Start Building your Future Knowledge.

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You've got to look at it from 2 standpoints. There is a theory, then there's reality. The theory is that every person is going to do the right thing for themselves. The reality is we all are instant gratification people. We try to do what makes sense for the now.

I try to remove that variable because like everybody else, we all want nice, shiny things. When you give a person access to all of their funds, typically they will use it. What they tend to forget is at some point in time, the future will become the present. And when that happens, we want them to be prepared.

It's very unlikely, or very uncommon rather, for a person to be extraordinarily disciplined - because we want to enjoy the nice things in life. We forget about future ‘US’. So, I like to structure things in a way that prioritises your future, knowing it will become the present, but still giving you a bit in the short run to say thank you to yourself. What I mean by that is, I typically structure 90% of my clients' investments all around retirement funding. And I do it for two reasons.

1. I've seen far too many times how parents can't retire comfortably, how we - as the next generation - typically have to fund our parents. It's unfortunately very, very normal in this country. To get around that, SARS rewards the client for investing in their future. To give you an idea, most people try to pay off their bonds quicker. They have the idea that they should put an extra percentage of their money into their bond. Let’s say R1000 a month for the sake of this discussion. A R1000 a month extra payment into your bond, to pay it off in, for this argument, three years earlier. The problem is access.

Because you have access you will typically take advantage of that and will pull the money and they will use it for something else. You've got to understand this, to get that extra R1000 into your bond as a 45% taxpayer, it actually costs you about R1800 or just over. So, in order to get extra money into your bond, you need to pay nearly double. To get R1000 a month extra into your retirement annuity, you do so tax-free! Gross tax-free.

And don’t forget, it is a tax-deductible investment. When a person invests the money into their retirement annuity, paid straight out of their pre-tax salary, it saves them essentially 45% of their money.

Now, once that investment has run into their RA (knowing it has actually run off their net of tax money) they've got a tax credit with SARS. So, at financial year end, they will get that 45% back. When they get that money back as a lump sum, a large 12-month compounded lump sum, they can take that and redirect that money into some type of short-term goal, like paying off a bond faster or like setting a car faster.

So, you actually get a reward for waiting, you still get nearly 50% of your money back in the short run whilst prioritising your retirement funding and prioritising future ‘YOU’.

2. People are very, very different, but yet we are all very much the same in that we all have the same goals. We all want to go on holiday. We all want to pay off debt. We all want to look after our families. So, what's really crucial to understand is that it doesn't matter what you do with your money as long as you stick to your plan. So, if my client says to me, I want to pay my child's school fees every single year cash up front, I do not want that to become part of my monthly expenses. It's perfectly fine; we will structure their lives going forward, that their tax rebates will be focusing on education. This frees up expenses or frees up cash flow on a monthly basis to be redirected to other places. Or of course, you could do this backwards and rather say, I'm happy to keep paying the school fees, but I don't want to fund my holidays. Or I'm happy to fund my holidays, but I don't want to fund my bond being paid off quicker.

What matters is that you find a plan, find a planner that understands your plan and stick to it!