In December many employees receive a 13th cheque which means they suddenly are in the fortunate position of having a considerable sum of money in their pockets and it's only natural to want to go spend it.
According to an article published on Moneyweb by Thulisile Nkomo (CFP), the first thing you actually need to do with your 13th cheque is to pay off your debt. This may seem like a hard thing to do, but for a number of reasons, it is in fact the best course of action:
Reducing your debt
If you are in debt, then paying down your debt should always be top of your list. According to the World Bank, South African consumers are some of the biggest borrowers. It's also reported that 10% of household spending in South Africa is on interest payments alone. So, if you do come across a windfall, the first start is to pay down your debt like your credit cards, store cards and personal loans.
Pay school fees upfront
School fees are top of the list of expenses for most people; it's therefore 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.
Save and Invest
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).
If you have less money to put away, you have an option to put money away through the Liberty Investment Plan where you can start to save as little as R200 a month. With time and commitment, you can use this money for goals such as education, starting a business or travelling. You have the option to save for 5, 10 or 15 years.
Whatever route you decide to take with your bonus, the first step to take is to speak to an accredited financial adviser to discuss the various options above depending on your situation.
Sources
This article does not constitute tax, legal, financial, regulatory, accounting, technical or other advice. The material has been created for information purpose only and does not contain any personal recommendations. While every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information presented.
Please consult your financial adviser should you require advice of a financial nature and/or intermediary services.
Liberty Group Limited is a Licensed Insurer and an Authorised Financial Services Provider (no 2409).
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