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What’s the deal with retirement funds and tax?

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In South Africa, a retirement fund comes with three important tax benefits: your contributions are tax-deductible; the returns on your investment are tax-free; and when you retire, you can withdraw a lump sum without paying tax (up to a limit and subject to certain rules).

Why does the government provide these benefits? Because there aren’t enough people saving! Giving people an incentive will hopefully encourage them to plan for their retirement and thereby reduce the burden on the state.

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So, how does the tax deduction work? 

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It all starts with your ‘taxable income’, which is used to calculate how much tax you pay. The greater your taxable income, the more tax you pay. You can deduct your retirement contributions up to a certain limit, which reduces your taxable income and your tax bill.

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What’s the limit? Currently, you’re allowed to contribute up to 27.5% of your taxable income or R350,000 per year, whichever is less. 

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Give me an example…

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Redi earns R35,000 per month and she has no tax credits from medical aid etc. nor does she contribute to a retirement fund. Using current tax rates, she’ll pay about R6,500 per month in tax. In annual terms, she earns a taxable income of R420,000 and faces a total tax bill of R78,000 per year.

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She wants to start contributing to a retirement fund and would like to know how much tax she can save. Adhering to the 27.5% limit described above, she can deduct a maximum of R115,500 per year, or R9 625 per month. Her new taxable income will therefore be R304,500 (R420,000 minus R115,500). 

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But not everyone can afford to contribute up to the limit. Redi manages to budget R3,500 per month to contribute to a retirement fund. Doing so immediately lowers her annual tax bill from R78,000 to R65,000 – a saving of R13,000 per year or R1 080 per month. Another way to see this benefit is to think that she’s saving R2 420 per month of her own money towards retirement, and the government is adding R1 080 per month on top of that.

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The more you earn, the more tax you pay – but the deduction benefit is also greater. Kamvelihle earns R1,2 million per year and pays R379,000 per year in tax. If he contributes R120,000 per year towards a retirement fund (R10,000 per month), he’ll reduce his tax bill by about R49,000. Put differently, he’s contributing R5,900 per month of his own money to his retirement, and the government is adding R4,100 per month.

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What must I do next?

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The 2023 tax year ends on 28 February. If you want to make use of the tax-deductible limits, you’ll need to top up your retirement fund before this date. 

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If you’re unsure whether you’re contributing to a retirement fund or how much you’ve contributed already, talk to your HR department or set up a meeting with a qualified financial advisor. Make sure your 22seven app is connected to all your accounts. That way your income and expenses will be accurate and you’ll quickly be able to see how much you can afford to save per month.

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Don’t delay! The earlier you can start saving for retirement, the better. 

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 How much do I need to earn before I have to pay tax? 

If you’re under 65, you don’t pay tax unless you earn R91,250 or more per year (R7,604 per month). This changes for people aged 65–75, and for those over 75. See the SARS website for more info. 

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Read more 

• How much should I save for my retirement?

• Time is money: why you should start investing now

• Moving your retirement fund when changing jobs

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When you save for the long term, you’ll usually do so in a fund. A fund is designed to protect your money and make it grow, but there are literally hundreds of them to choose from, each with its own performance metrics and fees. How on earth do you understand what’s going on?

The best way is to learn how to read a fund fact sheet, also called a minimum disclosure document. It looks hectic at first glance but it’s actually not too complicated. Here are some key things to look out for:

Fund objective

A short summary of the fund’s main goal. For example, to provide a stable return above inflation, or to invest in high-performing tech stocks.

Fund strategy

Explains how the fund hopes to achieve its objective. You can decide if you agree with the way the managers approach investments, or whether you should rather look elsewhere.

Top 10 holdings, asset allocation and sector allocation

Most funds show their top 10 holdings – the assets or other funds where most of the money is invested. Asset allocation shows the breakdown of how the fund is structured: 70% in shares/equities, 15% in bonds and 15% in cash, for example. The sector allocation shows how much is invested in which sector, like 20% in financial stocks, 15% in technology stocks etc. These indicators should align with the fund strategy.

Fund information

Factual information about the fund. This section might include the fund size (total amount of money in the fund), the unit price (most funds are broken up into units, which are sold to investors), the risk category and more.

