Finance Minister Trevor Manuel has swelled taxpayers’ wallets and purses by R8,4-billion, but in reality most mid- and upper-income earners won’t really notice unless they proactively take advantage of the tax breaks.
“Many people earning R100 000 and more a year will probably just absorb the extra money into their normal spending patterns. But if you think carefully about what to do with the little bit more cash every month, you can improve your financial situation,” says Paul Maggott, spokesperson for ICE, Old Mutual Bank’s young urban market offering.
He suggests that paying off or reducing debt is a good way to invest the tax saving. Even though the monthly amount may not seem significant, it will make a difference and save you money in the long run.
For example, if you earn R150 000 a year, or R12 500 a month, you will now have R117,90 more in your take-home pay every month. It’s not a huge amount and you could easily blow it on a few luxuries in the shops, entertainment or just ordering pizza.
But if you have a R400 000 bond at the prime interest rate of 12,5% over 20 years and you increase your monthly repayments by R117,90, you will cut the period of the bond and save yourself more than two years’ worth of interest.
Maggott says the extra money will be particularly useful if you’re struggling to pay off short-term debt such as retail or credit cards, which tend to attract higher rates of interest.
“It should enable you to pay off these debts much sooner and save a considerable amount of interest. The trick, of course, is that once you have it off, to try to avoid overextending yourself again.”
He recommends paying off the debt and then putting the extra money into a savings account to start building up some financial security.
“Remember this is money you’ve never had before, so by upping the repayments on your home loan or other debt, you won’t feel any worse off each month and will be investing in your financial future.”