As Christmas approaches and the festive spirit abounds there seem to be a wealth of alluring things on which to spend your year-end bonus. However, if you can resist those initial urges to splurge on something frivolous but probably fleeting, the best Christmas present you could give yourself is to be sensible and make some moneywise choices that will keep on giving into next year and beyond.
This is the advice of Hedley Lamarque, CFP® professional at BDO Wealth Advisers.
That doesn’t mean you should deprive yourself of a festive pick-me-up completely, Lamarque says. “If you have been financially disciplined throughout the year, reward yourself with the one item you have been saving for.”
Having done that, he suggests several options on how to spend the bulk of your bonus, bearing in mind that it is taxable and it would be a good idea to find out first how much will be left after tax before you start planning how to spend it.
His first tip is to settle as much debt as possible, especially credit card debt which is very expensive.
The next step is to put aside the money that will be needed in January for school fees, text books and other expenses, before you start your Christmas shopping.
Then, he says, make a list of items you want to spend your bonus on – in other words, prepare a Christmas bonus mini-budget - and stick to it.
“Before you buy any Christmas presents, shop around. Make use of special offers to buy gifts (like 2O% off weekends at certain stores) and compare prices on online sites, such as Takealot. Quite often they are cheaper and offer free delivery.”
“Use Rewards benefits from the various companies you deal with to the fullest. For example, if you are on the highest level (Diamond) with Discovery Vitality, you get 20% off at a number of stores such as Toys R Us and Incredible Connection when paying with your Discovery credit card.”
He offers a word of warning that, when buying special offers, care should be taken not to be lured into buying something you don’t need.
“To buy two and get one free is not a good idea if you only need one, otherwise you are spending double what you would have spent on that item,” he cautioned.
“Consider giving hand-made personalised Christmas cards. It is more personal and special to receive a hand-made card with words from the heart than an expensive shop-bought card.”
Those with an entrepreneurial mindset could start setting aside some funds so that they can start their own small business venture in the future.
According to Lamarque there are several other sensible ways to spend one’s Christmas bonus.
By paying a lump sum into a Retirement Annuity and capitalising on the tax break, SARS is in effect ‘contributing’ a portion of what you would have paid in tax to your retirement fund.
A good option is to contribute to a tax free savings account (TFSA) via unit trusts which allow savings of R30 000 per year up to a maximum of R500 000. The maximum amount you are allowed to invest will be reached in your 17th year. These are good options for parents who want to start saving, at a child’s birth, for their tertiary education. They yield attractive long-term returns without incurring any tax at all, especially the one tax a lot of people forget about, namely Capital Gains Tax.
Those without debt could open a savings account for emergencies.
“It is not a good idea to leave money in a cheque account because it earns no interest,” he explained. “If you have a home loan, put any extra money the money into your access bond. You could also save a month’s interest on your home loan if you are financially disciplined, by putting the money you plan to spend on Christmas gifts or your year-end holiday into your access bond and paying for these expenses with your credit card. Then take the money out of your access bond and pay off your credit card with this money the following month when it becomes due.”
Lamarque said that, whilst it was important to plan expenditure of your Christmas bonus carefully, it was necessary to have a proper plan and budget at all times to ensure that you have a comfortable lifestyle both now and when you reach retirement age.
“If you are serious about money, don’t be afraid to ask for advice,” Lamarque advises. “You are never too young to start planning for your future financial security and seeking the guidance of a Certified Financial Planner® could be the best decision you make.”
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