Benchmark

What the fund’s performance is measured against, or what it aims to achieve. A fund might set out to mirror the JSE’s top 40 returns, for example, and there’s a good chance it might achieve that benchmark, but it also might exceed the mark or miss it altogether.

Performance

Depending on how long the fund has been active for, the fact sheet should show its performance over a number of years relative to the benchmark. This information is helpful to identify whether the fund is meeting its objective.

Highest and lowest annual returns and maximum drawdown

The highest and lowest returns give you the best and worst-performing years of the fund. The maximum drawdown gives you the maximum percentage that the fund has ever dropped in one go.

Fees

Ah, fees. This is how the fund managers make their money, and it’s also where it might feel like you’re back in maths class. You’ll see things like TER (total expense ratio), TC (transaction costs) and TIC (total investment charge) but the most important metric for you as the investor is the EAC (effective annual cost). The EAC includes all the fees you’ll pay and shows the total cost per year of investing in the fund.

Ask for help

Being able to understand a fund fact sheet allows you to shop for investments with confidence, but you might still need some guidance about which aisle to shop in! A qualified financial advisor can help you choose the right kind of fund depending on your investment goals. Set up a meeting and take control of your life.

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New year, new opportunities to set yourself up for financial success! There’s no better time to take a good look at your moola, decide what you want to achieve in 2023 and work out a gameplan to reach your goals.

Here are five money habits to keep you on track.

1. Set specific goals
Before you can create a plan to reach your goals, you need to know what those goals actually are. What do you want to accomplish in 2023? Do you want to save for a down payment on a house? Pay off credit card debt? Build an emergency fund?

Whatever your goals may be, make sure they’re SMART: specific, measurable, achievable, relevant, and time bound.

2. Make a budget – and stick to it!
A budget is an amazing tool that helps you manage your money and achieve your financial goals. 22seven makes budgeting super easy. Link your accounts to track your income and expenses, then set limits on spending categories and let the app notify you when you’re approaching those limits. The more you know about how you’re spending, the better you can control it and take active steps to save.  

3. Save consistently
Talking about saving… It sounds boring but it’s an essential part of building wealth and achieving your long-term goals. It’s also really hard! Many people find it tough to scrape together anything to put away at the end of the month.

The best way is to start with what you can, even if it’s just a tiny amount. As your earning power grows, you can gradually increase your contributions. Ultimately, you want to save at least 10% of your income each month. This might not be possible right away, but it's a good goal to aim for. Consider setting up an automatic transfer each month from your cheque account to your savings account. This way, you’ll save money before you manage to spend it.

4. Avoid unnecessary debt
Debt can be a useful tool for a big purchase like a house, but it can be a trap if you borrow money for the wrong reasons. Short term loans and credit cards often have eye-watering interest rates – you end up paying back far more than what you borrowed. Avoid unnecessary debt at all costs. Before you take out a loan or pay for something on your credit card, ask yourself: Is this something I really need? Can I afford to pay it back? Are there more affordable options available?

If you already have debt, work on paying it off as quickly as possible using a method that best suits your financial situation. Consider the avalanche or snowball method.

5. Be mindful of your spending
Reckless spending can derail your planning. Try to be mindful every time you spend. Use 22seven to keep track of your purchases and try to spot opportunities to spend less. For example, you can buy in-house brands instead of name brands when doing your grocery shopping, you can shop around for cheaper car insurance, find a better deal on mobile data… And always keep the opportunity cost of money in the back of your mind when you make a bigger purchase, like buying a new TV or splurging on a weekend away.

Keep at it and these five habits will soon become second nature. It will take effort and discipline, but the rewards will be well worth it. Cheers to financial success in 2023!

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It’s almost the end of the year. We’re sure you’re just as excited as we are to finally turn off and get some much-needed rest.

The end of the year is also a great time to celebrate your personal finance journey in 2022. While you’re enjoying some down time, take the opportunity to check on your finances and make sure you’re all set for 2023.

‍What’s the point?

‍If you don’t take the time to reflect on how you spent, how you saved and how you budgeted in the year gone by, you won’t identify any mistakes, losses or leaks in your money boat. You also won’t be able to identify wins! A year-end review shows that you’re intentional about your finances – that you care and that you’re definitely not an Avoider.

