MANY economically active people have some expectation about receiving a bonus at this time of the year. Over a million South Africans have lost jobs in 2009 and will not receive bonuses. This will also impact on extended families, which could be as many as eight to 10 times this number.
If you are one of the fortunate few receiving a bonus, then you have choices on how to utilise it. You could pay off debt, use the bonus to save for the future or you can spend it.
PAY OFF DEBT
Many employees I've spoken to have built up a small amount of debt during the year, which they planned to settle with their bonus. My advice is to make sure that you carry out your intentions to pay off the debt and resist the temptation of going on a spending spree over the festive season.
It is advisable to rid yourself of your most expensive debt first as it is unlikely you'll be able to settle all of it. Try to settle any micro lending, credit card, overdraft and store cards that charge high interest then pay it into your bond.
One must differentiate between saving to spend and saving for the long-term. One should consider boosting retirement savings. Normally, any bonus you receive would not be part of what is termed "pensionable salary" and therefore, 15percent of the bonus can be contributed to a retirement annuity. On this amount, you will receive a tax deduction, eg a bonus of R5000 and you can make a payment to your RA of 15percent of this = R750. Tax saved would be between R150 and R300, depending on your taxable income.
You could also consider endowment policies and equity unit trusts. The retirement annuity and endowment can be directly invested into equity unit trusts giving an optimal investment return over the long-term.
Don't forget to invest in your children's education. Hopefully by the time you read this, I will be a grandfather for the first time and the major thing I intend doing is to open a Fundisa education fund for R200pm for my grandchild. Any additional amount I plan to save will go directly into equity unit trusts.
If saving or paying off debt isn't for you, then you can think about spending it. A good break without your computer and cellphone, which in today's times is only an illusion, will give you time out not just time off and it will be well worth your while taking time to recharge your batteries.
What about using your bonus to further your own education, which will increase your earning capacity in the years ahead and in turn, ensure a higher bonus in years to come?
It must be remembered that bonuses are not a right. Unless your employer has contracted to pay you a bonus annually, they are not obliged to do so and one must realise that companies have struggled this year, showing very disappointing results. If you are one of the fortunate who receive a bonus, you should think carefully about what you do with it and not take it for granted.
l The writer is a director of Bryan Hirsch Colley.