The budget speech delivered this week may well have been left to:

The old woman who lived in a shoe

Who had so many children She didn’t know what to do.

She gave them some broth without any bread.

And whipped them all soundly and put them to bed.

Whipped financially we all are with the tax scales, medical credits and tax thresholds all left unchanged for the next tax year which simply means we all will be poorer.

Here are three reason why:

1. Inflation Impact: The government’s decision to maintain last year’s tax scales and credits in 2025 without adjusting for inflation puts a burden on South African households. This means that the fiscal drag has not been adjusted to account for the rising prices and increased cost of living over the past year.

2. Financial Pressure: As a result of the stagnant tax rates and credits, households may find themselves with less purchasing power as their incomes are effectively being taxed at the same rates which are not adjusted to compensate for inflation. This will lead to financial strain, making it harder for families to cover their expenses and save for the future.

3. Budgeting Challenges: South African families need to be aware of the impact of unchanged tax scales and credits on their budgets. It is important for households to adjust their financial plans, prioritise spending, and seek ways to cope with the increased cost of living to ensure their financial well-being in the face of these economic challenges.

So the children in the shoe will be left with nothing more this year. Just have to do with the little they have.

A recent article in The Sunday Tribune cautioned readers to be aware of financial red flags that could affect relationships. 

Healthy relationships are based on trust and confidence in each other. This includes being transparent and responsible with financial matters. Working openly towards financial goals, keeping sound financial behaviours encourages great partnerships. There are signs and behaviours which raise red flags between couples. If ignored these can ruin a relationship:

Minimal discussion over money matters

 If a partner refuses to discuss money matters, it may mean that they are hiding something and do not want the other partner to know something about their financial situation. This raises questions which creates doubt, fear or worry which negatively impacts on the relationship. 

Ongoing financial woes

If a partner has ongoing financial troubles such as large amounts of debt, low credit scores, or overspending, it can lead to financial stress in the relationship.

Having an unstable financial track record affects creditworthiness which makes in difficult to get credit on the important things such as a home loan or car finance. 

Reckless spending

Spending without considering your affordability can only stress out a partnership. Ignoring expenses relative to income points to financial distress and uncertainty. 

Fly now pay later…… I want it because I deserve it….. We’ll worry about it later……

are symptoms of not being able to delay gratification. Being spontaneous and having no concern over affordability creates potential financial problems down the road which will harm partnerships. 

So It’s imperative for partners to be open and honest about their financial situations at all times. If they work together openly they can create a synergy which will only improve their relationship. 

In South Africa, retirement annuities have traditionally been regarded as inalienable assets, meaning that creditors typically cannot access them. This protection was established to safeguard individuals’ retirement savings from being depleted by external financial obligations. However, there are exceptions to this rule, particularly in cases of death, disability, and divorce prior to retirement.

Doors open to include child support

One recent court ruling has brought attention to a further exception regarding the accessibility of retirement annuities. In the case of maintenance for children, a court ordered Discovery, a major financial institution, to release funds from a retirement annuity to fulfill the obligation of child support. This ruling signifies a departure from the general principle of inalienability, highlighting the paramount importance of providing for the welfare of dependent children.

Balancing retirement funding with child dependency

While the specifics of the ruling may vary, it underscores the judiciary’s recognition of the critical need to prioritize the financial well-being of children, even at the expense of protecting retirement savings. This decision reflects a balance between protecting individuals’ long-term financial security and ensuring that dependents receive necessary support.

Revision of retirement planning needed

It’s essential for individuals to understand the implications of such rulings on their financial planning, particularly concerning retirement savings and potential obligations to dependents. Seeking legal and financial advice can help individuals navigate these complex matters and make informed decisions regarding their retirement planning and family responsibilities.

In South Africa, the tax benefits of installing solar panels in your home include a specific deduction offered by the South African Revenue Service (SARS). Homeowners who invest in solar panels may qualify for a deduction of 25% of the cost of the panels, up to a maximum of R15,000. It’s important to note that the installation must be made in the current tax year ending February 2024 to qualify for this deduction.

There are limits

This means that if the total cost of the panels is R60,000, the homeowner can claim a deduction of R15,000 from their taxable income, provided that the installation was completed before the end of the current tax year. If the panels cost, say, R40 000, then the deduction will be R10 000. It’s essential for homeowners to keep detailed records of the installation and expenses related to the solar panels to substantiate the tax deductions claimed.

