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Four ways to use your 13th cheque responsibly

Put your 13th cheque to work and start 2020 on firm financial footing.

The festive season is upon us and many of us will have been banking on receiving a 13th cheque around this time. While it’s not guaranteed unless it’s written into your employment contract, this bonus payment can be hugely beneficial at a time when expenses tend to run high. However, before you rush out to overspend on Christmas presents, consider some of the other ways in which you can put the extra money to work in a way that’ll help contribute to a less financially stressful 2020.

Settle your debt

Paying down your debt should always be top of your list. South Africans are not afraid to live beyond their means: we’re among the biggest borrowers in the world according to the World Bank. It’s also reported that 10% of household spending in South Africa is on interest payments alone. Look at your credit cards, store cards and personal loans to see where you’re paying the most interest and try to tackle that debt first.

Pay down your home loan

According to the Old Mutual Savings & Investment Monitor, 44% of homeowners have a bond. The vast majority pay only the minimum instalment required while a mere 25% are trying to pay it off faster. Remember that when you first take out a bond, the bigger proportion goes toward paying interest while only a small amount goes towards the capital repayments. By paying down your mortgage early in the game, you reduce your interest payments and the repayment term of the loan. If you have an access bond, you can always take the money out again if there’s an emergency – you don’t have to feel like it’s locked away for good.  

Get ahead of school fees

Many of us spend a significant proportion of our monthly budget on school fees. It’s a good idea to use some of your 13th cheque to get ahead of the coming school year by paying as much as possible upfront. Usually, this will attract some kind of discount, the saving of which can be put towards necessities such as school uniforms and stationery.

Top up investments

If you don’t have the above financial responsibilities, you should consider topping up your tax-free investment (TFSA) account or retirement fund. Every year you’re allowed to allocate 27.5% of your pre-tax income or remuneration (whichever is higher) to your retirement fund (capped at R350,000 a year). You can also contribute R33,000 a year (capped at R500,000 over your lifetime) of after-tax income to a TFSA account; you don’t pay any tax on dividends, interest income or capital gains. Both offer attractive tax-free ways in which to grow your money. If you don’t act each year, you sacrifice the allowance so it’s a good idea to take advantage of such tax-free saving benefits on an annual basis.   

Start 2020 on firm financial footing

The best option for you will depend on your personal circumstances and your financial advisor will be able to help you make the best choice. Bear in mind that economic growth is forecast to remain weak for the next few years at least, so times are likely to stay tough for the foreseeable future.

ADVISOR PROFILE

Thulisile Nkomo

NFB Private Wealth Management

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