4 things to consider before spending your December bonus
Receiving a bonus is an exciting event and a time for celebration to recognise the hard work you put in throughout the year. However, If you’re lucky enough to receive a December bonus, it’s essential to think carefully about how you spend it.
An end-of-year bonus, also known as a 13th cheque, is an extra payment typically equal to one month’s salary and is paid in addition to the employee’s regular monthly salary.
Not all employees are entitled to receive a bonus, and the amount may vary depending on the employer and the employee’s job role and salary.
While a bonus is a financial windfall that can provide a much-needed boost to your bank account, it’s also an opportunity to invest in your future and an opportunity to achieve your financial goals, said FNB consumer education programme manager Dhashni Naidoo.
When you think about spending the money, you must do so responsibly. Pay off high-interest debt, invest in your career, boost your savings, and reward yourself for a job well done – these are all clever ways to make the most of your bonus, said Naidoo.
How to spend your bonus wisely
A good mindset to start with is to adopt the 80/20 principle, said Naidoo. This is where you use 80% of the bonus money towards achieving financial goals, such as reducing debt or saving and investing. Then the remaining 20% can be used as a reward to yourself for those nice-to-have items.
Here are some practical tips on how to spend your bonus responsibly, as outlined by Naidoo:
- Reduce debt – consider using some of your bonus to pay off high-interest debt. Credit card debt, in particular, can quickly spiral out of control, so paying it off as soon as possible is a smart financial move. Not only will you save money on interest, but you’ll also free up more of your monthly budget for other expenses.
- Saving for emergencies – put some of this money towards emergency savings or add to your emergency savings. It would be best if you aimed to keep three months worth of your expenses in emergency savings. Having a stash of cash set aside for unexpected expenses can provide peace of mind and help you avoid taking on additional debt in the future.
- Invest for the future – speak to a financial advisor about investing for the future. Higher interest rates mean the cost of borrowing is higher. However, you will also earn more interest on savings and investments. Interest earned on positive balances means you have the opportunity to earn additional income in the form of regular interest income. If you haven’t already started on the investment journey, it’s a good time to start. Do your research and empower yourself with information and knowledge about investing. Learn about the different types of investment vehicles and look to match your investment goal with an appropriate product.
- Treat yourself – it’s also important to have some fun with your bonus. After all, you’ve earned it. Consider treating yourself to something special, whether it’s a new piece of technology, a trip, or a special dinner out. Just make sure to balance your indulgences with more practical expenditures.
If you don’t know where to start or which of your expenses to deal with first, Naidoo recommends consulting financial institutions or financial advisors on how to manage your money better.
“Banks also have services and educational content on how consumers can better manage their money,” added Naidoo.
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