Personal-Finance

Beware of a false sense of security

2018-02-24 16:28

 Motorists will welcome a petrol price decrease this month, thanks to the stronger rand, but the cost of fuel is volatile and, while we may see some relief this year, further increases are likely.

We may also be in for some added pain this month as Finance Minister Malusi Gigaba is due to deliver his budget speech.

He will be under pressure to fund President Jacob Zuma’s fee-free higher education plan, which means we will most likely see an increase in taxes, as well as in the general fuel and Road Accident Fund levies, which are included in the price of petrol and diesel.

With a budget shortfall of about R50 billion announced last year, the Automobile Association of SA points out that government could hike these levies so that it is able to source additional revenue.

The association is against these increases and is urging government to consider the effect they may have on the poorest people in South Africa, who will suffer from an increase in the fuel price through higher food costs, as well as bus and taxi fares. 

If you don’t have much wiggle room in your budget this year and therefore can’t afford to deal with higher fuel prices when they arise, there are a few things you can do to decrease your usage and save money in the process.

BE A BETTER DRIVER

If you like revving your vehicle unnecessarily, speeding, braking hard and suddenly, and driving in lower gears, you may get to your destination faster, but you’ll be chewing up your petrol.

Rather try to maintain a steady speed and use cruise control if you can.

PLAN AHEAD

Take some time out to plan your trip so that you don’t get lost and waste petrol.

Make sure you’re travelling along the most efficient route and, if possible, avoid traffic jams.

Try to complete as many errands as possible in one go so that you don’t regularly end up on the road for short, petrol-wasting trips.

MAINTAIN YOUR VEHICLE

According to car insurer Indwe, it’s important to ensure that your vehicle is serviced regularly.

Also make sure that you check your tyre pressure every time you fill up at the garage. Incorrect tyre pressure is dangerous and increases your use of fuel.

Automobile Association spokesperson Layton Beard says: “If you maintain your vehicle and tyre pressure, your car will use the optimal amount of fuel.

"However, if you have a faulty air conditioner, for example, you need more energy to run the engine, so it stands to reason that you’d need more fuel.”

LOSE THE WEIGHT

If you travel with unnecessary and heavy items in your boot or keep your roof rack on when you’re not using it, the extra weight will increase your fuel consumption. 

“You’ll also use more fuel if you have a trailer or caravan as the engine needs to work harder,” says Beard.

CONSIDER CARPOOLING

If you tend to travel in the same direction as friends, colleagues or neighbours, find out if you can start a car pool.

However, Beard warns: “Have the discussion with your insurer about carpooling. Find out what happens if you are involved in a crash. Is there any liability on the driver of the vehicle if involved in an accident?”

Also check if insurers consider it a business transaction if others pay towards the trip. In such cases, you may not be covered unless you pay a higher premium. 

Alternatively, consider using ridesharing platforms such as CarTrip, which connects drivers with potential passengers via an app.

CarTrip founder Chris Faure says: “If you estimate that most people drive a round trip to work of about 30km a day, and that many cars use four to five litres of fuel per 30km, if you carpool with one other person for a full year, you would save about 1 000 litres of petrol.”

 GO GREEN

If you are able to switch to a car that is more fuel efficient or even electric, you’ll save again.

According to Nissan SA, the electric Nissan Leaf costs R25 to R30 to fully charge, according to current Eskom pricing.

A full charge will give you a range of about 130km.

Nthabiseng Maganya, information and leads supervisor at Nissan SA, says: “If compared with a similar petrol car, which can do about 600km per 60-litre tank of fuel, which costs about R800, the Leaf will cost about R115 for the same mileage.”

DITCH YOUR CAR

If at all possible, rather use public transport.

If this isn’t available, try using travel apps such as Uber and Taxify.

If you’re going to sell your car, make sure that you’re able to pay off your car loan with the money you get from it.

It doesn’t make sense to ditch your vehicle if you will struggle to make car repayments.

To ensure that you’re making the right decision, compare the costs of maintaining a car versus using Uber or public transport.

Take into account the depreciation of your vehicle, the cost of maintenance, insurance, parking, cleaning, licencing and petrol, and compare that to the cost of taking public transport or Uber.

If you’ll save lots of money by ditching your car, it’s a no-brainer.

The stronger rand may have given motorists some relief this month, but February brings uncertainty politically and financially – international markets will be watching closely to see what happens during the state of the nation address this week, and then Gigaba will have his say on February 21, so motorists need to tread carefully.

“Keep an eye on the petrol price and know what it is.

If you do realise any savings, keep that money and don’t spend it on something else. You have to be disciplined,” says Beard. 

DAWID WRITES:

My payslip shows that I receive a travel allowance, yet I take few business trips – if any. I have the option to remove it and have a “clean pay” situation. What will be the effect on my net salary if I opt for “clean pay”? Will my tax increase?

ROB COOPER, TAX EXPERT AND DIRECTOR OF LEGISLATION AT SAGE, REPLIES:

The taxation of travel allowances is a difficult matter that is made more complex because there are two sets of rules.

The first set of rules instructs employers and payroll systems how to tax travel allowances. If the employee’s business travel is estimated to be less than 80% of the total travel (personal plus business travel) for the tax year, 80% of the travel allowance amount is remuneration, which is subject to pay-as-you-earn tax (PAYE), the skills development levy and Unemployment Insurance Fund contributions.

