How to Money
How to Money

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Almost every sentence below will state “usually” or “it depends” as every person’s tax situation depends on many factors. If you have a lot, make a lot, or owe a lot, I highly recommend getting an accountant and tax specialist to help you out.

When do I have to pay taxes?

Most countries will consider adults above the age of 18 a tax resident (or tax citizen) if they are a citizen of and live in that country. Born in Mexico and live there? You’re probably a Mexican tax resident. Born in one place and moved somewhere else? There are rules to determine if and when you stopped being a tax resident in one place and became a tax resident in another. It usually has little or nothing to do with your citizenship or the passport(s) you hold.
Tax rules will depend on your tax residency (or tax citizenship). Generally, tax authorities (like 🇬🇧 HMRC, 🇺🇸 IRS, 🇿🇦 SARS, 🇲🇽 SAT) have the right to claim some money from you whenever you make money. You usually “make money” when you buy something (a house; stocks; anything) and sell it for more; when you earn an income from your salary or wages; earn interest from your deposits or dividends from your investments.
Generally, tax evasion (not telling the tax authorities when you make money) is against the law, but tax avoidance (legally lowering the amount that you have to pay) is not.
👆 Takeaway: Pay your taxes. Not just because it’s the right thing to do, but because you don’t want to do anything illegal. Tax authorities have ways to audit you and if you’re hiding income, you could get into deep legal trouble. We will rather look at ways to legally reduce your taxes.

Income taxes & brackets

If you’re working, the most (and most common) tax you’ll pay is income tax.
Most countries have a progressive tax rate: the first “bucket” of annual income is taxed at a low or zero amount, and the next “bucket” at a higher amount, up and up until the highest tax bracket. It’s important to understand that even if you pay some income tax at the highest tax bracket, doesn’t mean that you pay all your income at that tax bracket.
Recommended viewing: (YouTube, 3 mins)
👆 Takeaway: Make as much money as you can, even if it puts you in a higher tax bracket, it almost always means you’ll take home more money.
In most countries, if you’re a salaried employee, your employer will automatically take the estimated taxes you owe to the tax authorities (based on your salary) before paying you the rest of what’s yours.
You might have additional sources of income, however. Generally, whenever you earn an income you need to declare that income to your tax authority. If you buy cars (or crypto or stocks) and then sell them again for a profit (or a loss) in a few weeks or months, those amounts need to be declared.
It’s clear that trading gains will increase your taxable income, but trading losses will decrease it (so declare it!).
Generally, when assets go up in value but you haven’t sold them you won’t need to pay taxes (some exceptions are property taxes in some countries, based on the current value, not the buying price, of your home). So, if you buy index funds (or houses) and those things increase (or decrease) in value, you won’t need to pay any taxes.

Short-term vs. long-term income

Generally, income from salaries and wages is considered “short-term” income (and taxed at those, higher, tax rates). When you buy assets (like index funds or houses or cars) and keep them for a longer time and sell them for a profit, they are considered and taxed as “capital gains tax” (or “long term tax”), usually at a lower rate than short-term income.
If you are generally actively buying and selling stocks, index funds, houses, or cars, and sell them for a profit, they will be considered and taxed at the same tax rates as your normal income.
👆 Takeaway: This is why I say when you invest, your timeline should be “forever” so that you only sell small amounts, in the lowest tax brackets, at favourable long-term tax rates, mainly when you are older and not earning a salary anymore.

Retirement accounts

Generally, governments will find ways to incentivise people to save for retirement, by giving them some of their taxes back. Generally, it makes sense to take advantage of all these incentives. For instance, if you put $1 into a specific type of retirement account (instead of your bank account), the government could give you back 45 cents on each dollar that you put away. Of course, this depends on how much you’re making, where you are a tax resident, and a whole lot more.
The main difference between an investment account (as discussed in ) and a retirement account is that you can only withdraw from a retirement account at retirement age (an age that is set by the government). But, a retirement account gives you tax money back right now, while you’re still earning a salary, wages, or other income.
As with investment accounts (and the investments you can make with that account), retirement accounts differ. Generally speaking, the best retirement account is the one that charges the lowest fees/expense ratios. Compound interest applies to fees, and the compound effect of fees after 20, 30, and 40 years is big.
There is usually a cap on how much money you can invest with a tax advantage into a retirement account (a percentage of your annual income or a fixed amount per year or a combination of both). You can invest more than that, but you won’t get a tax benefit, so it’s not always the best thing to do.
Retirement accounts are generally regulated; meaning the government allows you (or the retirement fund manager) to buy certain types of assets. In some countries and on some platforms you can pick the assets yourself, sometimes not. Generally, the older you are, the less risky your retirement account’s investments will become (less in stocks and more in cash). Below, are some suggested accounts.
Retirement accounts around the world
Account type
South Africa
Retirement annuity (RA)
Vanguard Betterment Wealthfront
There are no rows in this table
👆 Takeaway: Do research on your country and open a retirement account where you are a tax resident and have a tax obligation. Invest as much as you can into your retirement account while still getting a tax benefit before investing into other investment accounts.

