The Wealth Guide to Not Going Broke_2016

1

WEALTH GUIDE TO NOT GOING BROKE

Help! It’s my first payday and I have no idea what is going on or what to do. Tax? CTC? Deductions? RA? What does it all mean?

2

The foreword

Help! My first payslip… Sample payslip: what is what and why? BudgetingHow to work out if you can get that car or go to that festival

Savings: Understand each deduction so that you are able to make every cent work for youWhat is Cost to Company (CTC)?Earnings vs deductions

Debt – The good, the bad and the uglyStudy loan tips Good vs bad debt

Investing – tapping into your inner Warren Buffet Different investment options: Short term Different investment options: Medium term Different investment options: Long term Online investing vs using an adviser

Retirement funding

BenefitsBenefits received from your companyMy medical aid Medical aid vs private

Money tipsThe benefits of seeing a money doctor (financial adviser) Valuable money tips

Contents

Wealth Advisers(Pty) Ltd | (FSP no 4549, 15751 and 41974)

3

Starting your first job and receiving your payslip is an exciting experience in anyone’s life. However, even the most qualified professionals don’t fully understand what their payslip is saying to them. We often hear – “why didn’t anyone teach us about taxes, RAs and savings in school?”

Well, let’s just say – School is in! #YOLO

BDO Wealth Advisers has heard your cries and want to help.

The aim of this e-book is to provide young professionals (and anyone else who may need it) quick snippets of advice on their payslip, looking at elements such as – Cost to Company, a sample payslip explanation, a real-time budgeting tool, savings, debt, investing and usually confusing, topics. Understanding these topics will go a long way in helping you to be a more profitable and ‘saving inclined’ generation so that #OOTD can keep updating and your wallet doesn’t fall behind.

We hope through this book the common myth that professional financial planning is just about recommending financial products will be busted. You will see that through their training and on-the-job experience, financial planners can assist you with your goals such as: buying a home; being able to support loved ones financially; being free of common consumer debt; being prepared for an emergency; retiring in the lifestyle that you want; and successfully managing your finances to achieve your life goals. In fact, consumers working with a CFP® professional are more successful in sticking to their financial strategies and are more knowledgeable about financial matters (according to a study done by the Financial Planning Institute).

To make you feel even more secure with us – BDO Wealth Advisers is an FPI Approved Professional Practice ™ - which distinguishes us as a professional financial planning practice offering financial services of the highest standard (a claim only +/- 10 other companies in SA can have). We hope you find the content useful. We are excited to share it with you and wish you well on your financial wellness journey. You've just taken the first step...

by Allan Heynen, Director, BDO Wealth Advisers

WHY DIDN’T THEY TEACH US THAT IN SCHOOL?

FOREWORDContents

I am so glad that

we learnt about

parallelograms in

school rather than

tax, it has really

come in handy this

parallelogram season.,

said no ,one ever.

“


4

PRESUMPTIONS

TRUTHS

• Your payslip is a summary of your earnings, and how much your employer owes you.

• A payslip is first and foremost irrefutable proof of a person’s work service for any employer. It provides factual proof of the jobs you have held and what you were paid.

• They hold a lot of weight with financial institutions.

What sort of information should you see on your payslip as per the Basic Conditions of Employment Act: *see sample payslip• Employer’s name and address [A]• Employee’s name and occupation[B]• Period for which payment is made[C]• Total salary or wages[D]• Any deductions[E]• The actual amount paid[F]• If relevant to the calculation of pay[G]:

• Employee’s pay and overtime rates• Number of ordinary and overtime hours worked• Number of hours worked on a Sunday or public holiday• The total number of ordinary and overtime hours worked in

the period of averaging, if a collective agreement to average working time has been concluded.

What kind of deductions would normally be found on a payslip:• When looking at deductions, it is important to note that

personal/voluntary deductions cannot exceed 25% of a person’s gross pay. Voluntary deductions include staff loans, donations to charities, gym fees and in some cases union fees.

• Compulsory deductions include tax and unemployment insurance (UIF). Deductions related to benefits like pension, medical aid, life cover and income protection are usually voluntary but can sometimes be compulsory depending on your employer’s policy.

NB: It is good to remember that these are not standard amounts in all industries and they can differ from company to company.

PAYSLIPWhat is it and why?

What do each of these terms I see on my payslip mean:Basic payIs the rate agreed between you and your employer as your set pay, without any bonuses or overtime. For monthly paid staff, it is usually 1/12th of your annual salary.

CTCStands for Cost to Company and is a term for the total salary package of an employee. It is the pre-tax salary and includes all benefits the company is offering.

Employee numberIs assigned to each employee when they begin at a company and serves as a unique identifier for each employee.

Gross pay / amountIs the amount that you actually earn before deductions are taken off your salary.

Net pay / amountIs the amount that you will take home after deductions. This amount is what gets paid into your bank account.

IRP5Is the employee’s tax certificate. It is issued to you at the end of each tax year detailing all employer/employee related incomes, deductions and related taxes. It is used by you specifically to complete your income tax return for a given year.