Other components do not qualify

It’s important to note that the deduction only applies to the cost of the panels themselves and does not include other components of the installation, such as batteries, inverters, or labor expenses.

You cannot DYI

Furthermore, the installation must be carried out by accredited installers, and the equipment must meet specific standards set by relevant authorities to qualify for the deduction.

Incentive for some

By offering this tax incentive, the South African government aims to encourage the adoption of renewable energy sources, such as solar power, and to promote sustainable and environmentally friendly practices. The deduction on solar panels serves as a financial incentive for homeowners to invest in solar energy, contributing to the country’s efforts to reduce its reliance on traditional, non-renewable energy sources and mitigate the environmental impact of energy consumption.

Many are left out

Unfortunately the many South Africans who fall under the tax threshold (they don’t effectively pay tax), such as pensioners, labourers and even the struggling unemployed don’t get any benefit from installing solar. They are left off the grid and out in the dark as the incentive is only deductible against tax paid. If you don’t pay tax then there is nothing to deduct against. Perhaps a far better incentive and more immediately beneficial to everyone would have been to make panels non-eatable giving an immediate 15% tax break.

It’s an ideal time at the beginning of 2024 to understand how you are set for the year to come. An important measurement is your personal assessment of what you own (assets) and what your owe (liabilities)….your personal balance sheet. Just as companies and organisations rely on this information so too should individuals.

A snap shot of where you are.

A personal balance sheet is a powerful tool that plays a pivotal role in effective personal financial planning. It provides individuals with a comprehensive snapshot of their financial health by detailing their assets, liabilities, and net worth at a specific point in time. This document serves as a foundation for making informed decisions about managing one’s finances and achieving long-term financial goals.

Establish your net worth

The balance sheet is divided into two main categories: assets and liabilities. Assets encompass everything from cash and investments to real estate and personal possessions. Liabilities, on the other hand, include debts and financial obligations. By subtracting liabilities from assets, individuals arrive at their net worth—a crucial indicator of financial standing.

Create an action plan to improve

The personal balance sheet facilitates a clear understanding of where one stands financially and helps in identifying areas that require attention. It enables individuals to understand how they can improve their financial picture. Armed with this information, individuals can make informed decisions about budgeting, saving, and investing. The idea is to increase the assets column and reduce the liabilities which results in an improved net worth.

The sails on your your planning

Additionally, the balance sheet acts as a benchmark for tracking financial progress over time, allowing individuals to set realistic goals and measure their success in achieving them.

In essence, a personal balance sheet serves as a compass for navigating the complex terrain of personal finance, empowering individuals to make sound financial decisions and build a secure financial future.

When it comes to investing offshore from South Africa is the grass that much greener? The answer lies in where you are investing. Yes, the South African economy is struggling with all of its issues of loads shedding, water problems, corruption, poor service delivery etc. which makes a case for looking at options outside. However, the global economy too has its problems of high levels of inflation, interest rates, debt and unemployment which makes its tricky call on where to land your money.

Its not just about the rand

Your investment once converted into its new currency has to produce a return whether from shares, property, bonds or cash which should be reinvested to achieve the magical effect of compounding over time. There is also the question of which currency to choose away from the rand. Dollars, pounds or euros?

Different companies and markets

The great advantage of investing offshore is that you get to share in international companies on different exchanges not listed on our South African stock market. This is compelling as there are many great businesses which offer consistent upside potential. The choices are wide offering super opportunities for diversification.

There are risks and conditions

However, there are risks too. Shares in particular respond to economic outlooks. If there is a so called ‘Black Swan’ which is an unexpected event like the COVID lockdown in 2020 the markets fell by the steepest in history. The value of currencies in different countries frequently move up and down, and this immediately impacts on returns. Understanding these changes is important as they have a direct effect on your value. Understanding and dealing with different rules and taxes in other countries can be tricky too. Also, some countries might not be very stable politically, which again could be risky for your investments.

Be aware of fees and costs

Investing offshore often means you have to pay more in fees and expenses, which effectively reduces your returns. Fees paid to fund managers are not to be ignored together with provider fees and costs.

In short, investing money outside South Africa can be good for diversification, but you need to watch out for currency changes, different rules, and extra costs that directly affect your returns.

Pension fund values can experience declines due to various factors, impacting the financial well-being of retirees and future pensioners. Economic downturns, such as recessions or financial crises, can significantly affect the performance of pension funds. During these periods, the value of the investments held by pension funds, including stocks and bonds, may plummet, leading to a decrease in overall fund value.

