I am often asked to talk about how we should spend our bonuses. My response used to be “use your bonus to pay off your debts, if you are heavily indebted”. Eight years on, I have come to understand that many people who are heavily indebted will, sadly, not follow this advice. A bonus comes only once a year and we have a chance once in 12 months to change our lives for the better but sadly, many of us choose not to grab this opportunity. In some cases, we use our bonus to create debt.

Lebo* is 23 years old. Like many young people his age, he is dying to buy his first car. He doesn’t have a car licence yet. He couldn’t wait and as soon as his bonus came in, he applied for a personal loan and he got it. He went straight to buy the car. Buying a car using a personal loan is the worst mistake anyone can make. The personal loan cost him a whopping 30% in interest alone – that is R300 for every R1000 borrowed. He couldn’t qualify for motor vehicle finance because he doesn’t have a licence. To make matters worse, he hasn’t insured his car. This is one of the worst cases I have come across. A car loan would cost him about 18% and if he were to lose the car in an accident or if the car were to be stolen, then he would have to pay back the R120 000 + interest for a car that is no longer there.

While Lebo is an extreme case, many other people misuse their bonuses then in January, they have no money for school fees and other important necessities. Many have to apply for micro loans just to make it through January.

How can we make the most of our bonuses?

If you receive your December salary and bonus shortly before the 16th of December, remember that your next pay cheque is one and a half month away i.e. end of January plus there is Christmas and new year in-between. With all the holidays and kids at home, it is very easy to wake up and find your bonus gone and you cannot even pin point how you used it all.

Make the most of your bonus by using it to pay for all the important stuff so that you start 2015 on a positive note. For an example, as soon as you receive your bonus, use it to;

  • Pay school fees, books, uniforms, etc…
  • Pay for January bond or rent
  • Pay more for your electricity and water
  • Pay more for your car loan
  • Never keep extra cash in your current or savings account where you see the “big” balance each time you withdraw money. This will simply prompt you to spend it all. Put it away in a money market account or home loan account.

Once you have taken care of all the important stuff even before it is due, you can then use the rest of your bonus for whatever you like. Come January 2015, you will find that you have less to pay towards your monthly fixed costs and you should start 2015 on a very happy note.

Point to ponder

  • Would it help if we received only a portion of our bonuses in December – so we have some extra cash for the festive season and then receive a larger portion in January?

Lessons from Lebo’s case

  • Ignorance is costly, very costly.
  • We all owe it to ourselves to learn about the basics of money, buying a car, buying a home, the cost of each type of debt, savings and investments, etc…
  • If you are going to make it in life, you must learn to be patient. Lebo had to wait until he got his licence before buying a car so he could use cheaper vehicle finance to buy his car. Patience pays.

13th Cheque set-up and advice

Do you need help setting up a 13th cheque scheme for your employees and good advice to go with it? Drop me an email at phumelele@thuthuka-sa.co.za

I would love to hear from you

Do you have suggestions on how we can make the most of our bonuses? Do you have a horrifying story to tell about the abuse of bonuses? If so, please drop us an email at info@thuthuka-sa.co.za

*Lebo is not his real name

 

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Debt to Riches cover

 

 

 

 

 

 

 

 

Happy Christmas 🙂

Phumelele