Us­ing ex­tra money for that ex­pen­sive hol­i­day might end up cost­ing you in the long run, writes An­gelique Ruz­icka

CityPress - - Business -

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.

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