How to make your bonus work for you

2010-12-04 11:00

Most of us will receive our salaries early this month and many will also receive a 13th cheque. A lump sum in our bank ­account early in the month however, often spells financial disaster because without a budget we tend to blow the cash and find ­ourselves out of pocket in January.

Many South Africans who are ­self-employed or work on commission will see their income drop in January as their ­billings fall in December. So it is important that we all put a strategy in place and use our bonus or 13th cheque wisely.

» Draw up a budget and plan how you will spend your money over the festive season. Make sure you have put money aside to cover the bills for January.

Those will include the normal monthly debit orders, car repayments and rent or bond repayments.

But remember there are also additional costs like school fees and school uniforms for many families.

» Use your bonus to pay off debt first. It doesn’t make sense to invest while still in debt as interest on debt is usually higher than the return on investments.

For example a credit card or personal loan can have an interest rate as high as 25% – there is no investment that can guarantee you that kind of return.

» If you don’t have enough money to settle all your short-term debt (store cards, credit card, personal loan) choose the one that has the highest interest with a balance that you can settle in full.

Getting rid of just one loan is a great psychological boost and it will also free up extra cash each month which you can use to pay off your other debts quicker.

However, the key to success is to close the loan account once it is paid so you are not tempted to use it again. This is the only way to get out and stay out of debt

» If you have settled your debt allocate some of your bonus to boosting your savings. You can invest 15% of your bonus into a retirement annuity tax-free or save a portion as an emergency fund for 2011

» Write up a budget for 2011 which includes all your big expenses, like school fees and a new appliance for example, and start saving towards those rather than going into debt.

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