Make your hard-earned bonus work

IT IS that time of the year again – the festive season, when people tend to splash out on goods they would not normally buy during the course of the year.

And the 13th cheque gets spent very quickly in the lead-up to Christmas.

It is no secret that retailers tend to make about 40% of their annual sales in the three weeks leading up to Christmas, aided by the manic desire to spend.

But January kicks in with a vengeance all too quickly and spending just evaporates.

With a little forethought, consumers can do something constructive with their festive season money, such as establishing an investment vehicle like a unit trust or exchange-traded fund (ETF) and getting into a disciplined habit of saving.

This strategy would work wonders in 2017 and beyond, as economic conditions in South Africa and the world are likely to become even more difficult.

Unemployment in South Africa is high and rising.

Economic growth of less than 3% a year tends to destroy jobs and with a forecast of only 1% next year and maybe 1.5% in 2018, jobs will be threatened.

So it is important that people have a large and growing savings and investment pool at their disposal that can be called on in emergencies like unexpected retrenchment or illness.

South Africa may have dodged a bullet with the ratings agencies this month but in June next year the process of conferring ratings will occur again.

And if growth is as pedestrian as forecast, the country runs a serious risk of having its sovereign debt downgraded to sub-investment or “junk” status.

Under such a scenario, interest rates would be likely to rise sharply across the board, affecting bond and other loan repayments. Once again, it makes sense to have a financial buffer.

The whole world has become more difficult to analyse in the past year, what with political and economic shocks emanating from the Brexit referendum in the UK in June and the Donald Trump presidency last month.

Next year and beyond are likely to remain highly volatile on the political and economic fronts, so it makes sense to be conservative with spare cash.

Bonds should be reduced wherever possible and loans repaid as quickly as possible.

Reckless spending should be avoided.

A little introspection will reveal that conservatism with respect to spending today can pay big dividends into the future.

THIS IS THE LAST BUSINESS COLUMN OF THE YEAR. IT RESUMES ON JANUARY 24