Tags: Tax
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A recent survey has revealed that 70% of South Africans spend their entire monthly income. This means that a vast majority of individuals barely make ends meet, and long term savings goals are generally non-existent.

To help create a long-term savings mindset among South Africans, it is important to show the positive impact of diligently saving each month. For most, when R200 is left to spare after all expenses are paid, they choose to spend it. Although saving R200 seems like it won’t do much, it is important to visualise the long-term difference this sum can make.

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Here is what you can accomplish if you choose to save R200 every month:

  1. Save towards your retirement

Saving R200 monthly can help save between R450 000 to R600 000 for retirement within 30 years, depending on your investment return (and inflation adjusted continued savings). This, compared to the short term satisfaction of around 7 cheeseburgers for R200, seems significantly more beneficial. Additionally, retirement savings enjoy an income tax benefit in the form of a deduction of up to 27.5% of taxable income dedicated to retirement annuity savings.

  1. Save on your home loan
When choosing to contribute R200 more onto your monthly home loan instalment, individuals can not only cut down their time spent paying off this loan but also save thousands in interest. At an interest rate of 7%, the additional R200 contributed to home loan debt would reduce the loan period by approximately 2 years, saving approximately R50,000 in interest.  Compared to the short term satisfaction of 6 cappuccinos a month, this has a considerably more positive outcome.
  1. Pay off credit debt faster

As an example, if you are currently paying off R15 000 of credit debt over three years, with an interest rate of around 18% per annum, an extra R200 on your monthly instalment will allow you to discard your debt a year earlier and save you around R1400 on interest. The short term satisfaction of spending that R200 could only buy you two basic t-shirts.

Visualizing the returns on these long term goals, helps individuals conceptualise what that small sum of money could yield. Overall, adopting a positive long term goal mindset allows you to better manage your credit and saving which often leads to a better quality lifestyle.

Some tips for shifting to a long term saving mindset include:

Consider where you would like to be financially in the next 10 years. Highlight any long term goals you might have and consider what changes you will need to make to your spending habits to reach these goals.

Get into the habit of accurately budgeting to track your expenditure and help you visualise your financial circumstance. Furthermore, choosing an appropriate savings vehicle for your goals is necessary. This choice will be based on how long you intend to save and how likely you are to withdraw from this savings before the planned term is complete. Sticking to a fixed amount to save consistently is also more likely to yield success than sporadic contributions.

The MMS Group can assist individuals and businesses with an array of income tax services.  If you require professional taxation advice, get in touch with our team.

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