"Oh look, yet another Christmas TV special! How touching to have the meaning of Christmas brought to us by cola, fast food and beer... Who'd have ever guessed that product consumption, popular entertainment and spirituality would mix so harmoniously?" — Bill Watterson, Calvin & Hobbes
Everybody loves a windfall. It doesn’t have to be a fortune; even finding a forgotten R20 in a coat pocket is enough to put a smile on your face. With the end of the year rushing closer many of us are looking forward to a rather large boon - that much-anticipated thirteenth cheque.
This money is often spent long before it arrives in our bank accounts. The safe bet is that it will be used to buy the little luxuries that a monthly salary could not usually accommodate. But if we reframe our views toward this annual windfall we could turn it into a small fortune rather than a fading memory.
Guaranteed tax-free return
Let’s assume you get an R8000 bonus cheque this year. Instead of blowing it you decide to put the money towards paying off your house. If your bond is sitting at R700 000, and you deposit the money into it, you could eliminate a whopping R60 700 from the total interest charges over the life of the bond.
Investing to beat inflation
If you don’t have a bond you could think about investing the money. If you bought some Unit Trusts and earned an eight percent return over three years you will have grown your bonus by R2161. If you invested your bonus every year for five years you would amass R59 500 (capital and growth).
Paying to sleep better
If, like the average South African, you carry a lot of credit card debt then paying off your credit card/s will be a worthwhile investment. Unsecured debt is very expensive — it could be costing you 10 percent more than your home loan. If you can free up R1000 per month after paying off these loans you could make significant contributions to your retirement savings.
Investing for your future
If you don’t have a retirement plan then your R8000 would be a great kick-start.
If you get an annual increase with your bonus then use the increase to add to this investment every month. You may think that saving say R500 per month may not be worth it, but if you invest for six years at a return of eight percent you will have
R36 500 after five years and R294 000 after 20 years. If you increase your payments annually by at least the rate of inflation this figure will run well into the millions.
Steven Braudo from Group and Retail SA strategy at Liberty Life says another way to use your bonus is to make sure that you are covered for any insurance renewals that typically happen at the beginning of January. Sometimes the premiums can be hefty and if you have not made provision for them in your already stressed budget you run the risk of returned debit orders. If you do not pick this up your policies could lapse.
Article continues on page two: more advice ranging from looking after your wheels to forcing your company to pay a 13th cheque regardless of company profits...