Those South Africans who are privileged to receive a year-end bonus from their managers must use these finances to enhance their financial situation and retirement accounts rather than blowing it all on Christmas period fun. Debt is an issue and on top of that, increased prices for petrol, food, home loans, and numerous other components are leaving South Africans with minimal or no additional money.
Blessing Utete, Managing Executive at Old Mutual Corporate says that the subsequent rate increase of 75 basis points, which nudged rates to their highest level since 2016, is a reminder to South Africans to prioritize better financial management for themselves to guarantee peace of mind both now and when they retire.
“Expenses are consuming our budgets – it’s a hold up at the petrol pump every time we refuel, food inflation is in double digits, residential mortgage debt payments on a new R2-million bond are up by approximately R4000 a month since the beginning of 2022, and Eskom has suggested a taxation fee increase of 32%,” said Utete. “All of these things are making it harder and harder for us to make ends meet.”
Everyone is having a hard time, but trying times like these should be used as an opportunity to become smarter with money. People who entered the year 2022 with heaps of debt and zero on their retirement and savings accounts are faring much worse than those who entered the year with little or no debt and some savings, which is even better.
According to Utete, the sudden appearance of Covid-19 demonstrated that crises can appear out of nowhere and that it is imperative to make preparations and plans regarding one’s finances to maintain mental stability during times like these.
Even if you had fallen on hard times by the year 2022, your bonus could provide you with an excellent opportunity to position yourself to become smarter with money and resistant to the effects of shocks in the year 2023. Think about getting started on this journey by selecting one of these three options:
Start With Your Savings
The best place to begin is to put all of your bonus money, or at least a portion of it, into a savings account for use in case of unexpected expenses or into an investment. Having funds set aside for unexpected costs, such as those associated with the repair of a vehicle, the purchase of new home appliances, or a visit to the dentist, is a smart move.
“It’s better to put away even a small amount of money than to spend all of it on celebrations and gifts during the holiday season.” In the words of Utete, “developing compelling habits involves taking the first step, but then following that up with another step, and another, and another until you’re walking the route of a fiscally responsible person.” “Then, the next moment the route gets wet, and a few cracks appear, you’ll be fitted to handle it while others around you are losing their footing,” says the speaker.
Get Rid of Your Debt
According to Utete, the year-end bonus could be put toward paying off personal debt, which is significant given that some estimates suggest South Africans spend up to 75% of their salary on the cost of maintaining their credit. According to him, the first step is for people and households to honestly assess their level of debt in the present day.
“Once you have a complete accounting of how much money you owe, you will be able to devise a plan to get rid of particularly high-interest debt. Your strategy for addressing your debt should include provisions to ensure that you are current on payments for things like rent, utilities, and bonds.
Your bonus at the end of the year gives you the impetus and the resources you require to begin hacking away at your debt problem by settling at least one of your credit cards or loans. The start of new year couldn’t get off to a better start than this. After you have paid off your existing debt, he advised, “You mustn’t take on any additional debt at this time.”
Put Money Away for Your Retirement
Those who are thinking beyond the year 2023 will find that putting their bonus money into retirement savings rather than blowing it all on vacation fun will have a significant positive impact on the quality of their retirement years.
He emphasizes that for the typical worker to retire in comfort, they will need an amount that is between nine and ten times their yearly salary. According to the findings of the Old Mutual SA Retirement Gauge 2022, which took a comprehensive look at the retirement savings behaviors and retirement preparedness of South Africans who belonged to umbrella funds as a result of their employers’ occupational strategies, only a tiny fraction of South African workers are handling to win the retirement funds war by choosing the right financial decisions.
Consider putting your bonus money into investments as deferred gratification or a present to yourself in the future. Although the majority of people in South Africa do not have sufficient savings for retirement, more of us might be able to avoid the savings gap if we invested in cash windfalls, according to Utete.
“The Old Mutual SuperFund, for instance, enables personal lump sum donations. This means that staff can top-up their retirement funds contributions if they really want to do so, generally speaking, even if they’re saving in a group retirement account. If you want to do this, you can do so.”
According to Utete, workers need to make a spending plan and establish spending priorities to make the most of their money, and Utete recommends that employers remind their workers of the choice to put a portion of the bonus funds into their savings accounts for retirement.
We are aware that a lot of people continue to make the same errors when they get a large sum of money all at once, even though they could be well on their way to becoming financially independent if they would just develop some solid personal finance habits. He concluded that 2023 should be the year of responsible management of one’s finances.