‍Where do I start?

‍Start by taking stock of what your finances look like now. Not to toot our own horn, but 22seven is literally the perfect app to use for this. Take note of your income, expenses, loans and investments. That way you’ll know what you have to work with in 2023, and what your major expenses will be.

‍Anything big happen this year?

‍What changed in 2022? Did your family grow? Maybe you got married or perhaps you got a new job? Pat yourself on the back – these are big, important life things! Now look at how these events affected your financial picture. Did you adjust your budget accordingly? Did you move your retirement annuity when you changed jobs? While you’re relaxing this holiday, take half an hour to work out how you should alter your financial situation to fit your new life.

‍Now for your debt…

‍Go through your 22seven profile to determine how much debt you have, but also look at how much debt you paid off in 2022.

If you made a dent in that pesky loan, well done!If you’re still overwhelmed by debt, you need to make a plan. Don’t just blindly pay off debt in 2023 as you did in 2022. Try the snowball method, where you pay off the smallest debt first. Or tackle your biggest debt first by using the avalanche method.

Set a goal for the end of 2023 – to be debt free, or to significantly pay down how much you owe. You can do it!

‍Let’s talk about saving

‍Take a moment to review your savings and investment accounts linked to 22seven. How much did you save this year? Your nudges will also show how you fared compared to others who earn in the same bracket.

Did you reach your savings goal? Nice, an extra mince pie for you! If you didn’t, don’t panic. Set a realistic savings goal for 2023 and start saving for real.

‍Don’t wait until next December…

‍Did you enjoy doing your financial review? Great feeling, right? Don’t wait until next December to do it again – have a squizz at your finances in March, June and September too. If you adjust your budget regularly to fit your lifestyle and savings goals, you’ll soon start seeing real results on your bank balance.

Go on, check in with yourself before the holiday visitors crowd your house and before the online stores call your name. You deserve it!

Hear that sound? It’s the whoosh of November disappearing. There isn’t another month on the calendar that seems to go by so fast. It went out with a bang, too, thanks to a spending spree on Black Friday.

Yup – whether you love it or hate it, the sales frenzy on 29 November has left the confines of the USA and is now firmly entrenched in the minds of deal-hungry consumers around the world. South Africa is no exception: 22seven users were keen to snap up the discounts offered by almost every retailer in every sector.

To find out how Black Friday affected our credit cards, we analysed the spending in the 10 categories with the highest sales on the day, and compared it to end-of-month spending in those categories in preceding months.

The results were interesting. The category that saw the highest increase in median spend was tech and appliances, which makes sense considering the plethora of deals that were advertised for big-ticket items like TVs, home appliances and the like. In terms of overall spending, the gifts category outshone the rest. Again, not unexpected with Christmas around the corner…

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‍Here are some more Black Friday figures:‍

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Did you get the deal you wanted on Black Friday? We hope so, but even if you didn’t and you ended up not spending a cent, don’t worry: You actually saved 100% on the day!

Our tips for shopping smartly on Black Friday are great tips for shopping in general. In the current economy, retailers are going to keep the deals going into Christmas and beyond. Try to keep a cool head and don’t buy into the hype – your bank balance will thank you in the new year.

I’m a mom in a busy family of four and it’s go-go-go from 6am (sometimes 5am!) until lights-out. I don’t have time to make spreadsheets and track our expenses manually, but I still want an accurate view of what we’re spending money on as a family, and whether it’s in line with our budget.

That’s why I use 22seven. Here are the five features I use the most – maybe they can help you, too.

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1. One view of all our accounts

His, hers, theirs and ours. We link all our relevant accounts to 22seven, which enables us to see everything in one place. For me, this is probably the most useful feature for our family. If I had to log into all the different bank and investment websites and pull statements, then combine all the numbers again, I don’t think I’d ever get as far as making a budget.

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2. Transactions are automatically categorised

22seven automatically categorises transactions. It even remembers if you select something to go into a certain category and it will categorise that purchase accordingly the following month.

Occasionally, my partner and I go through the transaction list to see whether we agree on what has been allocated where. Sometimes we make small tweaks, like changing a specific Woolies purchase from groceries to clothing, for example, or splitting a Clicks purchase between personal care and gifts.

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3. Show me the budget!