PAYEIs employees’ tax and stands for “Pay As You Earn”. Your employer will deduct PAYE from your salary on a monthly basis and pay it to SARS on your behalf. The amount of PAYE which you will contribute depends on how much you earn, and is calculated from tax tables issued by annually by SARS.

SARSIs the South African Revenue Service and it is responsible for the collection of all taxes in South Africa.

UIFUIF stands for Unemployment Insurance Fund and is another deduction from your salary that is paid by your employer on a monthly basis.


You have received your first payslip, online or in an envelope from your finance department. You open the slip and realise you have no clue what is going on….

5

*Sample payslipAll employees, as well as their employers, are liable for these contributions. As an employee you pay 1% of your total salary and your employer pays another 1% of your salary to the fund every month. If you become unemployed after contributing to the UIF, or your company does not pay for maternity leave, you will have the right to claim from the UIF.

YTD (Year To Date)Is a period of time, starting from the beginning of the current year and continuing up to and including the present date.

Which staff are not entitled to a payslip as per the Basic Conditions of Employment Act:- Independent contractors.- National Defence Force.- National Intelligence Agency.- South African Secret Service.- Unpaid volunteers working for charity.

Which staff are not entitled to see working hours on their payslip, and are also not entitled to be paid for overtime:- Workers in senior management.- Sales staff who travel and regulate their own working hours.- Workers who work less than 24 hours in a month.- Workers who earn in excess of R205 433.30 per year.- Workers engaged in emergency work.

DO THIS• It is important to remember that it is your responsibility to

ensure that the information contained on your payslip is correct. So at the end of each month please remember to check your payslip, check the deductions, and if you notice anything out of the ordinary, then bring it to the attention of your payroll staff member or HR staff member as soon as possible to be sorted out.

• Keep copies of your payslip.

CREDITS: David Bass, Manager, BDO HR Advisery

[A]

[D]

[G]

[E]

[F]

[B] [C]


6

BUDGETING

PRESUMPTIONS

TRUTHS

DO THIS

• Budgeting is only for maths-inclined brains.• Budgeting is only to reach a goal.

List all your income and all your expenditure, item by item. Don’t leave anything out and make certain you include all your fixed expenses.

Look at the bottom line – is there any money left after all these expenses? Remember that “Fun money” is an expense that has to be budgeted for. If your bottom line is in the red, you have a problem. Go back to your expenses and make some lifestyle changes.

Create this budget every month until it becomes second nature and you have that feeling of power, knowing that you are in control of your money from day one.

Making your salary work for you through the month is no different to planning that great holiday. You have to:• Decide what your expenses are.• List financial commitments (Car/insurance payments, rent,

food, transport costs, savings etc.).• List what you spend money on in order to live (clothes, airtime,

food, petrol etc.)• Include fun money!

STOP AND THINK – How can I make this money last through the month when I have some serious priorities?• Buy that car!• Attend the Oppikoppi Festival.• Hit the town.• Buy new clothes/shoes.• Impress the girl/boyfriend.

What do you do before you go on holiday?• Determine the destination.• Sort out the transport.• Book the accommodation.• Provide for the “Fun money.”

USE OUR LIVE BUDGET TOOL

How to work out if you can get that car or go to that festival

6

Budg

etin

g


Now - go and enjoy Oppi!

CREDIT: David Crossley, CFP®

http://newsletters.bdo.co.za/mailers/Invitations/2016/wealth%20advisors/BDO%20Budget%20tool.xlsx

7

PRESUMPTIONS

TRUTHS

HOW IT WORKS

• That your CTC package is your basic or gross salary and that only tax is deducted and you get your take-home pay or net salary.

• CTC structure allows you to earn some remuneration without it being taxed.

• CTC package excludes the employers’ contributions to benefit funds

• CTC includes basic salary plus all perks and employer and employer contributions to retirement funds, group insurance, medical aid and other benefit funds.

• Most employers allow you the flexibility to structure your package within the limits of your total CTC. You may therefore choose to rather understand the benefits included in the CTC from one employer to another. You can increase or decrease the various benefits.

• CTC structures differ from one employer to the next.

Your take-home salary or net salary is calculated after the following deductions from your CTC package:• Employer contributions to your benefit funds, i.e. retirement

fund, medical aid, etc.• Employee (your) contributions to your benefit funds, i.e.

retirement fund, medical aid, etc.• Tax• Other deductions, e.g. parking fees, social club fees, union

fees, etc

DON'T DO THIS• Accept a new job offer based on a higher CTC package, as each

employer structure is different and you may not end up with a higher net pay. Rather understand the benefits included in CTC from one employer to another.

• Reduce your group benefits to take home a higher net pay without investigating the insurance cover and costs in detail. You may pay a higher contribution rate in your personal capacity.

• Choose a level of benefits the same as your colleague, as their situation and requirements and even stage in life may be different to you.

DO THIS

• Meet with your payroll administrator to have a better understanding of your CTC package and how it is structured.

