How to keep the Grinch at bay

USE BONUS WISELY: DEBT MUST BE PRIORITY

But financial planners agree that, if possible, you should reward yourself, too. Moneyweb

While spending your bonus wisely will likely entail using part of the windfall to pay debt or boosting areas of your financial planning where there might still be holes, financial planners agree that if your financial circumstances allow it, you should use at least a small portion of your bonus to reward yourself and buy something you’ve wanted for some time, or take an inexpensive holiday.

Use your personal circumstances as a reference point to make an informed decision and speak to a financial planner if necessary.

Settle expensive debt

Debt settlement always has to be high on the priority list, says Peter Hewett of Hewett Wealth.

If individuals have outstanding credit card or clothing account debt, he generally recommends they close as many of these accounts as possible after the debt is settled.

Michelle le Roux at Foundation Family Wealth says that shortterm debt like credit cards or personal loans are usually very expensive.

It may be wise to use at least part of your bonus to reduce the term of the loan or to settle it completely where possible.

This could save you a lot on interest.

But think carefully about using your bonus to settle credit card debt if you’ll only max out your credit card again within three months, Andró Griessel at ProVérte Wealth & Risk Management says.

Paying credit card debt with a bonus may only be putting a bandage on a bigger problem – having credit card debt that isn’t settled on a monthly basis.

If this is the case, it may be useful to rather pay down car or mortgage debt permanently.

Martin de Kock at Ascor Independent Wealth Managers says at a 10% interest rate over 20 years, a R1 million bond requires a R9 650 monthly payment and you’ll have to pay total interest of over R1.3 million over the period.

By paying R20 000 of your bonus into your bond at the start, you’ll save over R117 000 in interest and settle the bond 14 months early, if you keep the monthly repayments the same, he adds.

Contribute to a RA

For taxpayers in higher marginal brackets who haven’t used their maximum tax-deductible contributions to a retirement annuity (RA), and for whom it makes sense after their overall tax position was considered, an additional contribution to an RA is generally a sensible choice, due to its tax-saving and significant compounding benefit, Hewett says.

Individuals can deduct their contributions to an RA with the maximum tax deduction capped at the greater of 27.5% of taxable income or remuneration, subject to an annual maximum of R350 000.

After settling debt and maximising your benefit from an RA, consider using the maximum annual contribution to a tax-free savings account of R33 000, he adds.

Miscellaneous options

You could also think about paying school fees in advance, saving for your children’s education, starting an emergency fund or upskilling yourself.

“Many schools have an enticing discount if the fees for the year are paid in full upfront,” De Kock says. “In addition, this relieves your monthly expense budget.”

You could also consider contributing to a charity.