How to make the most of your year-end bonus

Saturday Star - - P E R S O N A L F I N A N C E - Mu­tual | Sup­plied by Old

THE “SILLY SEA­SON” is char­ac­terised by spend­ing: spend­ing qual­ity time with loved ones, and spend­ing more money than usual. Al­though mil­len­ni­als ap­pear to be more fi­nan­cially savvy than pre­vi­ous gen­er­a­tions, they face greater ten­sion be­tween the re­spon­si­bil­ity to pro­vide for their rel­a­tives and in­vest­ing to reach their own fi­nan­cial goals.

This is ac­cord­ing to the 2018 Old Mu­tual Mil­len­nial Sur­vey, which found that al­though South Africans be­tween 18 and 34 years of age are more likely to save and in­vest than older gen­er­a­tions, nine out of 10 of them are pro­vid­ing fi­nan­cially for their rel­a­tives.

El­ize Botha, the man­ag­ing di­rec­tor at Old Mu­tual Unit Trusts, says the fes­tive sea­son can be a par­tic­u­lar point of con­flict for money-savvy mil­len­ni­als. “The hol­i­days, which are of­ten as­so­ci­ated with both giv­ing to oth­ers and re­ceiv­ing a year-end bonus, can put young pro­fes­sion­als in a dif­fi­cult po­si­tion.”

How­ever, Botha says it is pos­si­ble for mil­len­ni­als to have their prover­bial Christ­mas cake and eat it, by ap­proach­ing the fes­tive sea­son a lit­tle dif­fer­ently this year.

“The first step is es­tab­lish­ing what is most im­por­tant in the big­ger scheme of things. This re­quires be­ing hon­est with your­self and your fam­ily about how much you can af­ford to spend, and how much you need to in­vest in or­der to re­main on track with reach­ing your fi­nan­cial goals.”

Botha ac­knowl­edges that finding this bal­ance can be dif­fi­cult. “You need to be re­al­is­tic. It’s the hol­i­days; you’re go­ing to be ex­pected to give a lit­tle ex­tra. But it’s im­por­tant to es­tab­lish how much you can af­ford to give, with­out harm­ing your goals,” says Botha, who sug­gests the 50/30/20 prin­ci­ple when it comes to de­cid­ing how to al­lo­cate your year-end bonus.

How­ever, she warns that be­fore a sin­gle rand is spent or in­vested, young pro­fes­sion­als need to do ev­ery­thing they can to re­duce their debt. “Debt re­duc­tion should be a pri­or­ity for any­one with short-term debt, which usu­ally car­ries the high­est in­ter­est rate. In this case, rather than in­vest­ing for the long term, it would make more sense to al­lo­cate 50% of any bonus to re­duc­ing short-term debt, such as credit cards, per­sonal loans or re­tail ac­counts, in or­der to save con­sid­er­ably by avoid­ing the high in­ter­est pay­ments.”

To stay on track with your goals, which are es­sen­tial for you to achieve fi­nan­cial free­dom, Botha sug­gests al­lo­cat­ing at least 30% of any yearend bonus to top-up your fi­nan­cial pri­or­i­ties. “This could be your re­tire­ment con­tri­bu­tions, emer­gency sav­ings or other long-term goals.

“Fi­nally, as long as you’ve taken care of your fi­nan­cial fu­ture first, you can spend the last 20% of your bonus on wants, in­stead of needs. You can spend this money on spoil­ing your loved ones and your­self over the fes­tive sea­son, as long as you’ve al­ready taken care of your fi­nan­cial well-be­ing.

“To reach our fi­nan­cial goals, it’s of­ten good to re­mind our­selves of what is most im­por­tant to us. Ev­ery per­son is unique, and our re­la­tion­ship with money is of­ten com­plex. When we’re work­ing to­wards some­thing that’s im­por­tant to us, we’re of­ten more will­ing to work harder to reach our goal,” Botha says.

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