• Discuss the flexibility of restructuring your CTC package for tax efficiency.

• Understand each deduction so that you are able to make every cent work for you.

CREDITS: Desiree Raghubir, CFP®

Savin

gs

EarningsWhat is Cost to Company (CTC)?


What the company is spending to have you as their employee.

8

SAVINGS

PRESUMPTIONS

TRUTHS

HOW IT WORKS

You need a Master’s in Tax to understand the basics of what constitutes taxable earnings and allowable tax deductions.• You need a large salary to start saving and/or contribute to a

retirement fund.• You need to have a high income to benefit from tax deductions.• Utilising tax deductions is illegal or counter-productive to good

social morals.• It is better and much simpler to earn your income/salary, pay your

taxes and then invest the remainder.• There are not a lot of tax deductions available.• For complicated earning structures it is not worth paying a

professional for tax advice.• Retirement investing outside of your company pension/provident

fund is very restrictive.• Investing for your retirement is not necessary when you are young

as it is too distant in the future, and you can always catch up with your contributions in later years.

• The basics of what constitutes earnings and tax deductions is relatively simple.

• Tax deductions should be utilised in full to get the maximum benefit and for your investments to grow.

• It is not illegal or socially immoral to claim back as much as you are legally allowed from SARS.

• Most accounting firms issue a tax handbook after the budget speech each year that explains the basics of earnings and what tax deductions are available, written in easy to understand English.

• If you have a complicated income stream, e.g. offshore earnings, trust income, etc., then it is advisable to utilise the services of a tax expert and/or financial adviser, especially until you understand what tax benefits you can receive. The benefits will outweigh the cost.

• One of the best investment strategies to invest and save for your future is to utilise the retirement tax deductions available from SARS, as you will in effect be contributing up to an additional 41% to your retirement savings (if you are at the maximum tax rate).

• Get a basic understanding as to what constitutes taxable income and tax deductions.

• Salaried employees get their PAYE deducted automatically each month by their employer, based on their remuneration which includes their salary, bonus and allowable deductions, e.g. pension/provident fund contributions.

• Identify what tax deductions you can utilise. The main ones are:• Contributions to retirement funding, i.e. contributions to

pension or provident funds, or retirement annuities. You may deduct 27.5% of your taxable income with an overall cap of R350 000 per annum.

• Donations of up to 10% of taxable income to Public Benefit Organisations.

• Home study expenses if you use your study regularly and exclusively for the purpose of your trade.

• There are other areas where you can use tax effectively, including travel allowances from your employer for business travel.

• Another key area that is often overlooked by tax payers is the annual Capital Gains Tax (“CGT”) exclusion of R40 000 per annum. Basically SARS allows taxpayers to deduct the first R40 000 of capital gains each year.

Earnings vs deductionsSavin

gs


9

DON'T DO THIS

- Avoid understanding the basics of your tax affairs, as it feels overwhelming and you do not have the necessary expertise.

- Don't try and claim expenses that are not tax deductible – there is a big difference between tax avoidance (legal) and tax evasion (illegal).

- Don't only utilise the tax deductions your employer uses to calculate your monthly after tax earnings.

- Don't only start utilising the available tax deductions once you feel you are earning sufficient revenue.

- Don't delay the start of investing for your future.

DO THIS- Start investing early to maximise the effect of compounding. Rather

start with small contributions to get into the habit of saving, and increase the contributions as your salary increases.

- Utilise all the tax deductions that are legally available.- Invest as much as you can afford in a retirement fund to fully

utilise the tax deductions that are available to you. You are entitled to deduct up to 27.5% of your taxable income or a maximun of R350 000 for contributions to retirement savings.

- Keep a check on the growth of any other investments so as to utilise the CGT annual exclusion once your gains start exceeding R40 000 per annum.

- For monies that you do not want to tie up until age 55, consider opening a tax free savings account, especially if you have a time horizon of more than 16 years. You can invest a maximum of R30 000 per annum, to a maximum of R500 000 in your lifetime, which means it will take you just over 16 years to get to the maximum. The disadvantage is that you are using after tax money (compared to the retirement funding which is pre-tax), but your money is available if you require it. You can also invest in a multitude of unit trusts and not pay any tax, especially CGT, which could be quite a large number in 17 years’ time.

CREDITS: Hedley Lamarque, CFP®

NEVER SPEND MONEY BEFORE

YOU HAVE IT.

THOMAS JEFFERSON

“

9

Savin

gs


10

HOW IT WORKS

DEBT

PRESUMPTIONS

TRUTHS

• You can use a student loan to maintain a high standard of living.

• Forget about the debt during university. Concentrate only on passing.

• Some say avoid debt at all costs, do not consider a study loan.

• Student debt will get so big it will become impossible to pay off.

• Interest on study loans is zero-rated.

• Use student loan to support a high standard of living at your peril. You may not be able to afford your standard of living after graduation.

• It is a mistake to take out a student loan without considering all the implications. To a large extent, your future career will influence the decision. Continuously monitor your loan and strive to minimise your debt.

