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1. Reduce or pay off debts ?
Choosing how to allocate your Christmas bonus is a very personal thing, says Gregg Sneddon, founder of The Financial Coach, which offers comprehensive financial planning services to customers.
Consumers can spend, save or give away their Christmas bonus. “Put at least 15% of your bonus towards long-term savings; perhaps give away 10% and spend 75%. But this may differ from person to person,” explains Sneddon.
Those who are indebted should first try to pay off their debt, he recommends, as it will save them from racking up even more debt, especially with rising interest rates.
The South African Reserve Bank increased interest rates by 25 basis points around mid-November, and a further increase of 25 basis points is expected in 2016, according to the latest forecast by financial services group MMI Holdings.
Warren Ingram, executive director at Galileo Capital, agrees with Sneddon: “Pay off your credit card, personal loans and other high-interest debt.”
Meanwhile, Matthew Hunter, head of savings and investments at Absa Bank, says it’s important to review your current debt obligations, such as an existing clothing account, and work towards reducing them.
It’s also wise to think about paying off your car or putting money into your home loan, suggests Ingram.
This could shorten the time you spend on repaying the financing from the bank and could free up cash sooner so you can use it for something else, like savings.
2. Save or invest
Ingram suggests putting at least a portion of your bonus into investment vehicles that will grow your money.
Savings in a tax-free savings account could, for example, be used for school fees for the following year, suggests Hunter.
3. Inject the bonus into a group saving vehicle like a stokvel
Select the stokvel that best suits your needs, says Hunter.
For example, he says, a rotating stokvel allows for continual payment amongst members (at each meeting a different member is paid out a lump sum); this way you can save for a specific moment in your life.
Or you may choose to inject money into a savings stokvel where members contribute a fixed amount that is either paid out to members, or used by the group for a specific purpose or event such as a holiday.
4. Spend wisely and avoid January worries
If you have a household budget for your monthly spending, there’s no reason to throw it out the window during the festive season.
Sneddon says it’s best to plan your spending to ensure that your money lasts to the end of January.
“Sit down, strategise and prioritise and remember that January is a long month because you get paid early in December and will only get paid again at the end of January – so put some of that money aside,” reiterates Sneddon.
A bonus could also be used to assist in additional expenses at the start of the new year, such as purchasing stationary and school uniforms, Hunter says.
5. Spoil yourself a little
If you still have money left, take a portion of your bonus – perhaps a third – and use that to finance your holiday or buy gifts, says Ingram.
Also think about doing something just for you – like upskilling yourself.
“Take up a course or attend a workshop that will increase your skill set, thereby increasing your individual selling point when vying for a promotion or looking for a new job,” says Hunter.
For those who may find it hard to be financially savvy this festive season: “There’s no magic formula – just do it,” says Sneddon.
This article originally appeared in the 10 December 2015 edition of finweek. Buy and download the magazine here.
