How to get the most benefit from your bonus

Consumers who had to keep cutting their spending throughout the year look forward to the day their bonuses are paid along with their salaries. Shops where the jingling of Christmas songs encourages you to buy as much as you can are also not making it easier for you to think twice about spending your bonus.

But before you start spending your bonus, it is a good idea to take a step back and think carefully about how you can use your bonus responsibly. This year was tough and hard year for consumers. Interest rates increased even more, while consumers’ disposable income became less and less.

Everyone, even people earning more than R35 000 a month, had to tighten their belts just to put food on the table and pay their debts.

Therefore, it would be so nice to cruise into the shops and buy everything you desire: a new computer, a television set, or maybe an air fryer? Luxurious Christmas gifts for everyone? Anything that will only make you feel better about the financial hole most consumers find themselves in.

However, before you rush to the mall, stand back and think carefully again how to use your bonus responsibly. What is most important? To spend your bonus on stuff you do not really need, or to use it to achieve your financial goals?

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Use the 80/20 principle

It is good to get a bonus at a time of celebration to acknowledge your hard work throughout the year, but when you spend the money, you have to do it responsibly.

It is a good idea to use the 80/20 principle when deciding what to do with your bonus. According to this principle, you use 80% of your bonus money to reach your financial goals, such as reducing debt or saving and investing. You can then use the remaining 20% to reward yourself and spend it on your wish list.

You can use the 80% of your bonus to:

• Reduce your debt by making additional payments on your debt. Start with extra payments on your most expensive debt first, such as your credit card which is probably already groaning under your Black Friday shopping. By reducing your debt, you save in the long run by releasing cash that you would normally use to repay debt.
• Save for emergencies by putting some of the money into your emergency fund. It is a good idea to save the equivalent of three months of your expenses for unforeseeable events.
• Investing for the future. Talk to a financial advisor about investing for the future and remember higher interest rates mean the cost of loans is higher, but so is the interest on savings and investments.

Consumers should also remember that when you earn interest on a positive balance, it means you have the opportunity to generate additional income in the form of regular investment income. If you have not already started your investment journey, now is a good time to start by using some of your bonus money.