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Year-end bonus dos and don’ts

Those lucky enough to receive a year-end bonus should be even more careful about how they spend it. Jaco Prinsloo from Alexander Forbes has some advice.
Image: Shutterstock

Research has shown that we spend money differently depending on how it’s earned. We are more responsible with money we worked hard for, while tending to spend any windfalls. That explains why even the most financially astute person wants to spend their bonus by shopping, vacationing or renovating their homes. Any money you receive should be used to improve your financial position. Here are some do’s and don’ts on dealing with your bonus, should you receive one, to help improve your finances:

Do: Save the money in an emergency fund

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 You should have at least three to six months’ worth of living expenses in an emergency fund to protect you against financial shocks like medical emergencies or losing your income. Your bonus gives you an excellent opportunity to start or top up an emergency fund.

Do: Use the money to pay off debt

 If you want to spend your bonus, why not spend it on paying off debt? Either select debt you want to settle or pay off the debt with the highest interest rate like a credit card or store account. Either way, the less debt you have, the better off you will be.

Do: Use the money to top up your retirement savings

By investing your money in a retirement annuity, you allow your money to grow, turning your small bonus into big savings over time. And an added bonus of contributing to a retirement annuity is that the contribution is tax deductible within limits, rewarding you today and the day you retire.

Do: Pay for future expenses

No one knows what 2021 holds but we will still have bills to pay: school fees, DStv premiums and your new gym membership. Check with the providers and request a discount for paying up front. By using your bonus to take care of the expense upfront, the savings can be put to use elsewhere.

Don’t: Forget to budget

Your bonus will be a nice boost to your bank account balance. But don’t forget it’s a once-a-year event and just because it’s the holiday season does not mean the budget goes out the window. Stick to your monthly groceries and entertainment budget to ensure you don’t start 2021 with a negative bank balance.

Don’t: Forget to say no

Your bonus can be shared with family and friends, but first make sure your personal finances are in order and don’t be afraid to say no to extravagant requests.

Don’t: Spend your bonus on big-ticket items

 Don’t use your bonus as a down payment on a vehicle or building a new swimming pool. With the new car comes monthly expenses like interest, insurance and maintenance, which could severely affect your finances every month. Before making any purchases, make sure you can afford it the other 11 months of the year.

Don’t: Forget to spoil yourself

 For using your bonus to improve your finances, you deserve it. Use a meaningful portion of your bonus and spend it on something you enjoy, guilt free.

Jaco Prinsloo is a certified financial planner at Alexander Forbes.

COMMENTS   13

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PAY OFF YOUR DEBT AND STOP USING CREDIT!!!!!!!!!!!!!WHERE HAS THE LIFESTYLE YOU LEAD WITH CREDIT GOTTEN YOU??? AS I SAID ON THE GARETH CLIFF T V SHOW, MOST OF YOU LEAVE THE HOUSE YOU DON’T OWN, GET IN THE CAR YOU DON’T OWN,,,,,, PUT ON CLOTHES ——YOU DON’T OWN. You look good, how do you feel. You need Financial Fitness Training. Make it a New Years Eve resolution YOU KEEP. Think like your life depends on it. YOU KNOW WHAT, IT DOES!!!!!!!!

The caps lock button is on the left hand side of your keyboard, three rows up…..
Do you shout at your family and friends too, or have you been at eating too much brandy pudding ?

It’s emphasis for effect!I put out facts and you give nothing but conjecture and feelings. Maybe you suffer from my example?? Even your nom de plume is negative?? I understand. Hope your New Year is better.

If you do put money into an RA then check the fee structure very carefully – most RA’s are awash with charges

Bonus? What is a bonus? This article is presumably aimed at government employees or perhaps state owned organization workers. In the private sector company where I work, our last bonus was seven years ago. It was a measly few thousand, and our last increase four years ago. However, we as employees see ourselves as very fortunate, because we didn’t get retrenched like many of our colleagues.

Yeah agreed, bonuses will be few and far between. More cases though of 13th cheques which are part of employees’ cost to company

Bonus?? What is that? As farmers we plough it back into the farm or save what extras we have for medical exp or retirement funds.

We don’t have a company that subsidizes these things, but we are self employed so live with it.

This is the major disconnect in the country right now, some people are worrying about how to spend their bonuses yet the vast majority of small businesses and their employees have been wiped out by lockdown and the lack of support by goverment during that time, or dying a slow death still.

If you work for a corporate, lockdown was a long holiday in general and life was good. The reality now is the corporates are slowly realizing how the spending power of business owners has been wiped out, the real drivers of the economy, and with that the massive job cuts are most likely coming in the first 3 months of next years.

I hope I’m wrong and I’m open to any data that suggests the opposite but the empty building in Sandton along with a shopping list of issues tells me the pain hasnt even started. So if you lucky enough to be in a position to actually get a bonus, dont pump it into the greedy hands of the fin companies or soon to be collapsing JSE.

Articles like this should be published in November BEFORE people spend their bonuses.

Where does spoil urself begin and end? Don’t give this tip as advice. Asomblief.

Life is fragile. Would you have given the same advice last Christmas to all those who died of Covid this year? Or told them to make it count?

I view this article as not just the bonus one gets from an employer. Some of the fortunate people have opted for 13th cheques in their companies. Some save in stokvels and get the proceeds at the end of the year. Whichever way one get additional/saved money, use it wisely.

End of comments.

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