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Your typical working day goes something like this.
You get out of bed sometime between 4a.m. and
5.30a.m., you are out of the house definitely before
6.30a.m. (or else you are going to have a bad day)
and you arrive at the office by 8:00a.m. (give or
take 1 hour). Assuming you are a dedicated employee, you work diligently all day and attend
meetings where you listen to the same points that
were discussed last week.
Somewhere during the 9 working hours, you
squeeze out an hour or a little more to have lunch
and take care of some personal errands. Come 5
p.m., you are faced with the choice of either hitting
traffic head-on in the hope that you will get home
in 2 to 3 hours or you stay back in the office doing nothing productive until the traffic has eased and
you get home a little later than your colleagues
who left at 5 p.m. You do this every workday, 20
times in a month and sometime in the last week,
you get a credit alert on my phone that tells you
that you’ve been paid. It’s what we refer to as your “hard-earned salary”.
Given that this is reminiscent of the life many of us
live, I sometimes ask myself why some people still
throw their hard-earned money away. They must
do it unknowingly because throwing your money
away knowingly is clearly a diagnosable mental
condition. If you have responsibilities that mean that your monthly income is barely enough
anyway, this post is for you. I will be sharing 6
ways you are unknowingly either giving your
money away, leaving it on the table or not
stretching its full potential.
[b]You Don’t Make Use of Non-Taxable Income Deductions[/b]
Some of you may know that since 2004 it has been
mandatory for companies that hire 5 or more staff
(3 or more since the 2014 amendment of the
Pension Act) to deduct a portion of their
employees’ salaries and remit to a Pension Fund
Administrator (PFA). What you may not know is that the 18% statutory (note to hecklers: read the
new Act, it’s no longer 15%) total monthly
contribution is not the maximum contribution you
can make. You are allowed to make additional
voluntary contributions (AVCs) into your
Retirement Savings Account (RSA). The benefit of making AVCs is that the money is deducted from
your gross salary (before taxes) so when you
make AVCs, you are paying less tax on a “lower
gross” thus getting a bigger share of your salary
overall.
The first question you may ask is, “what’s the use of
paying less tax if I can only access the savings
when I retire?”, Well unlike your regular pension
contributions, you are allowed to withdraw your
AVCs from your RSA after 5 years and guess what,
the withdrawals are also tax free! Yes, the entire AVC system allows you to avoid tax so you can
reduce your effective tax rate and earn more of
your salary every month.
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