There’s so much jargon thrown at us when we start working or start new jobs.
And sometimes reality only sinks in once we see our payslips.
All those “benefits” that made your gross income look so amazing, are actually leaving you with less money in your pocket than you’d envisaged at the end of the month.
“More money, more problems,” quips personal finances guru Adele Barnard.
But in a country where only 8% of currently employed people will be able to retire comfortably, the deductibles and tax bracket changes do matter, says the registered financial planner.
“There is no further improvement in this measure in RRR2022; it remains at 8%,” reads the 10X Investments annual Retirement Reality Report for 2022 (RRR2022).
“Just 7% of respondents feel confident that they are on course for financial independence in retirement, with the other 93% accepting that they will probably have to supplement their income after they retire, or feeling sure about this.
This is a marginal increase from the 6% that said they would be ready and able to maintain the same or a similar lifestyle post-retirement at the height of the Covid-19 pandemic.
“Out of 16 million employed people under the age of 65,” the latest Sanlam Benchmark survey found, “only seven million contribute to pension or provident funds.
“We believe this is because many of these people form part of the SMME sector where contributing to a retirement fund is not a priority.”
This is why it’s so vital to start engaging the services of a financial adviser as soon as you earn an income, says Adele.
It’s the one thing she would have done differently when she started working.
“So often when we start working, financial terms are thrown at us and, often, we don’t even know the difference between our gross and our nett pay,” says the financial planner who has been working in the financial services sector for the past nine years.
“And then you get your first payslip and you go, ‘Oh my goodness! Where is this money going to?’ when you see the money going to the South African Revenue Service (SARS).
“But that’s how they run the country’s household budget, basically. It’s about getting income tax from us. For individuals, the main thing is if you are younger than 65 and you earn more R91 250 per annum according to the legislation now, then you have to pay tax. In SA, we work on a sliding scale for our taxes.”
When you get that richly deserved promotion, new job offer, or pay increase, there are five things the financial planner suggests you do before accepting it:
1) Visit the SARS income tax table so you can see what bracket you fall into. That’s the most important thing.
2) Chat to your financial adviser so they can make sure that your basic pay and benefits make sense, especially in light of your long-term financial goals.
3) Check your pay slip. Many companies will send you an example of what it would look like based on the new cost-to-company (CTC) package they’re offering.
5) Ask what am I worth and what am I offering? You may have more experience or skills that give you the edge in that role. Don’t be afraid to negotiate a package that you feel reflects what your contribution to the company will be. Men tend to be more comfortable than women in negotiating for more money.
But when you go from one tax brackets to another, you’re only paying the applicable (from 18% to 45%) percentage of anything that is above the base maximum.
“The tax rates are marginal – meaning the higher rate is not applicable to your entire income – just the income above that certain threshold.”
Adele’s top tip for someone trying to earn more is, “If you can’t get more cake, either eat less cake or bake more cakes.
“The biggest thing we have in SA is lifestyle creep. Either we get our first job, or we get our increase, or we get a promotion, or a new job.
“We love to upgrade a lifestyle – upgrade the home, upgrade a car, get the branded clothes. I think that’s one of our biggest challenges instead of living below our means and making our money work for us.
“That’s obviously a relative concept because there are so many people who struggle to make ends meet. But if you are earning (relatively well), use anything extra you might have to pay off debt, invest and make little money babies or save.”