PSG answers your budgeting, savings, and insurance questions.
Image: File photo.
I spent much more than I had planned over the school holidays and Easter break. Do you have any budgeting tips to help me avoid this happening again? Kobie Kritzinger, Wealth Adviser, PSG Wealth, Menlyn
Overspending on holidays is tough, but it provides a valuable lesson, and you can implement strategies to prevent this from happening again.
Ironically, overspending on holidays is not always due to a lack of discipline. Imagine opening a pressure valve – it releases steam and pressure. This is what happens to us when we are on holiday. It starts as a means to recharge our mental batteries, but then transforms into daily splurges because “I deserve this.” Lunches, special treats, and impulse buying can quickly deplete any bank account, especially if it feels justified. The truth is, when you are emotionally fatigued, your brain lies to you. It whispers that you deserve the little treats. It tricks you to self-medicate by spending more.
Below are budgeting tips to help you for your next holiday:
By setting a ‘treat budget’, you can remain in control of your emotions and spending. Holidays are meant to restore us, not deplete our finances. Next time, when you are on holiday, choose peace of mind over purchase.
I was recently promoted and received a 15% salary increase. Can you provide guidance on how best to split this additional income between my credit card debt, bond, Tax-free Savings Account, and Retirement Annuity? Amelia Morgenrood, Wealth Manager, PSG Wealth, Faerie Glen Stockbroking and Financial Planning
As a rule of thumb, you should save 15% of all your gross income from the very first day you start working in order to work towards replacing approximately 75% of your income at retirement. If you receive an income increase or a bonus, this rule still applies.
If you did not do the above, a certified financial planner will have to calculate what percentage you need to contribute towards your retirement and evaluate your other savings, debt, and goals to tailor a plan for you. Your retirement plan can consist of a combination of a tax-free investment vehicle, an annuity, and discretionary savings.
It is essential to always pay yourself (retirement savings) before anything else is paid. After you have contributed to your retirement savings, credit card debt is the next thing to tackle.
I’ve heard the term ‘a well-diversified investment portfolio’. What does this actually mean and why do advisers suggest having a financial plan structured this way? Herman Wheeler, Wealth Manager, PSG Wealth, Northcliff
Whether it is the state of our roads, the price of fuel or the next global crisis, we cannot take anything for granted. By spreading investments across different assets – a mix of different asset classes, also considering local and offshore assets – it is possible to reduce risk and improve the prospects of healthy and consistent long-term returns.
Diversification offers investors a range of advantages:
A well-structured and diversified portfolio is likely to generate positive returns. When combined with South Africa’s retirement fund tax incentives (i.e. which provide for a deduction limit equal to the lesser of 27.5% of taxable income, or R430 000 annually), it promotes tax efficiency.
In this way, there is a balance between risk and reward, providing protection from inflation and optimising returns. It is important to partner with a reputable and experienced wealth advisory firm to guide and advise you along your financial journey.
I am a young professional with a full-time job and also receive additional income through freelance work. What would be a good starting point for my savings and investment journey? Tunin Roy, Wealth Adviser, PSG Wealth, Cape Town
It makes sense to have three to six months’ worth of income in an emergency fund held in a near-cash investment aiming for returns of money market plus 2%. After that, a Tax-Free Savings Account (TFSA) is the best next step for almost all South African investors. You can contribute up to R46 000 per tax year and up to R500 000 over your lifetime — with all growth and withdrawals completely tax-free. This makes it ideal for both medium - and long-term goals, although if you take funds out, it doesn’t increase the balance of your lifetime allowance.
For retirement planning, open a Retirement Annuity (RA). Contributions are tax-deductible up to 27.5% of your taxable income (capped at R430 000 per year). Your RA contribution could therefore yield a meaningful tax saving, which is added to your long-term financial security. A practical approach would be to direct your stable salary toward fixed monthly contributions, while allocating a portion of your variable freelance earnings to top up your investments whenever possible. To choose the underlying investments or funds, consult a financial adviser who will give you appropriate advice based on your age and circumstances. For example, a younger investor without children may want to invest 100% in equities, whilst an older investor may want to reduce risk through diversification. The sooner you start, the more your returns compound, so the harder your money works for you.
Why is body corporate insurance essential, and how can trustee mismanagement expose owners to financial risk? Ryno de Kock, Head: Distribution at PSG Insure
Body corporate insurance, sometimes called sectional title insurance, is not optional. It is mandated by the Sectional Titles Schemes Management Act (STSMA) and is designed to protect the buildings, common property, and financial interests of a sectional title scheme. This includes cover for prescribed risks such as fire, extreme weather events, civil unrest, and certain water-related incidents, as well as compulsory public liability insurance and cover against the loss of scheme funds due to fraud or dishonesty.
When properly structured, this insurance allows a body corporate to recover after a major loss without passing costs onto individual owners through special levies. However, where trustees fail to manage insurance correctly, significant risk can arise. Common issues include underinsurance due to outdated replacement values, cover that does not reflect the scheme’s actual risk profile, and weak oversight that increases exposure to fraud and financial loss.
Replacement values must be reviewed regularly to keep pace with inflation, rising building costs and improvements to common property. If they are not, shortfalls may only become apparent after a loss occurs. Trustees are also responsible for ensuring mandatory covers are in place and that exclusions or gaps do not leave owners exposed.
Because insurance is intended for sudden, unforeseen events and not poor maintenance, inadequate governance can further compromise claims. An insurance adviser can help trustees meet statutory obligations and protect owners from unnecessary financial risk.
PERSONAL FINANCE