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Don't blow bonus - make it work for you

By unknown | Dec 09, 2008 | COMMENTS [ 0 ]

It is almost the end of the year and to most of us this is usually a time associated with some of the good things in life - holidays, festivities, gifts and, for those who earn a salary and are lucky enough, obviously a bonus.

But what is a bonus? Besides being a fantastic opportunity to buy yourself a little financial freedom, like your bond, how can you make it work for you?

Yes, you can blow it if you like - trying to show off how well you are doing.

But experts say that is not the right way to use your bonus, especially with every indication that most South Africans are feeling the credit crunch.

Remember, this may be a good time to make this extra cash work for you, but you need some discipline.

A bonus is extra money that should give you the opportunity to review your financial situation and to do something about it if it doesn't look good.

A clarion call is for people to use this extra cash as an opportunity to prepare for the new year.

"With the world banking and stock markets in turmoil, there has never been a better time to save," says Robert Keip, FNB's chief executive of savings and investments.

But, he stresses, paying off debt will be more sensible before even saving something.

"It doesn't make sense to invest while still in debt as the interest on debt is usually higher than the return on investments."

Experts say it is not very difficult to review your financial position and to take control of it.

Sylvia Walker, market development manager at Old Mutual, advises that you start by paying off the most expensive debt, such as your credit cards and shop cards.

According to Walker, the main obstacle to financial security is debt. So, make sure that you are not caught in this spiral.

However, the reward in the new year will be worthwhile if your financial affairs are in order.

Money-saving tips:

lGive yourself a gift and pay off your bond. Jenny Rushin, provincial sales manager for ooba, says people often make the mistake of depending on their 13th cheque to finance their holiday or pay-off post-holiday debt.

But the old advice of putting at least some of it away into your bond still applies.

A R20000 lump sum deposited into a million rand bond will save you R264245 in interest over the loan period assuming that your interest rate is 1,5 percent below today's 15,5 percent prime interest rate.

This means you will save more than 13 times the original amount as well as cutting your repayments to 18,1 years on a 20-year bond.

lAvoid last-minute shopping and bookings. If you haven't booked your Christmas holiday, flight or car hire, seriously consider staying at home and put money aside.

l Never use your budget facility on your credit card, especially to pay for goods such as food. Although the minimum monthly repayments may be lower than on straight, the interest rate is far higher and you do not have the option to pay it off quicker.

lRather than planning a financial budget in the New Year, when the damage is already done, plan a budget now.

lTry and list your biggest expenses. While you may go over your budget, the act of planning creates awareness and you are less likely to overspend.

lStart buying presents now, rather than a few days before Christmas where the urge to grab anything off the shelf usually results in expensive and thoughtless gifts.

lDon't blow your bonus all at once. You deposit your 13th cheque into your debit or credit card and spend it wisely over a few months instead.

"You're guaranteed to feel more in charge of your purchasing power if you think before you spend," said Marcelle Arnold from Visa International advices.

"Cards are safer and more secure. If your purse gets stolen, you can cancel your card immediately. Cash is lost forever."

lPay off your debt - as tempting as it is to spend it all at once, it will definitely be in your interest to pay off the debt.

lBe financially savvy. It's always a good idea to put money aside for unexpected expenses.


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