With many people receiving their December pay-cheque mid-month, January can be a particularly lethargic and stressful month if we spend too much during December. If you’re paid on December 14, there is potentially 42 days to the next pay cheque in January. The Christmas euphoria is thick in the air, with every retailer outrightly tempting you to ‘spoil yourself’. As this frenzy continues to build up and gain momentum, the harsh reality is that the vast majority of South Africans are struggling financially, but such festivities blur our logic and cause us to justify excessive expenditure. Avoid being swept up in the season’s tide. As the torrid 2021 curtains close and you are among the lucky ones going home with a 13th cheque or bonus, consider using that money to start off 2022 the right way. Here are some points worth considering:
Firstly, avoid spending your anticipated bonus or rack up credit card debt before you are paid the bonus, as perhaps was the case in point this past ‘Black-Friday’. Retailers are drumming up deals to lure shoppers to spend in their stores. This can unhinge your budget, should the company’s financials not include bonuses. No legislation can force employers to pay year-end bonuses to their employees and, in an ailing economy, the annual bonus is often the first perk to fall away. Always remember that your bonus might be taxed and so don’t count on having every penny of your bonus to spend. As the adage goes “it is easy to spend what you don’t have but very taxing to pay back what you owe”.
Secondly, it is too easy to let the spending during the holiday season spiral out of control as people often go into a denial mode in the hype of the festive season and end up having to deal with debt in the new-year. The truth of the matter is that you cannot expect not to spend any money in such times. Financial prudence demands that you start planning to spend your extra money by creating a budget, considering what you realistically expect to spend and your financial priorities.
Thirdly, divide the bonus into 3 categories; namely debt, savings and expenditures and allocate amounts to each category. The December budget must take into account the costs of January as well as unforeseeable life events such as death, spontaneous adventures and surprise guests, among many others. However, striking a balance between those holiday goals and the longer-term finances is of paramount importance.
Fourthly, it is advisable to use a sizeable portion of the bonus to pay-off any debts, credit cards, bond and retail accounts. The longer you take to pay off any debt, the more you end up paying in interest. Over and above the everyday living expenses and debt, one needs to state clearly what is available for gifts, travel and entertainment over the festive period. However, if you haven’t already saved up for December, the worst enemy to progress that you could do is borrowing money to spend. Debt in the form of credit and retail cards is expensive. Such borrowings to cater for the festive season can leave you with a financial hangover going into 2022. Who knows whether another ‘grim reaper’ like Covid-19 awaits us in 2022.
Instead of blowing your bonus on large and expensive items, rather come up with a strategy that sees you saving and investing. This will ensure that you have enough to meet your, and your family’s financial needs, in 2022. Consideration should be given to appropriate investments and insurance policies such as life insurance, health insurance and funeral cover. It will be wise to set aside a portion of the bonus for such important financial needs – plan ahead.
In conclusion, we’re not suggesting that you become a miser and not spend your hard-earned bonus on yourself, but that it is a worthwhile exercise to map out your anticipated festive expenditures and make contingences for rainy days beyond December. Covid-19 has shown us the dark side of life when we are financially unprepared for eventualities of life. Spending your annual bonus wisely or investing it is better than squandering it all during the festive season.
Please note that the above is for information purposes only and does not constitute tax/financial advice. As everyone’s personal circumstances vary, we recommend they seek advice on the matter. Note that while every effort is made to ensure accuracy, Nexia SAB&T does not accept responsibility for any inaccuracies or errors contained herein.
Article prepared by: Tinashe Chipatiso (Tax and Corporate Consultant)
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