PSG offers answers to questions regarding savings, capital accumulation, and budgeting. One client, who contributes R2,500 monthly to his stokvel, noted that while it is a good way to save, he feels his money could work more effectively. He asks for advice on what to do with his annual payout to turn it into a long-term investment while maintaining the discipline inherent in participating in a stokvel.
Firstly, it is important to distinguish between a stokvel and investments. The main goal of a stokvel is collective saving to achieve a short-term goal, whereas investments are aimed at wealth creation by growing money over a longer period of time.
If an individual is interested in a more long-term investment approach, it is recommended to consider a tax-saving account for the annual payout instead of continuing participation in the stokvel. Such an account allows investment in various asset classes, including stocks, bonds, cash, and real estate, based on the client's risk profile and investment horizon to achieve optimal growth. One of the main advantages is that all income—whether growth, interest, dividends, or capital gains—is completely tax-exempt.
In addition to the option of making contributions via monthly direct debits or annually, the client has free access to their funds at any time. By choosing unit trusts with a higher proportion of stocks and greater diversification than typically found in a stokvel, one can tailor a portfolio for significantly better long-term growth.
It should be noted that there are certain limitations on contributions to a tax-saving account. If the contribution exceeds R46,000 in a tax year or R500,000 for life, tax will be levied on the excess amount. It should also be remembered that when withdrawing funds from a tax-saving account, the amount will not be added back to the available contribution limits.
To translate discipline into long-term capital building, it is recommended to consult a qualified financial advisor.
How else can I use this to invest in my future
A client who has just started their first permanent job wants to begin actively contributing to their future. Currently, they are only transferring R1,000 monthly to their savings account and are interested in other investment methods. PSG Wealth responds that this situation resembles the story of a young woman named Emma.
When Emma got her first permanent job, she felt unstoppable. For the first time in her life, money was deposited into her bank account every month. While her friends planned monthly online purchases, Emma had other plans—she wanted to build a future for herself, not wait for others to do it.
The next day, Emma opened a tax-saving account and started depositing R500 into it monthly. Additionally, she set aside R500 monthly in her savings account to build an emergency fund. This ensured that she would not have to touch her tax-saving investments at an inopportune moment when life circumstances arise.
After ten years, Emma reached the lifetime limit of her tax-saving account, keeping it tax-free. She consciously chose herself. While others spent, she invested. Her parents never invested a cent and lived paycheck to paycheck. Emma viewed this as a trap and decided that her future deserved more.
The real power lies in time. Starting to invest early means that compound interest takes the main load. Even small monthly amounts turn into a significant sum over time. Emma did not get rich quickly; she got rich quietly, as she funded the person she was becoming before life could spend that money on her. A qualified financial advisor can help build the desired future, just as Emma did.
Conversations where money is rarely discussed
The author shares a desire to change a family tradition because money was rarely discussed in his family, and he wants to teach his children financial responsibility. He asks how to involve children in conversations about family capital without causing conflict or feelings of favoritism.
Most people absorb their financial habits and skills from parents and guardians. By helping children develop important behavioral models, knowledge, skills, and personal qualities at an age when they are developmentally ready, one can guide them toward financial well-being in adulthood.
Regardless of the children's age, the following recommendations can help teach them financial literacy:
- Involve children in family finances. At the beginning of the month, when the salary arrives, show the children the initial amount, then list the household's main expenses that need to be paid from the salary, and subtract them. This demonstrates where all the money goes and emphasizes the importance of covering household expenses before buying 'fun' things.
- Teach them to manage their own money. When you decide they are responsible enough, agree on a specific amount of pocket money you will give them weekly and stick to it.
- Show them the benefit of saving. The next time children want to buy something they cannot afford, explain the principle of saving. Suggest they put aside part of their weekly allowance for several weeks, and eventually, they will have enough money to make the purchase. Set a specific deadline by which they must reach the target amount.
- Teach them to be resourceful with money. It is important to stick to the agreed-upon pocket money amount each week. Teach them that they can earn extra money by doing extra chores. This shows them that by working more, they can earn more, while also helping them understand the difference between regular household duties and extra tasks for which they will be paid.
- Give them choices. As they grow older, the pocket money amount should be reviewed. If you feel they are responsible enough, you should adapt your strategy and give them choices.
Ultimately, the goal is not to raise children who simply know how money works, but to raise young adults who can wisely use money to achieve their goals, overcome financial difficulties, and build a secure future.
A client planning a holiday season travel budget wants to ensure they have enough money for New Year's. They are advised to fund January before going on vacation. They need to calculate the cost of the first month of the year, set aside that money, and plan the vacation around the remaining amount.
Start by listing everything January requires: school fees, uniforms and stationery, license and insurance renewals, mortgage and vehicle payments, medical insurance, groceries, and fuel. Since most employers pay salaries for December in advance, January usually stretches out over five or six weeks until the next payday. Account for this extra period. On the date of the December salary payment, transfer the entire amount to a separate account that is not linked to a card. What remains after this transfer, as well as after regular debt repayments and pension contributions, constitutes the vacation budget. Then, calculate the trip by categories: fuel or flights, accommodation, dining out, activities, and gifts. Add approximately 10% for unforeseen expenses, as a flat tire or a doctor's visit far from home always seems to happen at the worst possible time. If the total amount exceeds the available funds, shorten the trip by one or two nights, choose a closer destination, or book accommodation with self-catering facilities. All these adjustments are easier to accept than a deficit in January.
Handle the December bonus in a similar way. Decide in advance where it will go: to cover January expenses, to repay debt, or to a reserve fund. Then, inform the family of the figures. Everyone spends more cautiously when they know the limits, and you avoid an awkward conversation during the trip. If you are unsure how much you can responsibly afford in December, consult a financial advisor and work through the numbers together.
A client who owns a family business asks about insurance risks that should be considered to protect the legacy for the next generation. The expert notes that a business legacy is often built over decades, and protecting this legacy requires the same long-term thinking. By viewing insurance as a tool for strategic risk management, business owners can ensure the protection of the enterprises, assets, and wealth they have worked so hard to create for future generations.
A fire destroying business premises, a major theft, a severe storm, or a prolonged business interruption can place immense pressure on any business. Even with some insurance, underinsurance can have serious consequences if buildings, equipment, inventory, or other assets are insured at outdated valuations. Business interruption insurance is another area requiring careful consideration. Many businesses focus on replacing damaged property after a loss but overlook the financial impact of being unable to operate during repairs. Lost income and ongoing expenses can pose a serious threat to long-term sustainability. Regular review and professional advice can be crucial here. As the business evolves, its risks change. A trusted advisor can help identify gaps, reassess insured amounts, and ensure that coverage meets the changing needs of the business.
