Yes, it is real, and there are a number of companies who still pay it to some lucky employees. The 13th cheque is not the same as a bonus, which is not mandatory, but rather (company) performance based. It forms part of the total pensionable salary package offered to an individual, as a non pensionable allowance in December.
How Is The 13th Cheque Structured?
Depending on your salary structure in South Africa, you can either be surprised by how much or how little you get come bonus time. This is because different companies structure how your 13th cheque is taxed, differently.
Some employers deduct extra tax every month to ensure you get close to double your normal salary in December. Others leave your monthly tax deductions as is, but then your 13th cheque pushes you into a higher tax bracket for one month. Which means a higher deduction.
Either way, January and February is one of the toughest times for the average consumer. It makes sense, then, to stretch that 13th cheque (or bonus) as far it can go.
How To Spend Your Bonus Wisely
Overspending is the name of the game when the festive season arrives. It’s so common in South Africa, where 86% of the population is in debt, that it’s almost accepted as common practice. ’Tis the season to blow the budget.
The World Bank reported, this year, that South Africans are the biggest borrowers in the world. According to the National Credit Regulator (NCR), 10.3 million of us struggle to meet our monthly debt repayments. The household debt-to-income ratio is 78.4.
If you have (bad) debts that need to be honoured, why not use your bonus to cover some of those instalments for December and January? Possibly February too. It may mean you don’t have the Christmas you’d imagined all year, but at least you’ll have some room in your budget to spend time with friends for the whole of summer.
This doesn’t need to be as boring as it sounds. But, we have to say it. Your first investment priority should always be your retirement. Especially as less than 6% of us can afford to retire comfortably. You can arrange with your company to deduct your regular retirement or pension contribution from your 13th salary. It means you pay SARS less money as well, so there’s that.
But, why not treat yourself well in the short term and make a contribution to your emergency savings? Ideally, you would have six months worth of salary stashed for this fund. It would mean that, should anything happen you’re not financially prepared for in the new year, you have a buffer.
This is also the time for New Year’s resolutions, and dreaming big. Why not put some money away toward that trip you always wanted to take? Or start saving up for the transfer costs on your first home?
This sounds counter intuitive, we know. But. You’ve been busting your butt all year and it would just be depressing if you didn’t splurge a little on yourself, within reason. If you want to avoid ‘buyers remorse’ in the new year, plan your splurge as well as you plan your Christmas outfit.
Most finance professionals wouldn’t recommend spending more than 20% of your bonus on spoiling yourself. Anything more, and you’re probably depriving your future self down the line. Think about what you’d most enjoy, and draw the money for it, don’t take your card. Whether it’s an experience like a spa treatment, or a pricey investment piece for your wardrobe, a well-thought out gift for yourself will bring a lot more joy than an impulse buy ever could.