Protect your bonus

2011-12-09 09:27

Experts warn South Africans fortunate enough to receive bonuses this month to adopt a sensible approach.

Protect your financial status by servicing your debt instead of going on a festive spree, is their strong warning.

Caution is advised as the economic outlook for next year is dimming fast. If the eurozone crisis is not arrested, the fallout will engulf the rest of the world and developing countries like SA are likely to be hard hit.

If the global economy dips into another recession, jobs will be lost, working hours cut and salary increases reduced drastically as companies’ profit margins get thinner and thinner.

It also means those that are unemployed may find it very hard to find employment soon.

There are those, however, who may take the more carefree route after another tough year.

Kim Royds, the managing executive for Absa Retail Bank, has cautioned consumers against this approach. She urged consumers to set aside a portion of their bonus towards servicing their debt.

“The biggest gift that anyone can give themselves is to invest a large portion of their annual bonus or any spare cash... towards easing their debt,” she said.

A large number of South African households are still in debt with the debt-to-income ratio still hovering at around 77%.

At a recent consumer forum held at the Gallagher Convention Centre in Midrand, Joburg, Minister in the Presidency Trevor Manuel lamented that South Africa is a nation of highly-indebted families.

There are 18.84 million credit-active people in South Africa, about 8.8 million of whom are described as having impaired credit.

“This is all as a result of spending money we have not earned yet and spent it on goods that we don’t need.

South Africa has a low savings rate and so people borrow money at emergency rates,” Manuel said.

Tshiwela Mhlantla, managing executive of Absa Personal Loans, urged consumers to start with servicing the most expensive debt. “They should always seek advice from their banks or registered financial institution,” Mhlantla said.

Peter Dempsey, the deputy chief executive of the Association for Savings and Investment South Africa, said short-term debt is expensive and should be avoided because interest rates charged on this debt are high.

“Long-term debt such as a mortgage bond is funding what is hopefully an appreciating asset, like your home,” Dempsey said.

“Once you have cleared your short-term debt, you should focus on repaying your long-term debt as quickly as possible.

If you do, you will save yourself a lot of money over the long term.”

Johan Borcherds, regional director at PSG Konsult, urged bonus earners not to spend all the money they receive.

“They must put some money away for some unforeseen expenses during the course of the next year,” Borcherds said.

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