As the year comes to a close and the Christmas season rolls around, most people will be looking forward to their Christmas bonus or 13th cheque.
Dhashni Naidoo, consumer education programme manager at FNB, said that receiving a bonus is a time for celebration because it recognises the hard work you have put in throughout the year.
“Bonuses also provide us with an opportunity to achieve our financial goals. When we think about spending the money, we need to do so responsibly,” Naidoo said.
Here are three ways you can spend your bonus sensibly:
Reduce your debt
According to Naidoo, you should make extra payments towards debt and try to pay off higher interest-bearing debt first.
Farzana Botha, segment solutions manager at Sanlam Savings, said you should service your debt first when you receive a financial windfall like a bonus.
“Reducing debt helps you to save in the long run by freeing up cash that you normally use towards debt repayments,” Naidoo said.
People can use the snowball or avalanche method to pay off their debts. With the snowball method, you will pay off your smallest debt first, while using the avalanche method, you will pay off debts with the highest interest rate first.
Saving for emergencies
You should think of an emergency fund as financial buffer that can be useful in a crisis instead of taking out a loan or relying on debt.
You should put some of your bonus money towards starting an emergency savings plan or adding to your emergency savings.
You should have at least three months’ salary saved up in an emergency fund, according to Katlego Gaborone, a financial planner at Momentum.
People need to stay committed to their emergency funds and avoid being tempted into withdrawing any money unless it's an emergency.
Invest for the future
When you get your bonus money you should speak to a financial adviser about investing for the future.
Naidoo said: “Higher interest rates mean the cost of borrowing is higher. However, it also means you will earn more interest on savings and investments.
“Interest earned on positive balances means you have the opportunity to earn additional income in the form of regular interest income. If you haven’t already started on the investment journey, this is a good time to start,” he said.
“You should empower yourself with information about investing by speaking to an adviser, your bank, or doing your own research.
“This way, you can learn about the different types of investment vehicles as well as look to match your investment goal with an appropriate product,” Naidoo said.
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