koffiejunkie
Executive Member
Something that hasn't been explicitly mentioned: Retirement plans exist, and should only be used for two reasons:
1. Tax benefit
2. Employer contribution match.
Other than that, they tend to be a great way to lose money slowly. Retirement funds traditionally have high fees and piss poor performance, and it's not inconceivable that you might end up with less money in the end than you paid in over the years.
That's changing with companies like 10X. Instead of charging you an arm and a leg for active funds that underperform, they have a low cost structure and offer funds that track the same indexes as some of the funds you'll find in the TFSA. Some of the more established players are responding on the cost front, not sure how it compares now.
Either way, be very very picky about costs. If you don't understand the cost structure, and can't figure it out in a reasonable amount of time, move on.
Secondly, Tax Free Savings Accounts have been mentioned, but no one really explained why. They're really meant to be investment accounts, although some banks are offering cash savings in the same vehicle. You don't pay income tax on interest earned in the account, not capital gains tax if you sell ETF units, and no tax on dividends earned [1]. The only thing you do pay is the fund fee (differs from fund to fund) and the provider's commission for the transactions. From what I've seen Easy Equities is far the best option at the moment.
TFSA is (currently) limited to R33k per year up to a total of R500k (takes about 15 years). This should be the first priority every year.
Lastly, make make sure you have an emergency fund first, i.e. cash that's available on short notice, and that can see you through 3-6 months if you lost your job. Have a month's worth in an instant access account, stagger the rest in 30-day, 60-day, etc high-interest rate accounts.
1. Tax benefit
2. Employer contribution match.
Other than that, they tend to be a great way to lose money slowly. Retirement funds traditionally have high fees and piss poor performance, and it's not inconceivable that you might end up with less money in the end than you paid in over the years.
That's changing with companies like 10X. Instead of charging you an arm and a leg for active funds that underperform, they have a low cost structure and offer funds that track the same indexes as some of the funds you'll find in the TFSA. Some of the more established players are responding on the cost front, not sure how it compares now.
Either way, be very very picky about costs. If you don't understand the cost structure, and can't figure it out in a reasonable amount of time, move on.
Secondly, Tax Free Savings Accounts have been mentioned, but no one really explained why. They're really meant to be investment accounts, although some banks are offering cash savings in the same vehicle. You don't pay income tax on interest earned in the account, not capital gains tax if you sell ETF units, and no tax on dividends earned [1]. The only thing you do pay is the fund fee (differs from fund to fund) and the provider's commission for the transactions. From what I've seen Easy Equities is far the best option at the moment.
TFSA is (currently) limited to R33k per year up to a total of R500k (takes about 15 years). This should be the first priority every year.
Lastly, make make sure you have an emergency fund first, i.e. cash that's available on short notice, and that can see you through 3-6 months if you lost your job. Have a month's worth in an instant access account, stagger the rest in 30-day, 60-day, etc high-interest rate accounts.
