Monthly Archives: May 2015

The magical rule of 72.

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The number 72 has an uncanny ability to calculate the future value of money. So put away your financial calculator and let’s do some mental arithmetic.

Future value of your investment.
If you want to know how quickly or slowly for that matter your money will double in value then simply divide the expected rate of return into 72. The result is the number of years it will take.
For example:
You invest R10 000 at an expected rate of return of 12%.
72/12=6
It will take 6 years for your money to double to R20 000.
If your return is only 6% then
72/6=12
It then takes 12 years for your money to double.
When checking this on the financial calculator the value of the investment after 6 years is R19 738 and after 12 years is R20 121.
Future value of money
The rule of 72 can also be used to establish the impact that inflation has on your money in the future. If you divide the inflation rate into 72 then the result is the number of years it will take for your money to halve in value.
For example
You have R10 000 saved under the mattress earning no interest and the inflation rate is 6%.
72/6=12
In 12 years your money will be worth R5 000.
If the inflation rate is 12% then
72/12=6
In 6 years your money will be worth half.
Checking this on the financial calculator the value at 6% is R4759 and at 12% is R4 644.

Moms…be careful not to give the kids too much on mother’s day….

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Mother’s Day is all about being spoilt by the children and some moms will be so overwhelmed by the love and attention. Just in case you want to reciprocate, Mom… beware there are limitations.
Be careful Mom not to give away your children’s inheritance too soon, the tax man will charge you a fortune. You can only give up to R100 000 per year after which you will have to pay 20% in donations tax.
You can give and receive any amount to your husband but when it comes to the children SARS puts the breaks on.
So if you suddenly bought your child a million rand house and a fancy German car then SARS could be after you in terms of how necessary and reasonable the donation was towards the upkeep of your child.
When you really study the taxation formula of donations tax you realise that it is a form of tax to stop you from offloading your assets before you die, thereby avoiding estate duty. You see, when you die your estate is taxed after exemptions, costs and liabilities at a rate of 20%. The easiest thing you could do if this was not in place would be to give the children everything just before you die. This way SARS won’t get much. So, donations tax is a mechanism put in place to ensure that SARS gets its slice of the revenue whilst you are alive. When you die SARS will collect the rest.
So, moms, enjoy the day and just be aware of that impulsive urge to give your children too much. It could cost you more than you realise!!!