The second set of rules relates to the final calculation of income tax on assessment at the end of the year. The actual business travel value is determined by a logbook declared by the employee in the ITR12 annual return. From this, the SA Revenue Service (Sars) determines the final proportion of business travel (non-taxable) and personal travel (taxable).

The implication of the second set of rules is what is most important for the employee – this is the final amount of tax.

If the employee does not travel at all for business purposes, it is illegal to be paid a travel allowance and it must be stopped.

If the employee is required to travel for business purposes, it is quite in order that the employer compensates the employee for using a privately owned vehicle for business purposes.

However, the value of the travel allowance must be in line with the expected value of the business travel. Very little business travel must result in a low value travel allowance.

Remember that, if a travel allowance is paid, the employee must record business travel every day in a logbook, and submit that to Sars in the ITR12 form at the end of the year. If a logbook is not submitted, the full amount of the travel allowance that was not taxed during the year in the payroll will be taxed on assessment. While this is not a certainty, it could raise questions at Sars about why the employer is paying travel allowances that are not substantiated by a logbook of business travel.

If the travel allowance (of which 80% or 20% is taxed in the payroll during the year) is replaced by a salary (100% taxed), your net pay during the year will be reduced by the additional PAYE.

However, if there is no logbook or record of business travel, whatever was not taxed in the payroll will be taxed on assessment. Your final net position after income tax will therefore be the same.

Cooper advises that, if you don’t travel for business purposes, you should do away with your travel allowance. You will sleep easier at night, and so will your employer.

Kego writes:

After he lost his job recently, I had to sell a house that I had bought with my partner (not married). From the profit, I am left with R100 000 that I need to invest for the next year so that I can have enough for a deposit on a new house. Where should I invest this amount?

City Press replies:

If you are planning to use the money in a year’s time, you cannot afford to take any risk on it. Find out what the highest interest-bearing investment account is with your bank. This could be a 12-month fixed deposit, for example.

When buying your house, make sure you compile a proper budget and include all the buying costs such as bond registration, attorney fees and so on. You will also have to put down a deposit for municipal services.

Be realistic about how much you can afford on your mortgage each month and, if possible, pay an extra 10% into the bond each month to provide a buffer should interest rates rise – this will also ensure that you pay your house off sooner.

Teboho writes:

I recently took out a revolving loan for the amount of R130 000, however, it does not feel like the monthly repayment is making any difference at all because my monthly repayment is R3 466, but the interest on the overdraft is R1 975.84 and there is an additional R239.25 for credit life insurance. What can I do? I want to pay it off as soon as possible as I feel this is a robbing game.

City Press writes:

Revolving loans are dangerous because the repayment amount is just above the interest owed and, as soon as you have made a payment, the credit is available to you again so you don’t actually pay it off unless you are extremely disciplined.

You could increase the amount you are paying so that it services a greater portion of the capital and therefore reduces the loan sooner.

Alternatively, you could change it to a term loan so that you have a set date by which the loan must be paid off. This way, you know exactly how much you are paying and for how long. Try to pay as much as possible into the loan.

UNDERSTAND YOUR HOME LOAN COSTS

Janet wrote to City Press because she could not understand why her monthly bond instalment was R6 778 a month when, by her calculation, it should only be R5 885.

When City Press looked at her mortgage statement, it was clear that an amount of R893 a month was being deducted as life cover for the mortgage. This explained the higher instalment.

A bank can insist that you as a client take out life cover that will pay out if something happens to you, but they cannot force you to take their product. You can shop around for competitive quotes.

Also make sure that you go through your statements on any loan you have so that you understand what is being deducted and what you are paying for.

Francois writes:

My eight-year-old child is going to start taking part in photo shoots and will therefore earn an income. I would like to protect his income until he is 18, and, if possible, earn some interest on his hard-earned cash as well. Is there an account from which a child can withdraw money on or after his/her 18th birthday or when they are legally emancipated?

City Press replies:

You could open a tax-free savings account in his name, but, as you’ll be the signatory, only you could transact on the account. This would ensure that any growth on the investment is not taxable once he starts earning sufficient money to pay tax.

Keep in mind that once he turns 18, this becomes his account and he can do what he wants with it.

If you want more discipline, an endowment policy locks you in for a period of time, for example, five years, but it is not tax efficient for someone who doesn’t pay tax and usually has higher costs.

You could open a retirement annuity for him, but then the money is earmarked purely for his retirement – it’s a great compounding return over such a long time, but the money will not be available until he turns 55.

Darin writes

I want to pay off my home loan over the next three years. I owe R224 000 and currently pay R3 050 a month. How much would I need to pay a month to achieve my goal, and is paying off the bond completely a good idea?

City Press replies:

Assuming an interest rate of 11% a year, you would need to increase your repayments to about R7 400 a month.

While paying off your bond faster is a good idea, make sure you are also putting money into your retirement fund and other long-term investments.

Over time, these benefit from compound growth, so the longer you are invested, the greater the return.

Once your bond is paid off, be careful not to fall into the trap of using that “extra” money to boost your lifestyle. Ensure you channel it towards creating wealth.

Read more on:

malusi gigaba
petrol price

Next on City Press

Read News24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Add your comment
Comment 0 characters remaining

December 9 2018