After a challenging year, some of us will be rewarded for helping to meet company targets and grow the bottom line. Karin Muller, Head of Sanlam Growth Market Solutions for Sanlam Personal Finance, offers a few ideas of what to do with the cash.
Rather than splurge your well-deserved bonus, the best thing to do may be to use the money sensibly to improve your financial situation.
PAY OFF YOUR DEBT
The higher the interest rate on your debt, the more expensive it is. So when you are paying off your debt pay the most expensive debt first.
You can determine what is most expensive by looking at your monthly statements or phoning your credit providers. In most cases, this will be your credit cards or personal loans.
If you pay more than the minimum amount owed each month, the interest you owe will automatically decrease and it will cost you less in total.
Do not stop paying your other credit providers – you do not want to jeopardise your house or risk losing your car.
PAY MORE IN YOUR HOME LOAN
One of the most effective ways to save is to pay extra into your home loan. You will not only save substantially on the interest payments, but will also pay off your home loan in a shorter period of time.
INVEST FOR A LONG-TERM GOAL
Do you have a specific goal you need to save towards? For instance, instead of spending your extra cash, why not invest it to help save towards your child’s education, to help build a solid nest egg or that illusive overseas holiday? Investing a one-off amount in a suitable investment product – like an education policy, an endowment or a unit trust – will help you to meet these long-term goals.
CREATE AN EMERGENCY FUND
Another idea is to use a portion of the money for an emergency fund. The aim of this fund is for you to have some savings on hand in case of any unforeseen events (a burst geyser or an unexpected illness). It is recommended that you have at least a month-and-a-half times your salary (or if you are not on a salary, then one-and-a-half times your underlying monthly income) saved and readily accessible for emergencies. Good vehicles include a money market account or Sanlam Liquid account where you will earn a decent return on your investment while you do not need the money.
INVESTING FOR THE SHORT TERM
If you feel that you cannot commit to investing for the long term, a shorter term savings plan, like the flexible interest- earning Sanlam Liquid account is an option.
SAVE FOR YOUR RETIREMENT
It’s never too early, or too late, to start saving for retirement. For those who already have a retirement annuity, it’s a good idea to boost your existing RA with an additional payment. An ideal way for those who haven’t yet started saving toward retirement is to take out a single-premium RA.
Please note: These are only suggestions on how to spend a hard-earned bonus. It is, however, advisable to consult your adviser or broker, if you are not sure about the best way to make your bonus work for you.