TO PAY YOUR BILLS UPFRONT?
Using extra money for that expensive holiday might end up costing you in the long run, writes Angelique Ruzicka
Not all savings vehicles have the same benefits, but there are some, such as retirement annuities (RAs) and tax-free savings accounts (TFSAs), that would benefit you greatly if you took the time to fund them with some proper cash injections.
Using your bonus to top up your RA is a good idea because of the tax perks that come with it.
Contributions are tax deductible within limits, which means that money you would have paid to the SA Revenue Service can now grow in your RA instead.
Don’t forget – you’ll be saving more for your retirement too.
“While the money is in the fund, everything you earn is tax-free. The earlier you get the money into your RA, the better,” says Came.
Putting lump sums into your TFSA will also provide your money with protection from the taxman and, from this year, you can put even more away as the annual limit has increased from R30 000 to R33 000.
Pieter du Toit, CEO of FNB Investments, says: “TFSAs are tax-efficient savings vehicles that are
It may not be possible to pay off some major liabilities such as your car finance or home loan in one go, but if you put some lump sums into them, you’ll pay them off sooner and save on interest charges.
“On a home loan where you pay 11% a month, you could save 1% a month if you put in a lump sum early in the year,” says Came.
“Credit cards are exorbitant with their interest charges, so I would encourage people to always pay those off in full if they can.”
If you know you’re not good at making regular payments, paying upfront could be a surefire way to ensure you don’t struggle financially every month, while, at the same time, give you some money to keep in a savings account.
Then you could use the free capital you have every month to save even more or pay off other debts sooner.
So, think twice about what to do with your bonus. While it’s easy to spend it on that cruise to Mauritius, you could also use it to pay off your debts.