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It's My Money with Roné van der Merwe · Strictly Business Podcast

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  You're listening to Strictly Business Podcast with Lindsay Williams.
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  This edition of It's My Money is brought to you by Brenthurst Wealth, your partner
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  for global wealth creation.
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  Welcome to It's My Money.
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  It's My Money is brought to you by Brenthurst Wealth, Salafka's multi-award
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  winning boutique wealth manager.
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  With me today to speak about something which we've spoken about many times on
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  It's My Money, with me is Rene Fandemeva.
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  And Rene, I saw an article that you kindly sent me and it's all about...
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  TFSA.
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  Now that's an acronym for tax-free savings account.
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  And it's been with us for a long, long time now.
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  But suddenly a couple of things have happened.
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  Number one that's happened is that we've got our first TFSA millionaire, I think.
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  That was announced, I think, sometime late last year.
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  But also there's been a material change in the amount that you can invest.
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  So that's an important chat we're going to have.
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  Yes, definitely.
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  The limit change can feel like very small to some people, but it's quite
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  significant.
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  The small changes can have a very big impact on your long-term growth.
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  It went up 10,000, but a think client needs to remember it's 10,000 a year,
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  but the lifelong limit is still the same.
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  So just remember that when you're doing your monthly contributions.
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  But small changes makes a very big impact.
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  Yes, and of course, small changes then as the economy continues or hopefully grows
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  and
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  certain relaxations are made in future budgets, then it will continue to
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  increase, I would have thought, because it's been terribly successful.
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  You make the point in your article, Renee, that timing is terribly important.
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  Why is that?
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  Timing is important in the market because it's crucial for long-term growth,
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  no matter how small you start.
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  with your tax-free savings, just start.
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  It's crucial to start from a young age in order to gain that long-term growth and
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  focus on compounding your investment growth.
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  And for example, the previous limit was 36,000.
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  So you would have taken about 14 years to get to that lifelong limits of 500,000.
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  Now it's currently, you're sitting at almost 11 years.
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  So it takes a while to get to that lifelong limit if you use your max annual
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  limit
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  of 46 now.
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  But time in the market is very, very crucial.
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  And I would just say just start.
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  It's not necessary that you have to do a max lump sum every year,
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  but just start and create that discipline and consistency.
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  Yeah, I mean, again, in your article, there's a graphic here.
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  And it gives three different outcomes.
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  It says lump sum at the beginning of the tax year, contributions monthly and lump
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  sum at the end of the tax year.
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  And it goes down from number one to number three.
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  But as you say, you must just do what you can afford, of course.
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  Monthly contributions, as I said, are probably better for most people because
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  not a lot of people can just shell
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  out that lump sum right at the beginning.
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  So tell us about the monthly contributions first of all.
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  Okay, so I'm just going to start with the lump sum.
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  The lump sum is like your best option if you invest like the beginning of the tax
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  year.
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  That's by far the best option,
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  but monthly contributions is the most realistic form for any individual.
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  And I have to clarify that there's no need for you to max out your annual limit every
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  month.
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  You can add what you can afford.
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  We have the saying in Afrikaans, muni osaaf ni futskeetni.
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  Like.
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  add what you can afford and don't live above it.
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  So monthly contributions is the most realistic.
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  Just create that discipline, consistency, and even start with 500.
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  Just create that routine of you need to save for your long-term growth.
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  One thing that you do make a very clear point about is that, okay,
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  the TFSA is a very good product and it was very welcome when it was introduced by
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  Treasury,
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  but it's not just an isolated.
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  an isolated advantage it's got to be part of a broader plan how do you fit when you
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  sit down with a client for example
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  renee how do you fit in the tfsa with a broader financial plan it's definitely a
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  part
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  of your overall investment
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  portfolios and everything it's it's not just one fix so i would say the first
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  thing someone needs to do is
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  start a tax free it's like the the best thing and some people find it like
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  underrated it's the best form to start it it creates tax-free withdrawals growth
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  interest
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  everything there's no cgt attached to it and it i feel like it forms a great part
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  of your retirement annuity your
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  retirement annuity provides you with a tax relief upfront where your tax-free savings
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  provide you with
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  a tax-free income in your later life when you need it.
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  A tax-free and a retirement annuity works very well together.
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  They are completely separate but they work well together with the tax relief upfront
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  and the tax-free savings giving you
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  a tax-free withdrawal or income when you need it later in life.
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  What is the simplest way to start?
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  I mean let's say that somebody has had his or her head in the sand for a long time
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  now and wants to start with the tax-free
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  savings account.
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  What's the best way to approach it?
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  Step one, for example.
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  Step one is I will feel like, what can you afford every month?
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  Can you do a lump sum here and there?
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  Can you do like the minimum contribution of, let's say, 500 grand?
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  Go to your nearest well-respected investment platforms like 91 or Ellen
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  Gray.
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  Or if you want to advise it, come to Brent as well.
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  And we'll take you through the steps.
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  We'll explain everything in detail for you.
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  I have to say we pride on being.
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  Good relationship with your clients and trusting them and letting them trust you.
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  And I will say for tax free, just start.
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  That's the easiest thing is creating your budget and getting the minimum you can
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  save every
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  month and just go with it.
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  The other thing that always comes across whenever I read an article about TFSA,
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  it always uses children as an example.
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  And I think there's two things here.
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  It's because it's a nice handy sum, first of all, and obviously the tax-free
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  element.
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  But also it sort of engenders a discipline within the child that you're gifting this
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  money to,
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  to start saving.
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  You can say, now look here, young man or young woman,
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  look what this account has been doing for you over five years.
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  And it's quite an impressive way to make children understand how important saving
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  is.
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  Creating a tax free for a child is definitely the best way in creating
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  discipline,
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  consistency in them and explaining to them what is investment, how it started,
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  how you can grow your money.
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  And in our industry, we see a lot of clients starting investments for their
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  young children with tax free.
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  It's the best way to save money for them.
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  And in the future, the parents will be extremely happy that they did that because
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  I will say for education,
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  it will.
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  before their first car, it takes a lot of pressure off their parents.
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  And like you say, it creates discipline.
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  And they need to get used to this industry and saving for later life or emergencies
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  and
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  all of that stuff.
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  And of course, there's no excuse not to do it if you do have the means and you do
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  have the knowledge,
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  you have to do it because of that very positive development of the increase that
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  you spoke about.
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  And as you said, Renee, it doesn't sound like much.
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  But with compounding, with the power of compounding, it's suddenly, in a few
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  years' time, suddenly you've got a millionaire on your hands.
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  Oh, definitely.
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  It's the small changes usually turns out into the bigger things.
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  Renee, thank you very much for explaining all that.
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  Renee van der Merwe is from Brenthurst Wealth in Tiger Valley.
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  And that was It's My Money.
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  It's My Money was brought to you by Brenthurst Wealth, an award-winning
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  boutique wealth management company.