• Don’t incur unnecessary debt. But if that means dropping out – or not enrolling, then take that loan.

• Confidence in repaying debt is key. Be the master of your money. Believe you can pay it off and find a way. There is opportunity everywhere.

• Interest is usually linked to prime (the rate determined from time to time by reserve bank.) and varies according to the provider of debt - this can cause a large interest portion on the debt.

• The value of acquiring tertiary education is well worth the commitment of having a student loan.

DON’T DO THIS• Pick the first institution willing to grant a loan• Forget about your loan and believe you will just settle it once

you start working. Constantly monitor your loan.

DO THIS• Do your research. Interest rates and payment options will differ

from lender to lender. Recognise which option is suited to your individual situation.

• Have a payment plan. Be aware of what you owe and your repayment plan. Put the peg in the sand, have a specific timeline of your debt repay the debt as soon as possible.

CREDITS: Lisa Griffiths, Financial Planner and Andrew Cross, CFP®

• There are two types of student loans1. National Student Financial Aid Scheme which is managed

by the government.2. Loans from private lenders including the big four banks

and other independent credit providers. All of these should be registered with the National Credit Regulator.

• Investigate all options and select that which best suits your specific needs and corresponding interest rates.

• Student loans can be used to pay for tuition fees, books, equipment and accommodation (for full time students not living with their parents).

• A new application per year is usually required. Check all the conditions and ensure that you continually comply. Loans are grown-up stuff and you would not want your finance to be withdrawn on a technical issue.

• A surety (something/someone that will take on your debt if needed.) may have to apply on your behalf if you are a full time student without a current income. That surety would need a disposable income and a clear credit history. This would influence the loan amount.

The good, the bad and the ugly

From good, bad, lifestyle vs wealth creation, to study loans, there is a lot of debt out there. Don’t let it get you down

Study loans: tips

10

debt


11

DON’T DO THIS• Use one credit line to pay off another credit line. Don’t use debt

to pay debt.• Use your long term debt (like mortgage bonds) to pay for cars

or anything that does not appreciate in value over the long term.

• Avoid micro loans … they are expensive and can quickly get you caught in a debt trap.

• Don’t use a credit card to pay for your lifestyle. Buy your consumables, what you use to live your life (e.g. food, clothes, entertainment, etc.) with cash.

• Don’t be tempted to buy household furniture and appliances on credit from retailers. What may seem to be an affordable way of getting new stuff often turns out to be a very costly exercise when you count all the costs, charges and monthly payments you need to make.

• Don’t ignore your debt repayments. If you can’t meet a repayment, speak to the lender early on so that you can make a payment arrangement.

DO THIS• Be wise and use debt to grow your wealth over the long term.• Before taking out loans or lines of credit, know how much you

can afford to repay monthly. Understand the costs of your debt application, that is what your interest charge will be, how long it will take to pay off the debt and what the total outlay will be over time.

• Work out the impact of a 1% or 2% interest rate increase on your minimum monthly debt repayments. Then pay this increased amount every month. This will save you for unexpected interest rate increases and will settle your debt a lot quicker.

• If you are not able to meet your debt repayments, speak to a debt counsellor as soon as possible. Don’t ignore the situation and hope that it will go away. Debt never simply goes away!

CREDITS: Ricardo Teixeira, CFP®

PRESUMPTIONS

TRUTHS

TRUTHS

• All debt is bad, never borrow money.• It’s okay to use credit to fund my lifestyle, what I use and

enjoy to live.• Pay off all your debt as quickly as possible before you invest.• I don’t have to pay the monthly instalments on my credit

facilities if I can’t afford to.• A bad credit history won’t really affect me. I’ll be able to

explain it away.

• Using borrowed money (or otherwise known as a ‘line of credit’ or ‘debt’) wisely and for the correct purpose can be a smart move to create wealth.

• Using debt to create wealth is a long term strategy and not a ‘get-rich-quick scheme’.

• Debt creates wealth if you’re buying something that increases in value over time and that produces some form of income while you own it. Such as a rental property.

• Debt repayment terms are matched to the type of credit line extended. Match the right type of debt to the spend. Credit cards and personal loans get paid over the short term (less than 1 year), whereas mortgage bonds (property finance) get paid off over the long term.

• When you invest your money, you will earn some form of investment return. When you borrow money, you will pay interest to the lender. Understand that there is a cost to debt. You will always pay back more in total than the amount you borrowed in the first place.

• Interest rates are variable. They will go up and down over time. As interest rates go up, your monthly debt repayment will also increase. To be conservative, always budget for an increase in interest rates when applying for credit so that you don’t get caught by surprise down the line.

• Start off by getting to know when to use the different kinds of debt that are available:• Credit cards – great to fund short term purchases from

one month to another. Always pay off your credit card balance in full at the end of each month. This will avoid you paying any interest. Beware, the interest charge on credit cards is punitive.

