pay everything, or perhaps you will need to change your lifestyle, or take time off. You have to weigh up these needs based on some objective calculations, but also your individual risk appetite and affordability.”

Don’t rely on group cover

Many people working in a corporate environment will have some level of life cover through their company. While this is very useful, no one should assume that it’s all they need.

Firstly, some of these policies only cover death and not disability or serious illness. More importantly, however, most people are likely to change employers a number of times during their careers and they don’t retain their cover when they move from one to the next.

“Your level of group risk cover will vary with every employer, so I always look at group risk cover as supplementary,” says Schmidt. “You should never make it your core or fundamental cover in financial planning because it is not sustainable and varies through your life.”

Also, group cover policies can take up to a year to pay out because the fund has to identify the right beneficiaries. Direct life insurance will pay out in a week or two if beneficiaries are nominated and not disputed.

Don’t buy non-underwritten products if you don’t have to

There are plenty of funeral and accidental death cover policies available in South Africa that market themselves on not requiring any medical examination. However, what many people don’t realise is that this kind of cover is far more expensive than taking out a traditional life insurance policy.

“A lot of people are scared to go for medical tests for fear of finding out that they have an underlying ailment like HIV,” says Schmidt. “But for these non-underwritten policies, the premium for the same level of cover quadruples. The only time you should do this is if you cannot get underwritten cover.”

Get cover on your terms

Most people who have life insurance have a policy because a broker told them what they needed and sold it to them. However, greater awareness and the use of technology are giving more influence to consumers in this process.

“Gone are the days when the company you are engaging with should be able to dictate what you do and how you interact,” says Goemans. “They shouldn’t force you to buy products you don’t need, or to use a channel or avenue that you don’t want to use.

“If you want to be able to do things on your own terms, you should be able to get that,” he adds. “It’s a new world, and as a client you should be able to determine how you want to do things.”

Source: MoneyWeb

The Boring Secret to Getting Rich

The media likes to paint a certain picture of what it means to be rich — huge mansions, expensive cars, high-powered Wall Street or tech-startup-type jobs. If you buy into that image, being rich may feel like an impossible dream.

But the truth is that most “rich” people live very normal lives. You probably wouldn’t even know they were rich if you saw them because they don’t fit the stereotype. Most rich people are a lot like you and me. They just know a secret that, while incredibly effective, isn’t very sexy.

The secret to getting rich

The secret to getting rich is as powerful as it is unexciting: live below your means.

That’s it. The bigger the difference between what you earn and what you spend, the sooner you’ll find yourself with enough money to do what you want with your life.

Now, I realize that “live below your means” may sound obvious or trite. That doesn’t make it easy. It’s actually much harder than it sounds. Many of the people you see with big houses and fancy cars are up to their eyeballs in debt, which means they’re violating this basic principle. They aren’t rich at all. They’re in debt.

The challenge is recognizing that you can’t amass real wealth if you try to keep up with such people. Real wealth comes from spending less than you earn, again and again, month after month, year after year. It’s a slow and steady process. It isn’t particularly exciting. But it is the surest way to reach your biggest financial goals.

Practical ways to live below your means

So if the key is living below your means, does that mean holding onto your ratty old futon from college rather than buying a comfy couch? That kind of thing is certainly an option. But here are some more practical steps to could consider:

  1. Ditch your big monthly bills. Switch to a low-cost cellphone company. Or get rid of cable. Technology is allowing us to do more for less, and you can take advantage.
  2. Automate saving by transferring money out of checking and into savings at the beginning of every month. This forces you to live on less.
  3. Increase your savings rate by 1% every six months. Set a calendar reminder to help you remember. You’ll hardly notice the difference, and it will really add up over time.
  4. Put 50% of all raises towards savings. You still get to increase your lifestyle, but you do it in a sustainable way.

Redefining rich

Central to all of this is redefining what it means to be rich. If you need a huge home and an expensive car to “feel” rich, then this advice won’t work for you. But if you define affluence as the ability to spend time with friends and family, to travel, to do work you love and to stop worrying about money, then living below your means is all it takes.

Real freedom is the ability to make life choices that make you happy. Frugality puts money in your pocket so you can do just that.

 

Source: Time.com

Don’t underestimate saving and a side hustle

So you’ve just started your first formal job, and pocket money and cheap booze are a thing of the past. (What happens in varsity, stays there, right?) You’ve got your first pay cheque, and it’s more money than you ever thought you’d see in your account, so it’s time to start living your best life, right?

Well, hell yeah, but let’s not be reckless.

Saving in your early 20s is actually where building wealth begins. We hear about saving and that it’s “important for your future”, but we don’t know how to get down to it properly or whether our methods are even effective.

