Use that 13th cheque to pound ‘Janu-worry’, improve your financial well-being

 

SPENDTHRIFT MENTALITY: A financial expert warns those lucky enough to get a 13th cheque to spend it wisely Picture: LEON SWART/123rf.com

Are you fortunate enough to get a 13th cheque this year?

Well, Alice Selokoma, regional general manager at Momentum Eastern Cape, provides the following tips for spending your 13th cheque wisely:

1) Save towards an emergency fund: “This year has seen South Africans really stretch their income to make ends meet. When you receive a bonus, this is the time to make wise decisions that will improve your financial position in the year ahead. For example, it is advisable to have between three- and six-months’ salary saved up as an emergency fund. Investing that money in a fund that is interest-bearing and easy to access would be a good choice to achieve this objective.”

2) Save towards your retirement: “Remember that up to 27.5% of your taxable income can form part of a retirement fund, which is tax deductible. I encourage South Africans to take advantage of this deduction and contribute a portion of their 13th cheque towards this fund.”

3) Settle your debt: “Your aim should always be to settle your debt permanently, rather than paying it off, taking out more credit and starting the cycle all over again. Use your 13th cheque towards settling debt like your credit card, outstanding medical bills or school fees. Then you can realign your financial plans and start saving.”

4) Pay off your home loan: “Always try to pay more than just the required monthly instalment towards your home loan. Doing this will reduce the interest you pay, which in turn, reduces your monthly expenses. If you have an access bond, you can always get the money should you need it in future; this will give you peace of mind.”

5) Don’t forget about January: “We often refer to the first month of the year as ‘Janu-worry,’ and for good reason. January tends to bring unforeseen expenses and hidden costs that may catch you unaware. In addition, because we receive our December salaries earlier than usual (in most cases), there is a long lead time before we get paid again; this wait can seem forever. However, if you’ve saved some money, you’ll be able to budget for typical ‘Janu-worry’ expenses like school fees, uniforms and car services.”

According to the most recent Momentum and Unisa Consumer Financial Vulnerability Index, the personal financial position of consumers is improving to pre-Covid levels during the third quarter of 2021.

However, key informants of the Index – a constituent of researchers, bankers, insurers, retailers, government, economists and analysts – advise that most consumers remain financially exposed in an economy teetering on the edge of vulnerability.
Given this context, those fortunate enough to receive a 13th cheque this year may be tempted to spend the fruits of their labour but are urged to rather use these extra earnings to improve their financial well-being.

Selokoma cautions against the spendthrift mentality: “It’s only natural for people to see their 13th cheque as an opportunity to splurge. However, for many South Africans who are feeling the added strain of increasing debt, a 13th cheque can reduce the pressure on their income in the coming months and plan ahead for unforeseen and emergency expenses.”

As Selokoma suggests, the spending portion of a 13th cheque should be limited to 10%, with 90% of the bonus being allocated to achieving a healthy financial position; becoming debt-free and equipped in times of emergency.

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