• Mortgage bond – the best way to finance the purchase of a house, a rental property or the purchase of a business. This will be paid off over a long-term period, typically more than 20 years.

• Short-term or personal loans – use this type of credit for emergencies or really unexpected expenses or purchases. Make sure that you can afford the monthly repayments without getting into more debt.

• Student loans – used to finance your tertiary education, typically repayable once you graduate. They need to be repaid over a 5- to 10-year time period. Be sure to

budget for your student loan repayments from your first salary. Refer to chapter above on study loans.

• Car finance – buying a car is not an investment. A car will not appreciate in value. So make sure that you can settle the purchase price over less than 5 years. This is a very technical and complex form of lending, so be sure to take the time to understand the finance facility before you sign.

• Micro loans – don’t even consider this option … rather delay the purchase or spend. The interest charges on micro loans are typically exorbitant and way more than a personal loan from a reputable bank.

• Every time you receive a loan or new line of credit, your repayment pattern is recorded and forms part of your credit history. Meeting the terms of repayment of your debt will ensure that you have a clean credit history. Credit history impacts on the availability of future loans as well as how much a lender would be willing to charge you.

Good debt vs bad debt

11

debt


12

PRESUMPTIONS

TRUTHS

HOW IT WORKS

• It is safer to have all your savings in cash investments in the bank. • I will wait until I am paid a lump sum before I start to save.• I have many years ahead of me to start saving.• It will get easier to save as years go by as my income will increase.

• It is recommended that you have approximately enough in a bank account to cover 3 months of expenses in an emergency.

• Interest paid by the bank for “holding your cash” is usually lower than the rate of inflation, which means that the value of your investment reduces each year.

• You need to “pay yourself first” which means having the investment/saving deducted on the same day as your salary is paid into your account because the temptation of spending it is too great and there may not be any left over for saving.

• As your income increases so do the claims against it and as your lifestyle improves – it becomes more difficult to start the discipline of saving the longer you postpone it.

• It is important to have your eggs in more than one basket to spread your risk – you need exposure to risk to outperform inflation and the market.

• Compare different accounts and offerings at different banks to see which pays the highest interest rate. Investigate these different options in order maximise to your returns.

• Open a separate account for your emergency cash fund so that you are not temped to splurge in a weak moment.

• You will receive interest on the investment and it is important to re-invest this and not spend it as this will give you growth-on-growth or compound growth.

• You may choose to diversify future savings and the way you invest future money, once you have reached the targeted three month's emergency savings to cover your expenses.

DON'T DO THIS• Invest for a fixed term as you will not have any flexibility and

access to your capital in an emergency. Rather invest into a money market account.

• Wait until next year or next month or next week as that never comes.

• Think that someone else will do the saving for you – father/husband/wife.

Tapping into your inner Warren Buffet

Short term:

You dont need to be a billionaire to invest.

INVESTING

DO THIS• Find out which account has the best interest rate and

flexibility for your emergency funds – it is usually a money market account. However, one might need to save for a while to achieve the minimum balance required.

• Calculate how many salary payments you will receive in your lifetime and start saving from the very first month you are paid.

CREDITS: Sue McLennan, Financial Planner

inve

sting


13

PRESUMPTIONS

TRUTHS

HOW IT WORKS

Medium term investments are designed to cater for unforeseen and planned eventualities that may occur over a two to seven-year period. Typically, this medium term accumulation caters for things like:1. Deposit on a motor vehicle or replacement of that motor vehicle.2. Planning the deposit on that first dream home.3. Making sure that a honeymoon destination is a memorable one.

Looking at the characteristics of equities (JSE) and offshore investments, these asset classes historically have performed the best but are also typically the most volatile over short periods. Looking at options available for investing for the medium to short term, this asset class on its own will not be suitable for such investments.

When you want to invest for the medium term, you can have a portion of your investments exposed to equities or property, but limited to no more than 40% of the total portfolio. This exposure should be reduced closer to the maturity term in order to reduce volatility and to avoid possible short term downside movement. When markets experience downside movement, you will have to wait for such downside movement to recover and it might take longer than the term left towards your initial investment term.

Investing in a combination of equities, property, cash and bonds, you will have more stable return over the medium term and the probability of capital losses reduces drastically over the short term. These portfolios give you more consistent returns, even though the returns may be lower than equities or property shares.

Medium term:

DON’T DO THIS Let emotion change your investment term- Wait for tomorrow- Fail to plan, otherwise you plan to fail

DO THIS- Plan your future and stick to your plan- Understand your investment plan and term

CREDITS: Johan Roux, CFP®

13

Inve

sting


• A medium term investment by definition should incorporate an element of conservatism in the investment structure – remember the watchword – the shorter the investment term, the more careful you want to be!

• So then, what sort of investment instruments should we use for this medium term investment provision?

1. Bonds – These include Corporate Bonds, Government Bonds and

Retail Bonds – they offer a lower rate of interest, but incorporate a capital guarantee, provided you undertake to leave the money where it is for a minimum term of 5 years.

