If you are one of the privileged employees who receive a bonus or thirteenth cheque at the end of the year, you know how tempting that extra cash can be. But before you rush out to buy those water skis or that super-awesome home entertainment system, consider how you can use the money wisely to better your financial position.
Your first consideration should always be your existing debt. Do you have any short-term loans that you can pay off? This includes clothing store accounts, your credit cards, and personal loans. Short-term loans are expensive because you can end up paying more in interest than the actual loan amount. Just think of the extra cash you’ll have each month when you don’t have these accounts to pay anymore!
Every new year comes with new and unexpected expenses – especially if you have children. Work out how much you will need to buy the children new school clothes and supplies, what deposits you will need to put down (school fees, moving into a new rental property), or what home maintenance you will need to do in the new year.
Give yourself a buffer
If you don’t have an emergency fund set up yet, it is a good idea to put some of your bonus towards one. Ideally, you want enough money to tide you over for three months without a salary, just in case something happens to you or the company you work for.
Make a dent in your home loan
Putting your bonus towards your home loan will save you a bunch of interest in the future. Say you have a bond of R1 million at an interest rate of 10.5% and you make an additional payment of R10 000 towards your home loan, you will save nearly R61 000 in interest and reduce your term by 7 months.
Even though it would be the prudent thing to spend your entire bonus on sensible things like we mentioned above, you also deserve a reward for working so hard the entire year. Take 10 – 15% of your bonus and treat yourself, or to spend on activities and gifts over the festive season.
If your debt has gotten so out of control that your bonus will not help your financial situation in the least, give Debt Rescue a call. One of our debt counsellors will be happy to assist.