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With just a few weeks before the holiday season, focusing on finances for the coming year is probably not the most important thing for most people.
However, there are a number of decisions you can make now that will improve your financial position in 2022, as outlined in these Devon Card interview highlights.
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This is what to consider.
1. Health care members have until the end of the month to change health care plans without penalties. What should be considered in this regard?
When choosing a health care plan option for next year, the first thing to consider is whether you or one of your dependents has had a change in health status, as this will affect the benefits you need to get for next year . Specifically, if any of you have been diagnosed with a chronic condition that requires special medication, you may want to consider switching to a plan option with a more comprehensive chronic condition benefit.
When evaluating, consider the cost of your monthly drug compared to the cost of the additional premium to determine if it is financially worth it. Depending on the nature of your condition or illness, you might consider a higher plan option that provides additional coverage for costs such as radiology, endoscopes, scanners, and pathology.
Please note that it is not possible to update your plan option during the course of the year, so take some time before the end of 2021 to do a careful assessment of the coverage you and your family need.
If your hospital plan indicates that it covers 100% of the medical assistance rate, please note that this does not necessarily mean that all costs will be covered if you are hospitalized. This is because doctors and specialists can charge up to 600% of the health care fee, which means you could end up with excessive out-of-pocket costs. Therefore, it is worth considering upgrading to a hospital plan with higher coverage and / or implementing a gap coverage policy that helps cover the difference between what medical providers charge at the hospital and what their care covers. medical.
Optometry and dentistry are generally quite expensive benefits, so if you and / or your loved ones wear glasses or have specific dental needs, be sure to look for a plan option that has benefit coverage.
2. Would it be worth applying for a loan to pay the 2022 school fees in full through a lump sum at the end of this year, to benefit from the discounts generally offered by schools?
Yes, it may be worth borrowing money to take advantage of the discounts that most schools offer in terms of paying annual school fees up front, as long as the discount is greater than the interest you will end up paying on the loan in terms of rand. , not necessarily in percentage terms.
For the purposes of the example we have used, we have assumed that your child’s school fees are R5,000 per month (or R55,000 per year) for 11 months and that the school has offered an initial 10% discount if you pay in its entirety at the beginning of the year. In addition, we have assumed that you will be borrowing your money from your access bond at an interest rate of 7% per year.
After deducting your R5 500 discount, therefore, you would borrow an amount of R49 500 from your access voucher in January 2022 and start paying at a rate of R5 000 per month from month 1 to month 11, incurring cumulative interest charges of R1 638 over that period. So effectively, the cost of borrowing from your bond on a reducing basis for 11 months would be R1 638. This would be the “price you pay” to enjoy the R5 500 discount, which translates into a saving of R3. 862 in school fees over the year.
It is interesting to note from these calculations that even if the school offers a 5% down payment discount, you would indeed be in a balanced position if you took the discount and borrowed from their 7% access voucher, simply because you would enjoy 5% discount on the total amount while you would be “paying” 7% interest on a reduction amount.
3. How should one go about saving for a short-term goal for the new year, such as a vacation? Would you use a money market account or could you invest your monthly savings until you reached your goal?
If you are saving to reach a goal in the new year, you are considering a maximum horizon of 12 months, which means that the ideal would be to keep your money in an easily accessible account, such as a regular savings account, a fixed deposit or a money market account.
Remember that a money market account is not the same as a money market fund and it is important not to confuse the two.
While a money market fund allows consumers to earn interest in a lower risk environment than the stock market, it is still an investment rather than a bank account, and preservation of capital is not a guarantee.
It is not advisable to expose your funds to the equity markets, as short-term market volatility can affect the value of your investment depending on when you need to make your investment, so you will want to avoid using a portfolio of unit trusts to save for your investment. Short-term goals.
Tax-free savings accounts, which are best suited for an investment horizon of 10 years or more, are also not ideal for short-term savings, as any withdrawals you make in the next year will affect your allowed lifetime contribution.
If you have an access voucher, consider using this service to save for your short-term goals, as it is one of the most cost-effective and convenient ways to save needed short-term cash. Aside from the interest savings, there are no fees or costs involved when it comes to putting extra money in your access voucher, and accessing your money to pay for your lifestyle goal is relatively simple.