With the heavy impact of Covid-19, increasing fuel and electricity prices, higher repo rates as well as ever-rising costs of living, many South African consumers are looking forward to some respite with the promise of end-of-year bonuses and 13th cheques. While it’s tempting to spend the cash injection on a holiday, a luxury item you’ve always wanted or expensive gifts for you and your family, it’s wise to take a step back and think about how you can make every cent work smartly.
“Instead of blowing your bonus on instant gratification, luxuries and other ‘wants’, rather focus on a plan that will see you buying what you really need, saving, investing or paying off bad debts. The small sacrifices you make, and the restraint you exercise now, will serve you well in the long run and set you up for a money-savvy, successful 2022,” says Susan Steward from Budget Insurance.
Steward offers the following advice for spending your bonus smartly:
Don’t spend in advance: Don’t spend your anticipated bonus or rack up credit card debt before you’re paid the bonus. Keep in mind that your bonus might be taxed, so don’t count on having every cent of your bonus to spend.
Straight to the “hands off” box: As soon as you get your bonus, move it from your current or cheque account to a different account so that it’s out of sight and so that you’re not tempted to spend it all at once, or treat yourself to things that you haven’t thought out carefully. Be sure to leave your money where it earns the most interest.
Squash that debt: If you have any outstanding debt with high interest rates such as credit cards and personal loans, pay them off. Use the newly available cash flow to pay off other debt if you have more. Consider putting some of your bonus into your bond – you could pay it off quicker and save a lot of interest in the process.
Focus on the needs: That fix that your car desperately needs, the new laptop that’ll help you get more work done in less time, those energy-saving devices that could save you a fortune in the long run are all needs that should go ahead of the wants.
SOS fund: Everyone says that you should ideally have an emergency fund of three to six month’s salary set aside in case there’s an emergency, or a job loss or illness. Use your bonus to set money aside or invest it in an easy-to-access fund that offers high interest.
Spend a little, get a lot of value: Use your bonus on house maintenance or improvement, not only making it safer and better to live in, but also increasing its value.
Build that deposit: If you plan on buying a property or vehicle, you could put your bonus in an interest-bearing account towards a deposit. Sellers and lenders are more confident about an offer when the prospective buyer has a deposit, which increases their chance of getting a bond or loan. The larger the deposit, the more the buyer will save over the bond term.
Pay it upfront: Consider using your bonus towards paying school fees and other expenses upfront for the following year. You might even get a discount.
Invest: Investing in proven opportunities that can sustainably make you more money, using your bonus to turn that hobby into an income stream, and/or chatting with a financial advisor about how to make your money grow - and plan sufficiently for retirement – are all good options to consider.
Goal achieved? Treat yourself! If you’re financially healthy and you’ve hit a savings goal, then buy yourself or your family something great. Rewarding yourself will motivate you to stick to your next goal.
“We’re not suggesting that you don’t spend any of your hard-earned bonus on yourself and your family, but we do caution against spending it in ways that you’ll regret in the new year. Now’s a good opportunity to put yourself in a better financial position for 2022 – you just have to pause for a moment and make the best choices you can,” concludes Steward.
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