It’s been a long hard year, but the end is in sight. You’ve almost survived this year and what’s more, you have also been rewarded for your valuable contributions throughout the year – your bonus is in the post.
I’m sure the temptation to splurge a little is strong, especially as the silly season draws near. Let’s be honest – there is no better motivation to keep on reaching new heights than by reaping the rewards of your labours. However, there are a few mental checkpoints you should go through first to ensure that you are being financially astute when rewarding yourself:
1. Clear Your Debt
One solution when facing financial challenges is to get cash flow by taking out a loan. In order to do this, you would need a good credit history, which is made up over the years by you showing a track record of… you guessed it, paying off your debt!
If you did take out a loan this year, you’re not alone in that boat. It can serve as a life jacket to keep your head above water. But, as soon as you receive a cash injection in the form of a bonus, the wise choice is to pay off that debt and get rid of the interest overhead. This is especially true if you have charged to a credit card, where interest is notoriously high.
We asked Zaheer Talia, financial advisor at Maysure Financial Services, what his clients have done with bonuses in the past. He recommended:
“If a bonus is received, previously it was used to settle any outstanding debt – specifically credit card debt. Then, it is used to fund anything that was not budgeted for or expected but is priority, such as the house or car etc. Anything left over would be invested in unit trusts or similar.”
According to *Kenny, one of Maysure’s clients This results in favourable outcomes like the lessening of debt and the growing of investments. Maintenance on the car and house also ensures that these assets do not deteriorate to a huge extent in the future, preventing greater expenses at a later stage.
2. Take Advantage of Your Tax Deductibles
As you can see on page 6 of the Treasuries Tax Guide, there exist certain contributions as per Regulation 28 that are tax-deductible. Examples of these are pension fund contributions, medical aid contributions, and donations to name a few. What this means for you is that up to 27.5% of your gross annual salary can be deducted prior to your tax calculation taking effect.
So, if you were to crunch the numbers and allocate some of your bonus towards ensuring your pension fund contributions maximise that 27.5%, you could easily find yourself dropping down a tax bracket.
Needless to say, the savings involved in such an exercise can be quite eye-catching indeed. As well as serving the purpose of safeguarding your retirement. Exactly the kind of thinking that leads us to our next point…
3. Invest in Your Future
The uncertainty of the current global landscape serves as a timely reminder that life can have its ups and downs. An essential part of your financial planning should be to cater for those periods of decline by ensuring you invest in your future.
Two great examples of doing so are setting up a Tax-free savings account and making sure your emergency fund is well-stocked.
4. Invest in Your Present
With the current theme of working from home coupled with a less intensive social calendar for the foreseeable future, there is no time like the present to start upskilling. This could be something as simple as updating your budget or as exciting as starting that course to help you climb the corporate ladder.
Whether it be embarking on a new entrepreneurial endeavour or finally starting the MBA you’ve been dreaming of for years, it will most likely involve a capital injection. Luckily for you, a timely windfall has just arrived to give you the opportunity to be the best you that you can be. Speaking of which…
5. Spoil Yourself
All work and no play makes Jack a dull boy. Life is about experiences and we each have that something special that is close to our hearts.
Recharge your spirit by tapping into your passion. Spoil your family. Plan for your next holiday (air ticket prices should be good if you can get them in advance). Whatever it is, know that you can afford it because you’ve followed steps 1 to 4 and have been a savvy investor in your own life.
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*Kenny is a fictitious name used to protect the identity of our client.