Tax refund or bonus is not a gift, but rather a wealth creation opportunity

2013-12-11 00:00

THIS month some households will experience a financial boost with either a bonus or a tax rebate.

A bonus by its nature is an “unexpected extra” that you get with your final pay cheque for the year, so don’t use it to increase your expenses.

Many South Africans have become used to having bonuses and tax refunds as an expected additional income instead of an “unexpected extra”, and subsequently include it in their expenses.

This year, however, one cannot afford to blow the windfall on a shopping spree as the economic conditions make it imperative to pay down debts and boost your savings.

Most of us will receive our salaries early this month and in addition 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.

Don’t view your tax refund or bonus as a gift, but rather as a wealth creation opportunity.

If for example you invest a tax refund or bonus of R5 000 on an annual basis, earning 12% on it annually could amount to R360 000 in 20 years.

If you contribute to a retirement annuity it is important to remember that your tax rebate may well be a result of the tax benefit of your retirement contribution.

If you spend this rebate you are effectively losing the opportunity to boost your retirement savings with before-tax money.

It is very important that you save the rebate and further boost your retirement savings.

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