Other tax-benefit accounts

In many countries, there are other account types that you can invest in, where you still get a tax benefit (up to a certain amount), but you can usually access the money at an earlier stage than retirement.

South Africa 🇿🇦

In South Africa, the first R23,800 (R34,500 if you’re older than 65) that you earn in interest from a South African source, is exempt from income tax. This means you can keep around R350,000 in a 7% money market account, and not pay any tax on the interest. Excellent place for your three-month emergency savings account.
South Africa also has tax-free savings accounts (TFSA) where you can invest R36,000 per year (up to a total of R500,000 over your lifetime) and the growth of your investments will never be taxed. Despite the name, this money doesn’t have to be in a traditional savings account, but can (and should) be aggressively invested.
I invest the full amount in low-cost index funds each year since these offer protection against the rand losing value against the dollar (and other currencies) and will likely have far higher returns over my lifetime than regular savings. Zero tax on high-growth international stocks has more of an advantage than zero tax on mediocre savings growth on South African cash. I only plan on selling these when I am really old (and they have grown a lot). You might have enough exposure to the South African economy in other parts of your life (local income, local savings, your RA, real estate etc.) also not to bother with any South African products in your TFSA.
Remember: it’s not “invested” in anything once you’ve transferred money into your TFSA. Once the money is in the TFSA account, you have to log in and decide how to invest it.
I personally use and recommend a TFSA with Easy Equities (I put my entire annual TFSA allowance into the lowest-fee Vanguard S&P500 index fund — the Sygnia Itrix S&P 500 ETF). Don’t withdraw from this until you absolutely need to.
For many people, a healthy RA, plus a healthy amount of savings in a money-market account, plus the full use of your annual TFSA might be good enough. My financial goals are a little more ambitious, so I also have “normal” investment accounts where I invest; things that will get taxed once I finally need to sell them.

The United Kingdom

The UK has Individual Savings Accounts (ISA), Lifetime ISA (LISA), and Junior ISA (JISA), all of which have great tax benefits. I recommend Vanguard (except for LISA I recommend Nutmeg).
If you’re a UK resident, I highly recommend reading up on all those account types, as you can invest a really large amount of money each year; the growth of which will not be taxed. Some of those accounts you have to open by a certain age.

United States 🇺🇸

Read up on IRA, Roth IRA, SEP IRA, SIMPLE IRA, 401(k), 403(b), 457 plans, FSA, HSA, 529 plans, municipal bonds ("munis") and more.

Other ways to reduce your tax

Declare your (short-term and long-term) trading and capital gains and losses; they generally are carried over and losses may reduce the taxes due in a future tax year
It might sometimes make sense to sell your assets over different tax years, especially if you have had them for a long time and you aren’t earning an income
Medical expenses are often tax deductible (declaring them, means you’ll get “taxes back”)
Donations to registered charities are usually tax deductible up to a point and is a smarter way to give (since it reduces your taxable income)
Payments to educational institutions (for yourself, sometimes for others) are often tax deductible
Interest payments on a property —your own house or an investment property— are tax deductible
Use a robo-tax advisor (like 🇺🇸 TurboTax or 🇿🇦 TaxTim) or hire an accountant or tax specialist. I find that they generally help me reduce my tax by a lot more (i.e. get back more money) than what they charge.

Death and taxes

When someone dies, all their assets usually form part of their estate (unless they are married, where it usually rolls over to the surviving partner). If they had liabilities (say, they still owed money to the bank or other people), those creditors will be able to claim money from the estate. After that (and some other things), the estate will get taxed, and the beneficiaries of the estate (usually surviving family or as defined in the person’s last will & testament) will receive the rest.

🇿🇦 SITUS taxes

Specifically for South African investors: you need to understand this. When you die, it depends on the location (domicile) of your asset, and how they will be taxed. For most South Africans, all their assets are domiciled in South Africa, so there is no special consideration. However, if you have assets that are domiciled in the UK or in the US, pay attention.
Fixed assets (like cars and houses) in those two locations are easiest to understand. They’re physically in that country and will be taxed separately. If you have individual stocks (like shares in Apple or BP) or index funds that are domiciled in the US or the UK, those financial assets will be seen as in the US or UK tax authorities’ jurisdiction.
If you have (or plan to have) more than $60,000 in US-domiciled assets or more than £325,000 invested in UK-domiciled assets, . Note that international investments made through your TFSA will be domiciled in South Africa, so you don’t need to worry about those, only investments made directly in US or UK-domiciled assets.
Also, see for more on SITUS.
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