IC Newsletter Issue 1 2023

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In this issue

Hello everyone! Welcome to our first CONNECT newsletter for 2023. I’m Rita Cool, Head: Individual Consulting Strategy at Alexforbes Financial Planning Consultants.

In this edition we look at factors influencing our relationship with money and how to manage mental health in uncertain times. We also hear from Michael Avery about charting a course to financial freedom on his Fine Music Radio Classic Business show. Thato & Trevor discuss the 2023 Budget Speech, and we also provide an update on the markets for Q1:2023.

Until next time, happy reading.

Transforming your relationship with money

Most people have a complex relationship with money. How you earn, spend and manage money may be inextricably linked to what you were taught in childhood in terms of money and values, and the way you organised this information in your mind.

For example, if your family placed emphasis on the value of education, you may have prioritised saving for your children’s education when they were very young. Or if your family spent every Sunday at church, as an adult you may tithe to the church.

Throughout our lives we maintain an interesting relationship with money. As children, many of us heard that money was “the root of all evil” or that “money can’t buy you happiness“ and “the best things in life are free”. The truth is that money is necessary in life and gives you more options, but it won’t make you happy — or only up to a point.

Are you a spender or a saver?

How you feel about money and how you deal with money will be based on how your parents dealt with it. They hopefully taught you good habits, but perhaps you are afraid to spend money because they never saved, or you can’t stop spending because your parents didn’t spend a lot of money. Did their history with money shape you into a spender or a saver? Did it make you a risk taker, or did it make you very cautious?

Money affects all aspects of our lives

Not only does your history with money affect your financial decisions, but it can also affect your relationships. If you are a saver and your better half keeps spending and going into debt, it might eventually be the last straw for your relationship.

Why is it so difficult to save money?

Educating people about the importance of saving for retirement and other financial goals is the main purpose of the retirement fund industry. People are reminded to save on a continuous basis and warned about how few people actually retire comfortably, yet most people still do not save enough. There could be real reasons for not having money available to save, out of people’s control, but very often it has to do with this money relationship.

If you reflect on how you feel about money, you will be in a better position to change your relationship with money for the better and take your biases into account when making financial decisions.

It’s important to remember that wealth has less to do with how much you earn and more with how much you save. Not only the percentage of your income, but also how efficiently you save. That is why it is crucial to make sure your savings work as hard as possible. Are you in the correct investment for your needs? Are you getting value for money for your savings? It doesn’t have to be the cheapest option if you get value from it.

Pay yourself first

One of the easiest ways to start saving more is to pay yourself first. You are not simply working to pay tax and bank fees to someone else. Allocate a percentage of your income to yourself and your goals when you are doing your budget. Don’t just rely on your retirement fund for your financial goals — pay yourself extra whenever you can. Allocate a portion of any increase to yourself before the extra money disappears into daily life. And, of course, the other way you can save more is by spending less.

The difference between savings and investments

Savings in a bank account is only one building block of a good financial plan. If you are looking at your longer-term solutions, you should also be using investments — not just cash savings.

Your savings and investments should match your short-term, medium-term and long-term goals. You can also save for something general, as having disposable income creates choice and having options is invaluable.

The bottom line is that if you have a goal, you need to make sure your money works towards that same goal. Don’t keep money in cash if it is for a long-term goal when you need to outperform inflation over time. And don’t try to get a very high return over a very short period of time, because the risk you take on will likely make your money less instead of more.

Spend some time on yourself and look at your relationship with money

Having money opens up our options in life. Make sure that you’ve saved and invested enough to benefit from more choice now and in the future.

Thato & Trevor discuss the 2023 Budget Speech

Trevor: Thato:

Hi Thato. Did you listen to the latest Budget Speech?

I was happy to hear about the solar panel tax incentive. It will definitely help me.

Hey Trevor. Yes I did. It was good to hear that there are a few new benefits that tax payers can claim.

Yes, the 25% rebate (up to R15 000 per tax payer), will help me as I’m planning to install panels this year. Remember, your spouse can also claim a rebate!

It also looks like we’ll be able to get more tax-free cash when we retire?

It might not help you right now, but it will help when you retire. The retirement and withdrawal tax tables were adjusted up by 10%.

You can now get R550 000 tax free when you retire, instead of R500 000, if you did not take any cash before retirement.

If you take up to R770 000 in cash you pay 18% on R220 000 of that amount.

The next R385 000 you take in cash is taxed at 27%. Anything over R1 155 000 is taxed by 36%.

This does not mean that you have to take more in cash than you were planning to, but it does mean that you’ll get a little extra tax relief if you do take cash.

I see that they didn’t increase the interest exemption this year?

It wasn’t expected, as the Government wants people to save in a tax-free savings account (TFSA) instead.

That’s why you can make contributions of up to R36 000 each tax year. The growth is tax free, which means that it grows more over time compared to other taxed savings.

Thanks for the reminder. I still need to make my TFSA contribution for this year.

Yes – me too. Every little bit extra we save goes a long way!

Trevor: Thato:

I also heard mention of something called the Two-pot System that they say might come into effect on 1 March 2024? What’s that about?

It will be the new way that all retirement funds will be structured. After that date, your new retirement funds will be split: 1/3 into a ‘savings pot’ and 2/3 into a ‘retirement pot’.

You’ll be able to make one withdrawal from your savings pot every year. You don’t have to, though, as it’s only meant to be for emergencies so that you don’t have to resign to get access to your savings.