As a family, we usually set our budget for each category for the year in advance, considering things like birthday parties, holidays, gifts and school fees. By going through this exercise using 22seven, we know which months we might spend more and we can prepare for them by saving.

Surprise parties are great, but money surprises are not…

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4. Spending alerts

The app sends alerts when we’re approaching our limits in our budget categories. These alerts are super useful because they prevent us from overspending. For example, we’ve set an alert for ‘Eating out and take-aways’. Once we’ve reached the cap for that month, sorry kids, KFC will have to wait until next month!

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5. Exporting transactions

Sometimes, you might need a record of certain transactions. I’m our class rep and I have to keep track of which parents have contributed to the teacher’s end-of-year gift, for example. Once a year, my tax guy also asks for a log of certain expenses.

22seven gives you the option to export your transactions instantly, so you can add them to a spreadsheet or send them to the person who needs them.

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Don’t wait, start now

Creating a budget and sticking to it has changed our lives. It’s important to remember that you don’t need to be perfect on day one – you just need to start. When we started, we just tracked our recurring expenses for a couple of months to get a broad idea of what we were spending our money on. From there, we explored the other functions of the app and set up budget categories and saving goals.

If you know what you’re working towards, a budget is liberating, not limiting! Give it a try – if we can do it, so can you.

Apart from being a wife and mom of two, Carol is a Certified Financial Planner and part-time writer for 22seven.

She is passionate about making personal finance easy to understand, even for people with no financial background.

22seven helps her to manage her household budget like a pro.

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Black Friday on 25 November marks the start of the Christmas shopping season. Some retailers have been offering discounts for the whole of November already, but on the 25th it’s guaranteed to be ramped up a notch.

We know it’s payday but don’t freak out and spend more than you should! Here’s how to make the most of Black Friday without ending up in debt.

Ask yourself, ‘What do I actually need?’

A discount is great if you get it on something you were going to buy anyway. These should be the first items on your Black Friday shopping list – essentials like cupboard groceries, personal care items, health and beauty products or cleaning products; or a kitchen item like a new blender because yours broke three months ago.

Make a list of what you really need and check what you’d normally pay so that you ensure you get a good deal on Black Friday. Otherwise, what’s the point?

Max out your loyalty rewards

In addition to scoring with Black Friday discounts, check what other reward offerings you can use on the day. Discovery, for example, is running Miles Ð-Day on 25 November, where you can double your Discovery Miles. eBucks members will be getting extra discounts, too. Takealot accepts Discovery Miles and eBucks, so see if you can use your rewards on top of the Black Friday discounts.

Do you qualify for an extended warranty?

Depending on which credit card account you have, you might be able to extend the manufacturer’s warranty on certain goods like appliances. Consumer journalist Wendy Knowler discovered this recently and shared her findings on Cape Talk. Check with your bank if you qualify.

Are the discounts even real?

Sometimes a retailer will push up the ‘normal’ price of an item just before Black Friday to make the discounted price look more attractive. For example, an item sold for R100 might be hiked to R150 before Black Friday, then offered at a ‘crazy’ discount of 40% for R90, which is actually a true discount of only 10%.

Some sellers on Takealot are notorious for this. The clever people at Serval have created a website that tracks the prices of products sold on the platform. Find the thing you’re interested in buying, copy and paste the URL into Serval Tracker, and you’ll see a graph of the current price and listed price over a six-month period.

Stick to your budget

On Black Friday, marketing gurus flood our feeds with ‘once in a lifetime’ deals. Don’t buy into the hype. Stick to the budget you’ve earmarked for spending. Whether you go out and get that expensive gift for yourself or someone else, or if you stock up on cleaning supplies and nappies – stick to your budget. Don’t be tempted to max out your credit card or spend your year-end bonus before you’ve even received it.

Beware of no-return policies…

Before you buy anything, read the return policy and keep your receipts! The week after Black Friday is notorious for people returning goods that they bought on a whim.

Some items cannot be returned. In other cases, a penalty is imposed if the item was opened. And some stores won’t give you a cash refund, only a store credit.

If you know what you want, research the price, stick to your budget and read the fine print, you’ll do well this Black Friday. Good luck!

