Frogs for breakfast – tackle your financial priorities early in the year

Rick Briers-Danks, a certified financial planner at Veritas Wealth.

According to Mark Twain if you eat a live frog first thing every morning, then nothing worse will happen to you the rest of the day.

You may have heard the expression ‘eat that frog’ in the context of becoming more productive. The basic idea behind eating that frog is that if you do the worst thing on your plate first thing in the morning, the rest of the day is a cake walk.

Many people tend to procrastinate when it comes to the tasks that seem overwhelming. These are the tasks on your ‘to do list’ that just always seem to drop to the bottom.

Rick Briers-Danks, a certified financial planner from Veritas Wealth, says the start of a new year is the perfect time to review your financial frogs for the year ahead and slowly devour them! “If you manage to attend to five financial frogs this year, you will have done well,” says Briers-Danks who advises that the following points are the ‘frogs’ that you should prioritise:

Your will

Things change from year to year, so it’s a good idea to dust off your will, and see if any revisions need to be made. It’s a small step that could save your family unnecessary costs and emotional upheaval down the road, and in turn, give you greater peace of mind.

Debt levels

“With the interest rate hike announcement, we are heading into a cycle of further interest rate hikes,” warns Briers-Danks. “This means that your debt will cost more to service in the coming months. How are you positioned financially for this? The cycle could last a good few years and so you should look to consolidate and reduce your debt as far as possible.”

“At the very least, make a schedule of all the outstanding debt on your car(s), home loans, overdraft and credit cards, and record what interest rate you are paying on each item. Reducing your debt will become increasingly important this year.”

Budgeting

Veritas recommend that you print out your bank statements and have a review of all your expenses. This is initially an alarming exercise, but well worth it.

“Use the information to create an expenses budget and see if there are any costs you can either get rid of or reduce. Check your monthly debit orders and stop orders to make sure you know what each item is. This exercise will make you become far more aware of your outgoings.”

Saving tax efficiently

Briers-Danks says that you should ensure that you’re taking full advantage of any available tax deductions. In encouraging us to save, SARS have given us some worthwhile tax incentives.

Retirement saving

“For those who belong to a work Pension or Provident Fund, ask HR to give you a benefit statement and check what you are contributing. You should increase this to the maximum allowable if affordable for you. This will become particularly relevant from 1 March 2016 when changes to retirement legislation will allow you contributions of up to 27.5% of your salary (no longer just your pensionable income). If you are able to increase your contributions, even by one or two percentage points, the impact on your retirement capital will be significant,” says Briers-Danks, who goes on to state that for those who are not members of a Pension or Provident Fund or are self-employed, Retirement Annuities offer the most tax-effective means of saving for retirement.

“If your income is variable or you haven’t contributed regularly throughout the year, you can potentially save yourself a large tax bill by making a lump sum contribution or a “top-up” to your RA of up to 15% of your taxable income before the end of this tax year. As of March 2016, this percentage increases to 27.5% of taxable income (subject to a R350,000 annual maximum).”

Tax-free savings accounts

Individuals can invest R30,000 into a Tax-Free Savings Account every tax year, so if you haven’t already done so, this should be your next priority before 28 February.

According to Briers-Danks, while the contributions do not qualify for a tax deduction, all capital gains and income within the investment will be exempt from tax. “The compounding effect of the tax saving can be considerable over the life of investment, so it is important to consider this as a long term investment. The lifetime contribution allowance is currently R500,000. Don’t be tempted to contribute more than R30,000 a year though, as you will then be charged a penalty of 40%.”

Life and disability cover – are you over-insured?

“You should review your risk cover annually. If you belong to a group scheme through work, check your benefit statement. Apart from the obvious need to ensure that you are adequately covered for loss of income, death, disability or dread disease, it’s equally important to assess whether you are over-insured,” says Briers-Danks. “As your investment capital builds up during your lifetime, so your need for cover may reduce. If you no longer have any outstanding debt or any dependants, the need for life cover falls away. Similarly, lump sum cover for Permanent Disability cover may no longer be necessary if you have sufficient available assets.”