Piggy banks are for the kids, so let’s talk about saving and spending in your 20s.

How do I save?

Petri Redelinghuys, a trader and founder of Herenya Capital Advisors, says a common saving mistake that 20-somethings make is to spend everything once they get their first pay cheque without putting anything away, because saving for the future or retirement is the last thing on their minds. (#guilty)

Saving money and spending money go hand in hand. The less you spend now, the more you save and the more you save at an earlier stage, the more you can spend later.

“The saving that you doing now is for retirement; you might not think about retirement because it’s far away,” he says.

Simon Brown from JustOneLap says reckless spending during the early 20s is normal but, like Redelinghuys, he emphasises that starting to save early will have the greatest impact on your future funds.

The first part of the savings saga is to start saving from the very first day. Thulisile Nkomo, a private wealth manager at NFB Private Wealth Management, concurs that saving needs to start from day one. Step two is sitting down and planning what money goes where, considering where  your priorities lie and not spending more than you earn.

Saving should not be that much of a challenge, says Redelinghuys. If you’ve just started working and most of your disposable income goes towards rent, petrol, groceries and recreational use, spending might be the issue. He challenges someone in this situation to take R200 out of their monthly spending.

“You’ve always got money to save. Create a spreadsheet, and work out what you’re paying for rent, where are the rest of your expenses and see how much disposable income you have left.”

If you spend R50 less on daily expenses like food, your cellphone bill, clothing and going out, you can save R200 a month, which you can put into a tax-free savings account [TFSA], for example,” says Redelinghuys.

Saving for a purpose

Along the way, there will be things you want to own or experience that cost a lot more than what you have in our bank account, for example, going on a holiday or attending a music festival. Keep a separate account for those savings. Further, advises Redelinghuys, “get a side hustle” – use a hobby and make money from it.

“Side hustle for your holidays. It’s motivating when you know that you just need to work this many weeks and you’ll have your ticket to go overseas,” he says.

There are many options available, but it becomes the individual’s personal responsibility to research and educate themselves on those best suited for their own needs. Nkomo says often the individual themselves need to set visions for what they would like to save for or invest in, and see how much they can afford to save.

“You must save as much as you can afford to save,” she says.

According to her, a TFSA or a unit trust is the best account to save with. A TFSA enables you to save and benefit from the growth of your savings, investments and dividends because no taxes are deducted.

Brown says the key is to start putting your funds in accounts that will help your money grow. “Start with ETFs [exchange-traded funds] and with TFSAs. They are simple; they are cheap; they generate returns much quicker.”

ETFs give you returns faster. Simply put, an ETF is an index fund that tracks commodities, bonds and asset baskets. An ETF can be bought or accessed via the JSE. As an index it aims to provide investors with a benchmark return at a lower cost. The ETF asset basket is beneficial because of its diverse portfolio, which can give you access across different currencies and has a lower risk, says Brown.

He says even if you invest a small amount, like R100, it’s important to think about building a portfolio and start investing that money for the next 30 or 40 years.

The whole point of saving for a rainy day or for the long term is to keep the money where it’s difficult to access. The easier it is to access on demand, the easier it will be to spend. Keeping the money in something like a TFSA will only be of benefit to you in the long run.

Short- and long-term options

You have short- and long-term savings options, adds Nkomo.

Short-term savings options are for small items, like a TV, or dope headset or laptop. They cost money, sure, but it is money that you can afford to “lose” because it can be recovered over a short time. This can be invested in cash, in a money-market account, where there’s low risk and the funds can be accessed easily.

Investing for the long-term, like for a house or a really expensive holiday takes time; it may take five to 10 years to accumulate the money. That’s where you begin saving in shares and keeping your money safe, because these are high-risk investments – basically lots of money that you can’t afford to lose.

Ultimately, the lesson is in understanding money, your goals and your personal vision of how you would like to see your own money grow.

In summary, if you’re an average 20-something without many commitments, you can afford to take risks and make mistakes because the money you lose can be recovered. Take the risks, because the growth in your salary is inevitable over time, and the money you make now will grow in the future.

But remember, maintain a good credit rating and stay clear of debt.

 

By Aarti Bhana

Source: Money Web

How to keep your credit score healthy

South Africans’ appetite for credit shows no sign of abating, according to the latest Consumer Credit Market Report released by the National Credit Regulator. The total value of new credit granted increased from R120.08 billion to R123.64 billion for the quarter ended September 2017, an increase of 2.96% when compared to the previous quarter and an increase of 5.21% year-on-year. The number of applications for credit increased by 483 000 from 9.39 million in June 2017 to 9.87 million in September 2017, representing an increase of 5.15% for the quarter.

