14 October 2020 | 5 - 8 min read

In the spirit of Halloween, here are 3 money tricks to avoid...and the 3 money treats to replace them with

“Trick or treat!”

Wait, you expected us to give you sweeties?

Sorry reader, this is Velocity Club, not your gogo’s house. Here we are very grown-up. We are only interested in important life issues and super serious financial advice.

Now, go trick or treat someone else’s blog, please. We’ve got to get back inside. We just got ‘Frozen 2’ in and that box of finger biscuits is not going to eat itself.

Just kidding. Back to business!

Today’s blog is Halloween themed because we can and because the financial world is full of trickery. Velocity Club is here to give you some yummy financial treats to help you avoid those unpredictable tricks out there.

We begin with that old favourite of ours: Credit cards.

Credit cards

Trick: Paying using a credit card every time we don’t have the cash.
We are all in the habit of doing this, let’s be honest. But trickery is afoot.

The credit card company will candy-coat your debt by telling you that all you need to pay is the minimum payment and all is well.

No problem, that’s a nice small, manageable amount, right?
Wrong!

On a debt of R10 000 and paying only the minimum payment (let’s say 3% of the balance at 18% interest rate), it’ll take you over 17 years to pay off that debt and in the end you would’ve paid R9 500 on interest alone.

Treat: Paying off your credit card debt at the end of the month

Basically, this is the best way to make your credit cards work for you without getting yourself into a debt hole and paying double your actual debt amount like we saw above. By clearing your credit card at the end of every month, you get to maximise benefits from usage rewards such as eBucks, without incurring any interest.

But if you don’t have the discipline to do this, the better option is to rather save every month towards that item you want to buy.

Remember: If you can’t pay cash for it, then you can’t afford it right now.

Tax

Trick: Believing SARS when they say that tax avoidance is the same as tax evasion

SARS wants you to pay as much tax as possible, and they’ll do and say anything they can to convince you that paying anything but the maximum possible tax, is somehow a problem for you.

Pro tip: It isn’t.

First, let’s be clear about what the difference between tax avoidance and tax evasion is.

Tax avoidance is using tax legislation to your advantage to reduce your tax burden through lawful, legitimate means.

Tax evasion refers to using unlawful methods to avoid paying tax. We are certainly not promoting tax evasion.

Treat: Use tax law to legally reduce your tax burden

The easiest way to legally reduce your tax liability is through contributing to a retirement annuity. Contributions that you make there, within certain limits, are tax-deductible. For example: If you earn R500 000 a year, and contribute R50 000 to an RA during the year, you’re only taxed on R450 000 [There are some limits to what you are able to deduct though].

There are other ways as well, for example donating money to charities, working from home (in some instances) and certain investments. Your Velocity Club financial adviser will be able to give you more information about this.

Emergency fund

Trick: Using credit cards or debt to fund unexpected life expenses

Unexpected emergencies suck. Whether its car repairs, home repairs, or medical bills, the cost is usually not small and most of us are usually unprepared for it. To get through it, we turn to credit.

The problem with this is that thanks to credit card trickery (see above), you can end up paying so much more than the amount you actually needed. And this isn’t helped by the way financial institutions eagerly offer us debt facilities.

Once you’re in a cycle of living off credit, it’s very difficult to get out of that situation.

Treat: Open a savings account and save towards emergencies instead

We recommend opening a cheap savings account to put money away for your own emergency fund. Most banks offer low cost or even no cost savings accounts if you have an existing transactional (cheque or credit card) account with them, so look into this for an affordable savings account.

This special savings account can become a sort of ‘self insurance’ against life’s unexpected events so that you don’t have to turn to credit at those times.

How much should you save?

Ideally, you should aim to have 3 to 6 months’ worth of expenses saved in your account. That sounds like a lot though, so start with whatever you can afford and build on it every month from there.

Conclusion

Just like in the movie Frozen, the financial world is full of trickery trying to upset your way of life and turn you into a princess with the ability to freeze your surroundings on a whim.

Actually, hang on, that’s a different script.

Let me have a look here.

Ah! Here it is: Financial trickery can cost you more than the cost of overpaying on your tax bill or using credit too often and if you aren’t careful, you can end up poorer for it. In today’s blog, we’ve given you some easy, practical things you can do today to protect your income and your credit. You can pay off your credit card debt at the end of each month. You can find legal methods to reduce your tax burden, and you can create a savings account to help pay for unexpected emergency expenses.

If you still have questions and need assistance planning your taxes, your credit repayments or setting up your emergency fund, our highly trained Velocity Club financial advisers are here to support you. They’ll help you make the right decisions, every time, to ensure that you reach your financial goals. Contact us today; we’d love to hear from you.

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