2. Equities – Best to look at a good Unit Trust with a conservative Equity outlook – whilst your capital is not guaranteed, you can minimise some market volatility over a seven-year period.

3. Property Unit Trusts – These can give you a relatively good return of the medium term but once again, your capital is not guaranteed.

14

PRESUMPTIONS

TRUTHS

HOW IT WORKS

• I only need to start investing when I get older and earn more.• I need to get the highest possible investment return.• I can invest anywhere as long as I do not touch my investments

for a long time.• My employer will provide for me in my old age.

• The sooner you start investing the higher your chances of accumulating a significant amount of capital. You need to make the power of compound interest work for you. The benefits of compound interest are felt the most over very long investment periods.

• A long-term investment return of 8% above inflation is actually a very good investment return.

• Chasing the highest possible investment return is often a "wealth hazard". Many people switch between different investments in an attempt to get the “best” return on their money. In doing this, they often end up with less money than if they had stuck with a reasonable investment return.

• It is essential to invest in growth assets. Growth assets are mainly property and shares, with cash providing the lowest return over the long term.

• Relying on your employer to provide for you in your old age is a very risky thing to do. Your employer is not attempting to replace your full pre-retirement income, but to provide you with some savings towards retirement.

• You’re never too young to start investing. If you start investing a percentage of your earnings on a monthly basis and continue to invest this percentage through to your 50s or 60s, you will never have to worry about having enough capital in your retirement years. If you delay starting your investment programme by even five years you will find it very difficult to catch up the lost growth.

• Your first objective in long-term investing should be to beat inflation. Thereafter, you should try to get an additional return above inflation which will boost the amount which you accumulate. By beating inflation, you are preserving the purchasing power of the amount invested. In getting a return above inflation, you are creating the ability to fund more with your money. Buying and selling investments at the wrong time will destroy your investment results.

• Investing your money in a bank account for a long time is a more risky investment than investing in property or shares. This is because your chances of beating inflation, on an after-tax basis, are far less than with property or shares. Cash is only a good investment where there is little or no inflation.

• There is only one person who will provide sufficient money for you in your old age - and that is yourself. Your employer retirement fund can be taken into account in your investment planning, but it cannot replace your own investments.

DON'T DO THIS• Delay investing until you can afford it• Chase after the “best” returns and switch investments on a

regular basis • Invest in safe investments such as cash.Cash is only for

emergency funds.• Leave your planning for retirement to your employer.

DO THIS• Start investing from your very first pay cheque. Set yourself a

target, say 10% of every pay cheque.• Invest with a reputable investment manager with a good track

record and stay with them unless there is a fundamental reason to change

• Make sure you invest in “growth” assets such as property and shares

• Take your employer’s retirement fund investments into account but do not rely on this as your sole source of retirement funding. Do not cash in your retirement fund when changing jobs

CREDITS: Peter Harten, CFP®

Long term:

14

Inve

sting


15

INVESTINGPRESUMPTIONS

TRUTHS

HOW IT WORKS

• I can learn for myself what an adviser can tell me.• I do not need to pay for advice for something that I can easily

do by myself.• Financial planners are too expensive.• I am in complete control of my finances.• I am fully aware of the impact investment fees have on my

investment performance.

• Online investing is not equipped to provide detailed, in-depth financial planning services.

• Online investing platforms may explain advantages/disadvantages of different investment vehicles and portfolios, but will not be able to explain how they will fit into each person’s individual circumstances.

• Certified Financial Planners have the necessary education, experience and expertise to construct holistic, tailor-made financial plans comprising financial products and investment portfolios based on the individual’s specific goals and objectives.

• Certified financial planners® are able to explain and disclose all expenses involved in the process of investing. The individual is in a position to know exactly what and why they are paying certain fees, and how these may fluctuate going forward.

• Direct human contact and forming a relationship with somebody you trust is extremely important to prevent the individual from making emotionally driven money decisions in the short term, which can be detrimental in your long term investment plan. Objectivity is key when implementing financial strategies.

• Financial planners offer comprehensive investment analysis, better investment selection and diversification based on individual investment horizons and risk tolerance.

• Financial planners will work with you through various life transitions, ensuring that you transition emotionally and financially.

• The first few meetings with a financial planner allows them to get to know you as a person, understanding your relationship with money and your life goals.

• When both you and the planner are confident enough to continue the professional relationship and understand what is expected from each other, the planner will do more detailed analysis your financial situation and use this information to develop a holistic financial plan based on the your specific situation.

• A fee for services will be agrees to in advance. Full disclosure of what you are paying for the advice must be documented.

• The plan and all necessary transactions will be described to the client and once that has happened, the plan will be executed.

• The plan will be continuously reviewed to make sure the client is still on track.

Online investing vs using an adviser

DON'T DO THIS• Do not underestimate the importance of a professionally

qualified financial adviser.• Do not make rash, emotional decisions regarding your

money.• Do not delay the decision to invest money because of your

reluctance to use a financial planner and your uncertainty regarding the investment process.

