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We’ve got the answers to 10 money questions you have always been too afraid to ask.
1. How can I increase my income?
Who doesn’t want a bit more! There are quite a few ways you can, legally, earn more!
- Get a salary increase (present your case to your boss showing why you add extra value to the business or learn a new skill that will increase your value to the business)
- Start a new job where you earn more
- Take a second job
- Start a side hustle or small business
- Invest to earn an income such as investing in property and renting it out, investing in shares that earn dividends, investing in a business where you earn profits, such as a franchise.
2. How much interest am I paying on a loan?
Your repayment amount for any loan is made up of:
- The repayment of the amount loaned (known as the capital)
- Interest
- Any charges or fees
Your creditor, or lender, has to disclose the interest rate they are charging and if and when it changes. They also need to show you the total monthly repayment amount, which includes interest and charges, on statements. Statements should also show the amount of interest separately to the total repayment amount, but if they don’t, ask your lender or work it out so you can see the exact amount of interest you are paying.
3. How can I get out of debt?
In short, pay it off and don’t take on any more debt!
To pay off debt, work out a payment plan for all your debts. List each debt so you know how much you owe and work out how much you can pay each month using cash available – don’t use one debt to pay another!
If you are struggling to make minimum payments or are behind with your debts and being harassed by your creditors, talk to a debt counsellor about going into debt review. And for a first-hand account of the debt review process you can read Dawn’s story.
4. Should I save or pay off debt?
You can do both!
If you are able to pay your debts each month, either the minimum amount or more, and have some money after expenses and debt payments, it could be a good idea to save money. This way, you can build up an emergency fund and get into the habit of saving each month!
If, however, you have debts at high interest rates, such as a personal loan at an interest rate of over 20%, it may make more sense to put all your extra funds into paying off this debt as quickly as possible. Debt with a high interest rate is expensive, and the sooner you pay this debt off the more you will have to save and invest so you can build your generational wealth! Just make sure there are no excessive penalties or charges for early settlement!
5. Do I have to belong to a pension fund?
This depends on your employment contract. Some employers stipulate that part of your employment conditions are that you belong to the company pension fund. In this case, money will be deducted from your salary, before you are paid, and paid to the pension fund. The benefit of company pension funds is that your employer usually also contributes an amount, so you can end up with a lot more than if you alone were contributing.
If your employment contract does not stipulate that you have to belong to a pension fund, you don’t have to. However, you should consider saving for retirement, such as investing in unit trusts, ETFs, shares on the JSE or another stock exchange, a tax free savings account or retirement annuity.
6. What fees do I pay when I invest?
You will pay some fees when you invest. These are for the services provided, for example fees for an asset manager to manage a unit trust fund. The fee depends on how and where, and sometimes how much, you invest. For example, the fees may be different if you:
- Buy investments such as unit trusts from a bank or asset manager, for example Coronation or Allan Gray, or
- Invest in a range of funds and investment products through an investment platform, such as Sygnia, or
- Buy shares directly using an online stock-broking platform, such as those offered by banks or a company such as Easy Equities.
If you have a financial adviser they may also charge an advice fee or commission for their financial advice, such as advising you on how much and where you need to invest to reach your goals.
Fees are usually deducted from your investment. Any fees charged, and how they affect your investment, will be disclosed on your statements. If you need these explained to you or you are unsure of what fees are being charged and how, ask your adviser, asset manager, investment or stock-broking platform for details.
Fees affect your total investment return as they reduce the amount you earn on your investment. You should compare and negotiate low fees where possible, ensuring you still receive a professional service and returns of at least above inflation over the long term after all fees.
7. Am I saving enough for retirement?
You will only find out for sure when you are in retirement, but the answer is probably no because research shows most South Africans do not save enough, with many supporting elderly parents and relatives.
How much is enough? Rule of thumb says you should have enough if you save around 15% to 20% of your gross income from the day you start working and increase this amount by at least inflation every year! A financial adviser can work out a more accurate amount that you will need in retirement so you know who much to save each month.
The best advice is to save as much as you can as early as you can and don’t think your expenses will go down by too much when you retire. If you’re living to over 75, and you are healthy, you may have to fund big expenses such as a new car, in addition to higher medical expenses and all those cost of living increases!
8. How much do I need to know about my partner’s finances
At the start of a relationship you need to be upfront about what you can and cannot afford. This will help you avoid situations where either of you feels pressure to pay more than you can afford or do things you cannot afford, such as go on an overseas holiday.
When your relationship is more serious, you need to be honest and open about your finances. Agree on how you will share expenses and who will own what assets, for example a home. You should also formalise this in a contract such as a cohabitation agreement or a marriage contract, and a will.
Separate and secret bank accounts and investments depend on you and the status of your relationship. You may choose to keep a bank account in your own name and have separate investments. However, if you are committed and have shared financial goals, you should also consider contributing to these jointly.
It is particularly important to have a plan in place for when emergencies happen or the relationship ends. For example, ensure large assets are jointly owned or can be equally divided if the relationship ends. And don’t hide debt! There is the possibility that you could become liable for your partner’s debts.
Top tip: Always agree on financial confidentiality. You may be willing to share your detailed financial situation with your partner but neither of you has permission to share it with anyone else, including your bestie and your family!
9. What does tax deductible mean?
If an expense is regarded as tax deductible it means you can deduct the amount from your income before your taxable income is calculated, which means you pay tax on a lower amount! For example, if you earn an annual income of R300 000 and have deductible expenses of R80 000, your taxable income for the year will be R220 000. Which ultimately means you pay less tax!
The income tax act defines what expenses are tax deductible, but they are usually:
- Expenses incurred in the production of income, such as travel
- Care expenses such as medical expenses paid by yourself
- Contributions to savings such as a pension fund or retirement annuity
SARS has a full list of deductible expenses, and a tax practitioner or your financial adviser will also be able to assist you work out what you can deduct.
10. How do I know if I am paying too much tax?
Check your tax return and assessment, and check, and check again! Make sure all your deductible expenses have been taken into account and that your income is correctly stated. Ensure that items such as donations, any payment you receive as the beneficiary on a life insurance policy and winnings, as exempted by SARS, have not been included in your taxable income. A registered tax practitioner or your financial adviser can also assist.
Bonus question: Where can I learn more about money, how to manage it and how to invest to build generational wealth?
Take a course such as Truth About Money’s financial education course, read blogs and articles. listen to podcasts and interviews and follow money influencers on social media!