Don’t blow your bonus

2011-12-10 14:26

1 Settle your debts
Paying interest to the bank is a complete waste of money. So if you have the chance to settle even just one of your debts, what are you waiting for?

I had a conversation with a woman who was complaining that her husband was wasting R200 a month playing the lottery.

“He may as well flush the money down the toilet,” she complained.

But what she did not think about was the interest she was paying on her R15 000 overdraft. That overdraft was costing her more than R200 a month in interest and she also had no chance of winning the Lotto.

Many people feel overwhelmed by their debts and do not know where to start.

Lezanne Human, chief executive of FNB Investment Product House, says you need to list your debts according to the interest rates charged. And then make sure you pay off debts with the highest interest rate first, which is usually your credit cards or personal loans.

“There is no point only saving your money if you could pay off a debt with a higher interest rate.”

Higher interest-bearing loans also tend to be smaller debts, so it is easier to make a dent in them with your bonus.

This has a positive psychological effect as you are immediately able to see the results. Use what you were paying to that debt each month to increase your repayments on your other debt.

2 Save R45K on your home loan
If you are one of the lucky people who do not have short-term debt, then consider using your windfall to reduce your bond.

Craig Deats, executive director of sales and distribution at bond originator ooba, gives an example of a homeowner paying off a R500 000 bond with an interest rate of 9% over 20 years.

He advises that if this person pays a R8 500 bonus into the mortgage, this could reduce the loan term by up to 10 months. This is equivalent to a saving of about R45 000 in instalments.

If you are a potential homeowner, Deats recommends that you use your windfall to save towards a mortgage deposit.

“Banks look favourably at buyers with a deposit and will be more open to negotiate a competitive interest rate on a home loan, as a result of the reduced risk to the bank.

“Besides improving your chances of getting your home loan approved, a bigger deposit could result in a more favourable bond rate that will save you in interest over the term of the loan.”

3 A stress-free 2012
Use your windfall to stay out of debt next year. Write down a budget for the year and identify all the major expenses you will incur.

» Use your extra cash to buy school uniforms or to pay the first term’s school fees;

» Does your car need a major service or is your fridge on its last legs; and

» Consider putting a portion of your windfall into a savings account to cover medical expenses. Even if you have a medical aid, the savings are usually depleted by the middle of the year.

4 Double your windfall
Any money you spend now is gone forever, but if you save it, the money grows and works for you.

Henry van Deventer of Acsis, a financial services company, explains that if you receive a yearly tax refund of R5 000 and save it each year in an equity unit trust growing at 12% a year, after 20 years your savings will be worth R360 000 even though you had only contributed R100 000 over the period.

Says Van Deventer: “This could mean retiring a few years earlier or treating yourself to a trip abroad, instead of wasting it on something small and insignificant.”

5 Make a difference
This has been a really tough year for charities and organisations that help people in need. Show gratitude for what you have and give a portion of your windfall to someone who really needs it.

You can support a charity or identify someone who could do with a helping hand.

A really great idea is to open an account with Fundisa and help pay for a child’s tertiary education. If the child you have sponsored doesn’t go on to study, you can transfer the fund to any other child – so it is never wasted.

The education department tops up your savings by 25% each year to a maximum of R600 which further boosts the savings for a child’s education. You can open an account at any Standard Bank or Nedbank branch or visit www.asisa.org.za/fundisa/ 

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