If you’re a regular reader of this newsletter, you might have noticed that we’ve been asking you to complete some 22seven Insights consumer surveys. Thanks to everyone who took part and congrats to the four winners who each received a R500 boost to their income!

‍What's the purpose of these surveys?

‍22seven is a free app. We earn money through 22seven Insights – the market research wing of our business. Insights publishes research based on completely anonymised, aggregated data from 22seven users. In other words, we help retailers and companies better understand where groups of users are spending, without ever sharing details of any individual user. Your personal data is safe, but the companies can better understand how people like you are spending, which in turn will hopefully enable them to deliver better service.

‍Give us an example...

‍Earlier this year, we analysed the spending of a group of 22seven users to help investors and media companies understand the shift from DStv to streaming services like Netflix. The results clearly showed that Netflix had won a significant share of the market over the past three years.

But not all our clients agreed. Some said that the true cost of Netflix – which is much cheaper than most DStv packages – should also include the cost of home internet. We had a hunch this wasn’t true because an internet connection at home is so much more than just a pipeline for streaming the latest shows.

But Insights isn’t about hunches. We wanted data to validate this theory, so we did a survey. The overwhelming response was that users would still pay for home internet even if they cancelled streaming, suggesting that home internet is something of a ‘sunk cost’, in the same way that you wouldn’t stop paying for electricity just because you stopped using your toaster. (Yes, comparisons to electricity in South Africa are sensitive, but we hope you get our point!)

Another example is clothing retail. Insights has been warning retailers that Shein – the online-only Chinese retailer – has been growing extremely quickly over the past 18 months. In some segments of the market, our data shows that Shein is larger than many well-known retail brands even though it basically didn’t exist here before 2021.

Again, some clients dismissed these warnings, so we did a survey. We asked you to list the website you go to first when shopping online for clothes and shoes. Shein ranked alongside some of the most established brands in the country – an amazing feat after just two years in the market, and a blaring alarm for the more established fashion retailers…

‍Sharing is caring

‍If you find this interesting, please complete this month’s survey! It really helps 22seven know what’s important to you. We promise to share more findings next time.

Mmmm… Coffee. South Africans love their daily caffeine fix and will happily spend their hard-earned money to get it. The local coffee industry was worth as much as R4.9 billion last year and some project it to reach R7.2 billion in the next four years.

Want to take advantage of this booming sector and become a coffee baron? Business Insider recently published an article about how much it costs to buy a coffee franchise like a Vida e Caffè, Mugg & Bean or Bootlegger.

Fair enough, but how much are coffee drinkers spending at these stores?

What’s the average monthly spend?

We analysed the spending of 45,000 22seven users (that’s you!) over three months. More than 19,000 users transacted at one or more of the franchises during the period in question, with an average monthly spend of R156 per user. That’s about five and half Americanos…

Vida has the most foot traffic

When it comes to the number of transactions, Vida is the clear leader. 22seven users buy from Vida 61% more often than they do at Mugg & Bean, and 157% more often than they do at Bootlegger.

Customers spend the most at Mugg & Bean

Vida might have the greatest number of transactions but spend at Vida is the lowest on average – about half of the average spend at Mugg & Bean, and 37% less than at Bootlegger. This is probably because Mugg & Bean and Bootlegger outlets generally have more substantial food menus and larger seating areas for dining.

What about customer loyalty?

For a coffee shop, regular customers are like gold. And on this score, Vida is most reliant on its regulars. Nearly half of all spending at Vida came from only 10% of its customers. Since these regulars are not spending a lot each time (remember, Vida has the lowest average transaction value) it backs up the evidence that they're buying much more often than at the other franchises.

Use 22seven to keep track of your coffee spend

Now that you’ve seen a picture of the coffee market, you’ll be more conscious of your spending next time you pop into your local Bootlegger for a flat white. If you’re worried about how much you’re spending on coffee, set a budget for the Coffee category in 22seven and enable spending alerts so you’ll be pinged when you reach 50%, 80% and 100% of that budget.

Who knows, the money you save in the long run might put you in a position to buy your own Bootlegger franchise and make heaps of money off everyone else’s caffeine craving!  

Thanks to 22seven Insights for the data used in this Slice. Insights is 22seven’s market research business, using anonymised aggregated spending data to see how consumers engage with various brands. Find out more here.

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