Market fluctuations

Market volatility is another key contributor to pension fund fluctuations. Sudden and unpredictable shifts in stock prices can result in substantial losses for funds heavily invested in equities. Additionally, interest rate changes influence bond values, impacting the fixed-income portion of pension portfolios.

Poor management

Poor fund management decisions can exacerbate declines. Incompetent investment strategies or excessive risk-taking may lead to substantial losses, adversely affecting fund values. Moreover, demographic shifts, such as an aging population and increased life expectancy, can strain pension funds as they face the challenge of supporting a larger pool of retirees for an extended period.

Global economy

External factors, like geopolitical events, regulatory changes, and global economic conditions, can also influence pension fund values. Uncertainty and instability in these areas can contribute to market disruptions and impact the overall health of pension portfolios. It is crucial for pension fund managers to navigate these challenges prudently to safeguard the financial security of pensioners.

In 2023, South African households faced many financial challenges, over and above the challenges of load shedding and water shortages. Reflecting on the year here are three huge battles we had to face.

Inflation

Inflation rates jumped to nearly 6%, marking a substantial increase from previous years. This surge hit essential goods and services hardest, with food prices escalating by over 8%, squeezing household budgets and impacting purchasing power significantly.

Interest rates

Simultaneously, interest rates climbed to around 11%, significantly higher than in recent memory. This surge made servicing debts and loans notably more expensive, affecting nearly 40% of households with outstanding debt obligations. Savings accounts suffered too, with growth rates stalling below 2%, limiting the potential for financial growth and emergency funds.

Unemployment

The economic volatility also manifested in the job market, with fluctuations resulting in an unemployment rate averaging around 32%. This instability led to job losses for approximately 1 in 4 households, reducing income streams and forcing many families to tighten their financial belts to make ends meet.

These statistics paint a stark picture of the financial challenges faced by South African households in 2023. The compounding effects of inflation, high interest rates, and a turbulent job market underscored the necessity to cut spending and look for ways to increase income where possible. A precursor for 2024? Let’s hold on tightly……

Cancelling a retirement annuity not only impacts the future financial stability but also carries significant tax consequences due to the deductible nature of contributions. An annuity serves as a crucial vehicle for retirement savings with tax advantages on contributions.

When one cancels a retriement annutiy the investment is made paid up and can only be converted into a pension at age 55. Before then it remains invested without future contributions.

When cancelling an annuity, there are tax implications:

Firstly, as the returns inside a retirement annuity are exempt from tax, meaning no tax on dividends and interest and no capital gains tax, the rate of return is that much higher affecting the compounding into the future. By cancelling the retirement annuity the future growth advantages from the stopped contributions will be left behind.

Secondly, the contributions to the retirement annuity are tax deductible which has the effect of reducing your taxable earrings to a lower marginal tax scale. Stopping the contributions means no future tax deductions which pushes you up the the tax scales.

Beyond tax implications, cancelling an annuity also disrupts the planned retirement income stream and erodes the stability of one’s financial future. It not only compromises the accrued savings but also leaves retirees vulnerable without the previously secured steady income.

Given these consequences, careful consideration, and professional guidance are essential before deciding to cancel a retirement annuity to mitigate the potential adverse impact on both finances and tax consequences.

As the festive season approaches, it’s easy to get caught up in the whirlwind of celebrations and overspend. However, with a bit of planning and self-discipline, you can enjoy the festivities without breaking the bank. Here are six practical financial tips to avoid overspending during this festive season.

• Set a Budget: Before you start shopping, establish a clear budget for gifts, decorations, and events. Stick to this budget to avoid impulse purchases.
• Make a List: Create a list of gifts and items you need to buy. This will help you stay focused and avoid unnecessary spending on things that aren’t essential.
• Compare Prices: Take advantage of price comparison websites or apps to find the best deals. Don’t hesitate to shop around for discounts and promotions.
• DIY Gifts and Decorations: Consider making homemade gifts or decorations. Not only does it add a personal touch, but it’s often more cost-effective than buying store-bought items.
• Use Cash or Debit Cards: Leave your credit cards at home and opt for cash or debit cards instead. This way, you can’t overspend beyond what you have allocated.
• Plan Potluck Gatherings: If you’re hosting gatherings, consider making them potluck-style where everyone brings a dish. This reduces your expenses and adds variety to the feast.

By following these practical tips, you can navigate the festive season joyfully without the worry of overspending. Remember, it’s the spirit of togetherness and celebration that matters most, not the extravagance of spending.