The rejection rate for applications was 51.39%. This high rejection rate may be due to an impaired credit record. Learning how to manage and improve your credit score will help many consumers.

Improving your credit score means looking after your Empirica 5 credit score from TransUnion. This score is developed by FICO, the world leader in credit scoring and predictive analytics. When you apply for a loan or credit, lenders use the score to decide how much credit to make available to you, and on which terms.

Understanding how your credit score works is the first step to keeping it healthy.

Your credit score has five categories of information: payment history, amount owed, length of credit history, new credit and credit mix.

Your credit score changes as you change your credit management habits.

Even if you have a low score today, you’re not locked into that score forever. There are no quick fixes, but paying your bills on time and only applying for new credit when you really need it can go a long way to moving you from a negative credit status to a positive one.

Let’s take a closer look at how this works.

1. Make payments on time

Your payment history makes up 40% of your Empirica score. So, the best way to improve your score is to make payments on time. If you pay late, your score will go down — especially if you do this often. If you’ve been making late payments more recently, this will also affect your score.

2.  Only take on credit you really need

Having a lot of debt can reduce your score. Your Empirica score considers the total you owe, how many accounts you owe on, and how much of your credit you’re using.

Did you know that if you’ve applied for credit but haven’t used it, this will actually count against you! This is because your affordability calculation is based on the worst case scenario of assuming you have used up the credit line, be it an overdraft, revolving loan or an additional credit card with a low limit.

3.  Be careful of applying for many accounts at once

The Empirica score also looks at how many accounts you’ve opened or applied for recently. If you’ve opened several new credit accounts in a short period, you are seen as a greater credit risk, and this reduces your score. The score won’t penalise you for shopping for the best rate. If you are shopping like this, it’s best to do it within a 30-day period.

Know more about your credit score

Your Empirica score:

  • Is an objective measure of your credit risk that allows lenders to speed up credit and loan approvals.
  • Provides a balanced look at your entire credit history, not just what you’ve done with one lender.
  • Is fair: it doesn’t consider your gender, race, religion, nationality or marital status.
  • Doesn’t look at your income. People with lower incomes can be better credit risks than people with high incomes.
  • Takes into account your recent payment patterns. By making an extra effort to pay on time, you can improve your score over time.
  • Only includes information found on your TransUnion credit reports, or information that has been proven to predict future credit performance.

Remember, every lender uses credit scores differently and has different lending criteria. If you don’t like what one lender is offering, shop around.

Derick Cluley is FICO’s head of operations in Africa.

Source: Money Web

Will your financial advisor be replaced by a machine?

In January this year Amazon opened a new store in Seattle in the USA. Called Amazon Go, the store has no checkout counters and no cashiers. Customers simply scan their phones, pick what they would like off the shelf, and walk out.

This is the future of physical retail. Technology is making cashiers redundant.

This replacement of humans is happening across all kinds of sectors, particular in areas like toll booths and fast-food service. However, higher skilled jobs are also not exempt.

Computers can process and analyse all kinds of data far quicker and more accurately than humans can, so many clerical functions can be automated. This is happening in financial services too, where the potential for using artificial intelligence and machine learning is extensive.

In the world of financial advice, robo-advisors are also gaining popularity. They allow people to access advice on their own terms, when they want it, and without feeling that they are exposing themselves and their financial situation to someone else, which is often a real barrier to approaching an advisor.

It is inevitable that this changing environment will change the way that financial advisors operate. But will they, like cashiers, become redundant altogether?

Albert Cucco, the chief client solution officer at fintech provider Objectway, believes that the entire financial services world is facing this challenge. Faced with new entrants offering digital solutions, traditional players have to respond.

He doesn’t however believe that the human element will disappear. Ultimately, there must be a meeting of these two worlds because both will have to adapt to be sustainable.

“Digital players cannot serve online only clients if they want to increase their share of wallet,” says Cucco. “At the same time, if traditional players remain where they are, they will not easily gain new customers.”

The majority of robo-advice platforms are discovering that it is extremely difficult to be profitable offering only this service. They are therefore understanding the need to expand their product offering.

Many traditional players are also appreciating that to grow their market share they have to digitise their businesses, and make far greater use of technology.

“This is the argument for a hybrid approach, where the digital only experience and face-to-face experience will meet in a service that will address the needs of the customer in depth but still with the advisor as the central point in the service,” says Cucco.

Thomas Zink, associate research director at IDC, agrees.

“I am of the firm belief that the hybrid advisor model can support the wealth management business because it allows you to run a lot more efficiently,” Zink says. “It doesn’t seek to replace the relationship manager, but support them.”

Read: Traditional financial advice is no longer enough

One area where there is a lot of room for technology to play a role, for example, is in product selection. If a financial advisor wanted to be truly independent and offer clients advice on every product available, they would need to know thousands of different offerings.