DO THIS• Find a financial planner who is suitably qualified to give

holistic financial advice.• Be in a position where you feel comfortable with the

financial planner. All financial planners are different people with different personalities. Choose one with whom you feel you will be able to enjoy a long term professional relationship. You should be able to trust this person with personal financial matters and believe that he/she is acting with your best interests at heart.

• Be prepared to work interactively with your financial planner. Be involved in your financial decisions and ongoing analysis over time together with your financial planner.

• Be prepared to be honest with yourself and your financial planner. In order for you to plan your future you should be 100% clear on your present.

CREDITS: Andrew Cross, CFP®

debt


16

RETIREMENT FUNDINGPRESUMPTIONS

TRUTHS

HOW IT WORKS

• I am nowhere near retirement age. • I will not reach retirement age.• I have my own retirement annuity.

• The truth is many situations may arise in your working lifetime -• You could get retrenched.• You will probably live to be 100 years or more.• You will likely be retired for 30 or more years.

• The average South African retires on about 20% of their income – could you live on 20% of your income?

• The tax man incentivises you to save by giving you a tax deduction on your contributions - up to 27.5% of total income will be allowable subject to a maximum of R350 000 .

• The earlier you start the better because of the compounding effect. See the chapter on Long Term Investing.

• Your employer deducts the contributions from your salary and invests this in the Group Retirement Fund.

• As it is done on a group basis you benefit from the economies of scale – it is an extremely cost effective way of saving.

• If you leave your employer you can access the money in the savings account – this can really help if you get retrenched.

DO THIS• Start saving now for retirement – save at least 15% of

your gross income towards retirement funding.• When changing jobs –preserve this benefit.• Speak to your employer’s financial adviser – get a

different viewpoint.• Put together a financial plan for retirement benefits.

DON’T DO THIS• Never “cash out” your retirement savings when

changing jobs.

CREDITS: Cindy Frantzeskos, Corporate Benefit Consultant

I made my money the old,

fashioned way. I was very

nice to a wealthy relative

right before he died.

,Malcolm Forbes

“

16

Bene

fits


17

BENEFITSBenefits received from your company

PRESUMPTIONS

TRUTHS

HOW IT WORKS

• I am too young to have life/disability cover.• Nothing is going to happen to me, I am a healthy person.• I will only need life/disability cover once I am married with children.

• You need to prepare for any eventuality in life, whether death or disability.

• Group benefits cover you for a number of illnesses/conditions because they look at the group and not individuals. It doesn’t matter if you have a condition already.

• Suicide is covered under the group life cover benefits.• With income disability benefits you don’t have to be totally

disabled to receive the benefit.• Group life benefits provide 24-hour cover and have creditor protection.

• Companies cover employees for life cover according to a multiple of their annual salary. For example, if your annual salary is R100 000 and your cover is 3 times your annual salary then your beneficiaries will receive R300 000 "dutiable".

• Life cover payments do not form part of your estate provided dependents/beneficiaries are nominated.

• Disability benefits cover you for 75% of your monthly salary for permanent or temporary disability whether it is due to sickness or accident, until you recover/die/reach normal retirement age.

• Life cover and disability benefits are often paid free of tax, though there are some expectations to the rule.

DON'T DO THIS• Exclude your group benefits when looking at your total

financial plan.

DO THIS• If you have any policies in your personal capacity, have

these assessed by your adviser to ensure that you have enough cover and that you are not over- or under-insured.

• Find out if there are any other additional benefits under your group cover such as a benefit which covers the education of your children in the event of your death.

• Disability benefits could also include cover for medical aid contributions for up to 12 months.

• Speak to your company’s group benefits provider for more details regarding the group cover.

CREDITS: Lesego Mpete, Corporate Benefit Consultant

Yes you do get more than just a salary from the company you work for. Make sure you understand what you are getting.

17

Bene

fits


18

PRESUMPTIONS

TRUTHS

HOW IT WORKS

• I am too young, I don’t need a medical aid.• I have a hospital plan that will cover me.• My medical aid will cover me fully.

• Accidents and illnesses can happen at any time and you need access to private healthcare as soon as possible.

• Make sure it is a hospital plan from a “proper” medical aid. Medical insurance professes to cover hospital admission, but often the cover is insufficient. Get professional advice sooner rather than later.

• Consider gap/top-up cover – medical aids no longer fully cover the specialist’s cost in hospital. Gap cover policies are designed to cover the shortfalls.

• Membership of a medical aid is vital in South Africa. If you are healthy, it is easy, but if you are unhealthy with pre-existing conditions there may be waiting periods and exclusions. If you are over 35 years then late-joiner penalties may apply.

• Joining through a company scheme generally means no waiting periods, exclusions or late-joiner penalties.

• Several medical aids provide “Wellness Benefits” which offer incentives for healthy members.

DON'T DO THIS• Don’t delay joining a medical aid – make it a necessary

part of your monthly budget.• Don’t join any scheme just because it is cheap.

