How To Use Your 13th Cheque Wisely

Getting a bonus is one of the perks of the festive season. It’s a well-deserved reward for the year’s hard work. Here’s how to use it wisely this year.

Receiving a bonus is always fun, but all too often it’s here today and gone tomorrow. While it is important to reward yourself and your loved ones after a year of hard work, it’s equally important to use part of your bonus to improve your financial situation. Take time to think about how to spend your bonus. Don’t go out and buy the first thing that comes to mind. Consider what you and your family really need over the longer term, not just what you want right now. Review your current financial situation carefully and make sure that you address any problem areas. Having a plan in place will help prevent you from impulse buying, which is really easy over the holiday period. Pay yourself first. This means you should allocate part of your 13^th cheque to the “not so fun” items in your plan, like paying off your debt and putting money in your savings or investment account. This way you are free to use the rest as you please. Reduce as much of your interest-bearing debt as possible. Debt is the main obstacle to financial security, so it’s a really important step towards reaching your financial goals and building a better future. Credit card debt is usually the most expensive and should be first on your list to reduce or pay off. If you are able to pay it off entirely, consider closing the credit card altogether to prevent you from using the card again and continuing the debt cycle. If you don’t have a credit card, use part of your bonus to reduce your home loan or car debt. It’s a strategy that not only reduces the total interest you pay on that loan over the years but could also ensure that the loan is paid off more quickly.

Shrinking your debt burden will improve your monthly cash flow and reduce financial stress. Use the extra cash to start saving towards an emergency fund, if you don’t already have one. Ideally, you need the equivalent of three to six months of your net salary in this fund to cover unexpected expenses like car and household repairs. List all your unavoidable commitments or once-off costs for the coming year, including items such as school fees, known medical expenses such as new spectacles and car services. Try to set aside enough to handle some or most of these without incurring debt. Then you receive your 13^th cheque, it’s a good opportunity to chat to your financial adviser about your priorities for next year, and to check whether you’re still on track to provide for your retirement or other financial obligations.

Words: Marius Pretorius

Source: Old Mutual