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Make your December bonus count — a guide to financial freedom

Make your December bonus count — a guide to financial freedom
Lisakanya Venna
By Lisakanya Venna
17 Dec 2024
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With the festive season comes the excitement of opening your wallet and indulging in the spirit of giving. While you might be eager to treat yourself and your family to gifts and holidays, using your bonus wisely can have a profound impact on your short- and long-term goals.

Some lucky South Africans can expect a welcome surprise as annual bonuses are paid. According to the third quarter Employment Statistics for South Africa, bonus payments rose 13% by R6.9-billion to R60.7-billion in September 2024, from R53.8-billion in June 2024. The quarterly increases were mainly due to growth in business services and community services.

Smart investment options 


Thomas Berry, head of sales at PSG Wealth, says two “smart” options for South Africans looking to maximise their bonuses are retirement annuities (RAs) and tax-free saving accounts (TFSAs).

Retirement annuities: Contributing to a retirement annuity allows you to deduct up to 27.5% of your taxable income annually, capped at R350,000. This reduces your taxable income, putting more money back in your pocket while growing your nest egg tax-free. Retirement annuities are designed for long-term savings, with access restricted until you’re 55 or upon early retirement due to permanent disability. This ensures your funds remain secure for retirement. When the time comes to withdraw, only a portion is taxed, making it a cost-effective way to secure your future.

Tax-free saving accounts:  offer the perfect balance of tax efficiency and accessibility. Your TFSA funds are accessible at any time, making them a great option for medium- to long-term goals like saving for education or a deposit for a home loan. Although withdrawals permanently reduce your lifetime contribution limit of R500,000, another unique feature of TFSAs is the freedom to invest across asset classes, unconstrained by Regulation 28 which is issued under the Pension Fund Act and sets limits on how retirement funds can be invested in various assets or asset classes. This allows you to align your investments with your risk appetite and financial goals.

Five ways to use your bonus 


Receiving a bonus can be a great opportunity to boost your financial well-being. As Ester Ochse, product head at FNB Integrated Advice, points out: “Receiving a windfall like a bonus can really go a long way towards a great financial future without overextending yourself.”

Ochse suggests five smart ways to use your December bonus responsibly:

Use the 80/20 rule: Allocate 80% of your bonus towards your long- or short-term financial goals, then 20% towards fun and treat yourself.

Pay off unsecured debt: Consider paying off expensive unsecured debt with your bonus to save money in the long run, starting by making a comprehensive list of your debts, including the outstanding amounts and accumulated interest. This will give you a clear picture of how much debt you can settle with your bonus. 

Create or add to an emergency fund: This type of account is easily accessible within seven days’ notice and earns interest. The goal is to save between one to three months’ income in an emergency savings fund. Having this fund in place will help significantly if an unexpected expense arises, allowing you to avoid going into debt.

Think about long-term financial goals: After settling your unsecured debt and establishing an emergency fund, consider allocating the extra funds towards your long-term financial objectives, such as retirement, education, or saving for a home or car deposit. By doing so, you can tap into the benefits of capital growth and compound interest. For long-term investment growth, consider options like unit trusts or exchange-traded funds, which can help you achieve your wealth creation goals.

Spoil yourself responsibly: Finally, it’s time to reward yourself with a portion of your bonus – the 20% you set aside. You’ve worked hard all year, and it’s OK to indulge in something special like treating yourself to something you wouldn’t normally buy or taking your family on a well-deserved holiday. Always bear in mind that you need to control your money, don’t let it control you. FNB has tools such as the Nav»Money Smart Budgeting functionality on the FNB app to help manage, set up and track your budgets over this time,” Ochse added.

Your money personality


Making the most of your bonus requires more than just smart strategies – it also requires a deep understanding of your own financial behaviours. 

Momentum’s head of behavioural finance, Paul Nixon, sheds light on how our money personality plays a significant role in our spending habits. Integrating behavioural science with financial decision-making, he points to the marshmallow experiment, first conducted by psychologist Walter Mischel in the 1960s, to explain delayed gratification.

In the experiment, children were given the choice of one marshmallow immediately or two if they waited 15 minutes. The findings were profound: children who resisted immediate gratification tended to perform better in school and achieved greater success later in life. Nixon believes the concept of delayed gratification also applies to financial decision-making for households.

Bertie Nel, head of financial planning and advice at Momentum, says money personalities, much like the impulse control observed in the marshmallow experiment, reflect how we approach spending, saving and investing.

“Understanding your own financial behaviours gives you more control over how you manage your spending,” he says.

Nel also recommends being more goal-oriented, practising self-control and understanding your relationship with money to help you avoid impulse spending. DM

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