DO THIS• Get professional advice on which is the best plan for

you.• Understand what is covered by the medical aid.• Apply for gap cover – these policies cover the gaps on

all medical aids.

CREDITS: Sue Cogswell, CFP®

MEDICAL AIDMedical aid vs private

18

Med

ical a

id


19

PRESUMPTIONS

TRUTHS

HOW IT WORKS

• It is impossible to find a reputable financial planner.• Financial Planning is not a regulated industry.• A financial adviser is the same as an insurance broker.

• There are a number of reputable professional organisations such as the Financial Planning Institute and the Institute of Financial Advisers that have databases of qualified Financial Planners that can be called upon to assist.

• The financial services industry is subject to stringent rules and regulations.

• Financial Planners have to be registered with the Financial Services Board.

• In terms of the Financial Advisery and Intermediary Services Act, financial planners are required to give you details of who they are and what they do, before you agree to do business.

• Not only will the adviser give you a copy of their declaration and disclosure document, but they will request that you sign acknowledgement for receipt of this document, which is designed to safeguard you and ensure that you are dealing with a reputable individual.

• They should then offer to undertake a full financial needs’ analysis, taking all aspects of your financial situation into consideration. They may charge you for this but they will tell you in advance.

• Once you have received and studied your financial needs’ analysis, you may choose to do business with the financial planner, in which case appropriate quotes will need to be presented to you. You will need to approve these by signing them.

• Once all these aspects of your transaction have been concluded, your financial planner should present you with a comprehensive record of advice. This is a document that will detail your meetings, what transpired in the meetings, any advice that was given to you and what actions you chose to initiate or ignore.

• Your financial planner is also obliged to ensure that they update you annually on your financial planning in order to keep pace with your changing needs.

DON’T DO THIS- Not ask about the Financial Planner’s background.- Think it is okay if they don’t call you at least once a year.- Not check with the FSB if they are licenced.- Not ask if they are a CFP®.

DO THIS- If you are not given a record of advice within a few days of the

transactions taking place, ask for it. If you do not receive it, then consider putting your decisions on hold until you do.

- You do not have to sign the record of advice, but the fact that you receive it is evidence enough.

- If you are aware of your rights and obligations, not only in the provision of financial advice but in any consumer related transaction, you will not only feel reassured in your dealings with people and organisations, but you will always gravitate towards professional, well-qualified people when doing business in any form.

- Make sure they are a CFP® (Certified Financial Planner)- Make sure their organisation is a Financial Planning Institute

Approved Professional Practice™ - meaning they have to uphold the highest professional standards and will be accountable to the FPI should they not.

CREDIT: Lisa Griffiths, Financial Planner

The benefits of seeing a money doctor

FINANCIAL ADVISER

Mon

ey ti

ps


http://www.fpi.co.za/

https://www.fsb.co.za/Pages/Home.aspx

https://www.fsb.co.za/Pages/Home.aspx

http://www.fpi.co.za/Portals/25/docs/learning/A%20career%20in%20financial%20planning.pdf

https://www.fpi.co.za/Portals/25/docs/Professional_Practice_Brochure.pdf

https://www.fpi.co.za/Portals/25/docs/Professional_Practice_Brochure.pdf

2020

Mon

ey Ti

ps


21

Valu

eabl

e mon

ey ti

ps


22

CONTACT USJOHANNESBURG22 Wellington Road, Parktown, 2193Private Bag X60500, Houghton, 2041Tel: +27 (0) 11 488 1700

PRETORIARiverwalk Offi ce Park, Building C, 41 Matroosberg Road, Ashlea Gardens, Pretoria, 0081PO Box 95436, Waterkloof, 0145Tel: +27 (0) 12 433 0160

DURBANRydallviews Building, 5A Rydall Vale Office Park, 38 Douglas Saunders Drive, La Lucia Ridge, 4051PO Box 47, La Lucia, 4153Tel: +27 (0) 31 514 7000

CAPE TOWN2nd Floor, Block D, The Boulevard, Searle Street,Woodstock, 7925PO Box 3883, Cape Town, 8000Tel: +27 (0) 21 460 6300

Any information herein is not intended nor does it constitute financial, tax, legal, investment, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Adviser. Although BDO Wealth has taken care to ensure that the content in this book is true and accurate, BDO Wealth cannot be held responsible for any inaccuracies in the information herein.

BDO Wealth Advisers (Pty) Ltd (FSP number 4549) is a Registered Financial Services Provider and a South African company and is an affiliated company of BDO South Africa Inc, a South African company, which is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

View our team

Book a 'Wealth check-up'

www.bdo.co.za

/company/bdo-south-africa

/bdosouthafrica

/ bdosouthafrica

/bdosouthafrica HOME

https://www.bdo.co.za/en-za/services/advisory/wealth-advisory#

https://www.bdo.co.za/en-za/services/advisory/wealth-advisory/book-a-free-wealth-check-up

https://www.bdo.co.za/en-za/services/advisory/wealth-advisory

Documents

The Wealth Guide to Not Going Broke_2016