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How to beat ‘black tax’

You might be a young person who has recently graduated from university or college, your future is bright and you have landed your first job.

The fruits of your labour are not being fully enjoyed thanks to ‘black tax’. ‘Black tax’ is a colloquial term used to describe young black people who share their salary with immediate and extended family while trying to manage their own expenses.

With July being National Savings Month the Chief Financial Officer of the Savings Institute Gerald Mwandimbira said often a family may have one person who has graduated from university in a well-paying job. This individual must compete with colleagues who have generational wealth passed on and are not subjected to student loans, debt or black tax.  

“Black tax sees the person’s salary portioned off to support older parents or an extended family, while trying to raise a young family.”

“This puts one’s responsibilities in a “sandwich” and hence this is often called the sandwich generation. The sandwich generation supports the generation above them, as well as the generation below. This makes it difficult for the sandwich generation to save which will in turn pass this tax down to future generations.”

He added that as a consequence of living beyond one’s means and supporting extended family, the sandwich generation has little or no savings.

“This means that the sandwich generation has no safety net in the event of unemployment or emergencies. This group literally lives three to six months away from poverty if income is lost. I often recommend that one measures their wealth in the length of time it would take to deplete savings, living the same current lifestyle. Many people are horrified to find that they are very poor. In fact, using this method, a domestic worker diligently saving is “wealthier” than her boss who lives on debt.”

There are ways in which one can start beating the black tax. The most important of these is to live within your means says Mwandimbira.

Signs that you are living beyond your means:                                                                             

  • You save less than five percent  of your net salary
  • You spend more on your car than your rent
  • You spend more than 30 percent of your salary on a home loan
  • You need an overdraft or credit card to survive
  • You have unmanageable debt

“Once you know you are living above your means, you need to adjust your lifestyle with a budget plan that makes you financially secure. You may need help from a professional.”

He said people who  live beyond their means might also need to manage their family’s  expectations by allocating what they can spare and also learning to say “no”.

“You may need to be selfish while you repair your finances.  You will also need to start saving first for a safety net, then to invest and create wealth for future generations.”

He added that it is important to save even while paying off debts.

“You will also need to start shopping smarter for the best deal and using financial products and services that offer the best deals. With these first steps, one can start to create wealth which will mean that your next generation will not be trapped in a sandwich.”