Besides being practically impossible, advisors also have their own biases to consider. It’s extremely difficult to be impartial.

“There is always room for error and personal bias in selecting products, so the advisor is not always acting in the best interests of the customer,” says Zink. “They are more likely to recommend something that they know and can hold their ground on in discussions.”

Technology has the ability both to remove these biases and analyse a full array of products, potentially identifying suitable solutions that the advisor may have missed on their own. Particularly in selecting risk products, this can be hugely beneficial.

“The technology is simplifying the work, not taking it away,” says Lorenzo Pagnin, Objectway’s chief technology officer. “Many advisors work with excel spreadsheets to try to keep track of client information, but now they have automation to do this. This also frees up more time for them to add value.”

In this respect, greater use of technology in the advice process also aligns with the objectives of the Retail Distribution Review (RDR). Advisors who are simply selling products are not only going to find it difficult to survive in the new regulatory environment, but they are going to find themselves outdone by technology too.

The advisor of the future not only has to be able to offer something that the client can’t do for themselves through a digital platform, but also provide meaningful interactions.

“Advisors can provide a lot of digital services directly to the end user,” says Pagnin. “But when it comes to counselling and strategy, then that’s where human interaction is important.”

Patrick Cairns is attending the Objectway OWIN18 conference in Rome. His travel and accommodation were covered by Objectway.

Source: Money Web

When not to use a tax-free account

Financial planners can think of very few reasons why not to invest in tax-free savings accounts (TFSAs). The benefits are clear.

However, Lizl Budhram, head of advice at Old Mutual Personal Finance, says if you intend to save more than the R33 000 annual limit or R500 000 lifetime limit, then a tax-free savings account may not be suitable for your savings needs.

The South African Revenue Services (Sars) will levy a tax of 40% on all contributions that exceed R33 000 per tax year.

But “even in such cases, it would most likely still be beneficial to use the tax-free savings account for the first R33 000 of your annual saving amount”, she advises.
This means that the TFSA is really only “unsuitable” when you have already reached your annual or lifetime limit for investing in a TFSA.

She says investors who have more than one tax-free savings product (for example with two different service providers) must be aware that the maximum limits will apply across all the tax-free savings products, and not per product.

Ricardo Teixeira, chief operating officer at BDO Wealth Advisors, says the TFSA would not be suitable to taxpayers who have not utilised their interest tax exemption (of R23 800 when you are younger than 65 and R34 500 if you are over 65).

There is also little benefit to someone whose salary is below the annual income tax threshold of R75 750 (R117 300 for those aged between 65 and 75; and R131 150 for taxpayers over 75).

The TFSA is not the only tax-exempt savings vehicle  South Africans can choose from. Retirement annuities (RAs) are also exempt from income and capital gains tax on the investment returns earned.

“In deciding to open a TFSA, one should consider the benefit of contributing to a retirement annuity in the first instance. The reason being that your contributions to a retirement annuity are tax deductible whereas the contributions made to a TFSA are not,” Teixeira says.

In both instances the investment returns realised are exempt from tax, he explains.

However, access to capital, estate planning, protection from creditors and the limit imposed on contributions to a TFSA all need to be taken into account in making the right decision.

“As a rule of thumb it is advisable to maximise your tax deductions, so contributing to a retirement annuity in the first instance is likely to be the right starting point for most South Africans,” explains Teixeira.

He adds that the incentive of tax- exempt investment returns has not enticed the local low-income taxpayer to save using a TFSA.

“It would appear that the policy intent has not been matched by the tax reality. It is the higher income earner and taxpayer who stands to benefit the most from a TFSA,” says Teixeira.

Nyasha Musviba, founder of SATaxGuide, says there must be a purpose for using a TFSA. There is little benefit in using the account as a normal transactional account.

“If you are investing an amount in a tax-free savings account, but you withdraw it the same year, there is no real benefit. You are using your allowance; however, you are not getting the tax-free benefit, since the tax benefit is on the growth of the savings,” he remarks.

Keith Engel, CEO of the South African Institute of Tax Professionals, says TFSAs are not aimed at creating long-term retirement savings, but can be used to augment existing retirement savings.

However, he is concerned that consumers are merely “shifting savings”. “The fact that people are investing into these accounts will only mean something if their overall savings are higher.”

His advice is for individuals to invest in traditional retirement saving vehicles such as employer-provided pension funds, provident funds and retirement annuities, which will grow tax-free.

The next objective is to become debt-free as quickly as possible, and once this has been achieved, to invest in a TFSA.

This article is part of the cover that originally appeared in the 1 February edition of finweek. Buy and download the magazine here.

Source: Fin 24

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