You won’t be able access 2/3 of your savings before you retire. This will ensure that your retirement benefit will be higher when you set up your retirement income.

Isn’t that how retirement annuities work already?

That’s correct, but with your current RA you can’t access the 1/3 until you retire.

When the rules change, you’ll be able to access 1/3 of your RA before retirement.

Will I be able to access my existing savings?

The regulations are not final yet, but it looks like you will have limited access to your existing fund savings.

You’ll also still have full access to your “vested” savings when you resign. Those are savings that you have saved to that date. You will have to pay tax on the amounts you take from your savings pot, at your marginal tax rate.

Managing mental health in uncertain times,

by Myrna Sachs

Mental health is a complex issue, one which many of us take for granted during the good times. But anything can affect our mental wellbeing, including changes in our financial or social circumstances, traumatic experiences, losing a loved one, biological factors and underlying medical conditions.

In this article, we take a closer look at some of the causes of mental health issues, and how to address them…

Loneliness

Loneliness is different from simply ‘being alone’. It refers to an unmet desire to have a sense of belonging and connection with others. It is possible to have a lot of people around us and still feel empty, isolated and disconnected.

Loneliness is a deep sense of uneasiness and discomfort about feeling alone and can occur after a loss of a loved one or if you’re going through an extremely stressful period as a result of financial problems, a chronic illness, or being unable to adjust to a new environment or circumstance.

Deep loneliness can lead to:

feelings of insecurity and even worthlessness eating disorders

anxiety as well as other depressive disorders

lack of energy

struggling with sleep

withdrawing from engaging with others

Loneliness can affect decision-making, concentration, our ability to solve problems – all of which lead to self-doubt. Left unchecked, loneliness may result in depressive and/or anxiety disorders.

You may be suffering from depression and anxiety if you:

feel overwhelmed

feel restless

feel a sense of hopelessness have mood swings

lose confidence in your abilities

Coping with stress

struggle to focus

Stress is by far the most common cause of mental health issues. Engaging in the following routines can help us overcome stress to some degree:

Daily mindfulness: Consciously choosing to be fully present in each moment of your day or activity that is causing you stress. This way you are alert to the thoughts that go on in your mind and your emotions, and can, with no judgement, work through why you feel the way that you do. Interrogating your thoughts and opening yourself up to feel your emotions as they arise, has been shown to lessen the stress response due to its calming effects. You can train yourself to manage your breathing and to encourage yourself with positive thoughts as you go through the day with awareness of the negative emotions that may arise from your triggers.

Frequent quiet time, meditation or self-care: Meditation has the same effect as mindfulness in calming your thoughts and allowing you to eliminate the flurry of emotions and anxiety.

opt out of social engagements with friends

Destressing activities: Getting enough sleep, getting up from your desk and taking a walk when you feel overwhelmed, eating your lunch with others and away from your desk in order to interrupt your thoughts of hopelessness, closing your eyes and sitting back with your hands on your lap and counting to ten slowly in between deep breaths, can help in distressing your body.

Putting the above into practice will create an awareness of your body’s stress response. You will need to respond appropriately to normalise this response, and curb the risk of mental illness and other medical issues. It you are still working, this might mean having a conversation with your line manager about reshuffling or sharing your workload, calling your workplace Employee Assistance Programme helpline to speak to someone and opening up about your unhappiness.

steps:

Mental health exists on a spectrum where you feel confident and happy with your mental state, to feeling out of control and completely unable to live a meaningful life. One day we may feel like we are coping and winning the battle, while other days we may feel completely overwhelmed. Remember, healing and coping is a journey which we must travel daily with intention.

Acknowledge how you feel

Ignoring your emotions or not allowing yourself time to recognise that “I am not okay” has led to manageable conditions getting worse. Practice mindfulness on a daily basis. It allows you to be aware of how you feel.

Resist the urge to use alcohol or illicit drugs to cope

If you’re already struggling with dependence on addictive substances, seek professional help or speak to a friend or loved one. Where you need professional help, do not hesitate to reach out and receive that guidance.

Ask for help

Ask for help or at least be open to receiving help when it is offered to you. People around us often offer to help but due to our discomfort and perhaps avoidance, we do not welcome assistance despite knowing we need it.

Michael Avery Podcasts

Catch Michael Avery’s 6-episode podcast series: “Charting a course to financial freedom” here.

Topics include:

• Start with a goal in mind

• Establish a budget

• Understanding debt

• Build an emergency fund

• Charting a course

• Retirement jargon busting

If you feel like you’re not coping, follow these three

Market updates

Global macro developments in advanced economies

Developments in South Africa

Macroeconomic developments in Namibia and Botswana

Global financial markets performed well in April 2023 despite recurring banking fears

South African assets followed the global trend despite worsening power outages

Major currencies appreciated against the US dollar as risk sentiment improved

Read the complete commentary here.

Disclaimer:

Please note that while care has been taken to ensure that the information provided in this article is correct, it represents an overview of the topic under discussion and as such does not constitute advice.

While Alexforbes has taken reasonable effort to ensure that the information contained herein is true and correct it will not be held liable in respect of any loss arising from any advice provided arising out of the contents of this circular.

We suggest that you contact your Legal department before taking any decisions based on the information herein.

The following businesses are licensed financial services providers:

Alexander Forbes Financial Planning Consultants (Pty) Ltd (FSP 31753 and registration number 1995/012764/07)

Alexander Forbes Investments Limited (FSP711 and registration number 1997/000595/06)