Given the current economic state of the country, as a result of COVID-19 and lockdown, the idea of receiving a year-end bonus might seem highly unlikely. However, if you are one of the fortunate few who can expect an extra pay check or holiday bonus, then it’s a good idea to consider how it will be spent or saved.
Summer time is drawing and the countdown to year-end has begun which makes it tempting to head to the mall to spend your extra cash on gifts, accessories, clothing or appliances and so on. Given these uncertain times, it’s wise to adopt some discipline techniques and financial planning so that you can enjoy the festive season within the boundaries of your budget and enter 2021 with less debt.
We share some tips to get you started:
- Plan where you Can
Given how unpredictable this year was, it shows the importance of being smart with your finances should we get hit with another curveball. Divide your bonus into 3 categories: debt, savings and spending money. Decide how much you want to allocate to each category and stick with it. Don’t give in to temptation and when the urge to splurge arises, ask yourself if you really ‘need’ it?
- Pay off Debt
The greatest gift you can give yourself is financial freedom so don’t fall prey to your debts. Start by putting money towards the short term, high-interest rate debt first such as student loans and credit cards. Be careful of relying on your annual bonus to settle debt as bonuses are not always guaranteed.
- Invest in your Future
The general consensus is that only 6% of South Africans will be able to afford to maintain their standard of living in retirement. This is all the more reason to consider adding some of your bonus towards topping up your retirement savings. You may also want to think about opening a tax-free investment where you can contribute up to R33 000 a year to the account. Another option is to create an emergency fund where you make regular contributions to a fairly liquid, interest-earning account.
- Reward Yourself
You only live once so when you are done paying off some debt and saving some for a rainy day, let loose and have a bit of fun. If this means going on a shopping spree or a getaway, then enjoy it but try stick to your budget as far as possible.
Life is unpredictable and we never know when we might need extra cash for an unexpected day. That’s why it’s important to take care of your finances and budget accordingly. Bonuses are a great year-end treat but be careful of becoming too reliant on them. If you are lucky enough to receive a bonus this year then however you choose to spend it, decide on something that’s meaningful.