For those of us lucky enough to get an end-of-year bonus, this time of year can be a tantalising wait for that extra cash to hit our bank account. Chances are you've already got more than a few ideas on how to spend this seasonal windfall, but could there be a better way to make that money work for you?
“It’s really easy – particularly over the festive season – to splurge our year-end bonuses on little luxuries and impulsive buys that are fun in the moment, but add very little lasting value to our lives,” says Leonard Kondowe, National Admin Hub Manager for Rawson Finance. “That’s all well and good if you’re rolling in money, but most of us are under a little more financial pressure than usual these days. Being smart with our bonuses, particularly as homeowners, can make a big difference to our financial wellbeing in the long term.”
While some property experts advise putting your year-end bonus straight into your bond, Kondowe says there are a few other areas that could probably use the money first.
“Credit card bills, store accounts, personal loans – if you can clear those high-interest debts using your year-end bonus, it can relieve a huge amount of financial pressure come January,” he says. “Keep in mind, things like school fees will be coming due around that time too, so getting rid of additional monthly expenses like credit debt repayments will really help ease your cash flow in the new year.”
After clearing short-term debt, Kondowe says putting your bonus into your bond is absolutely the best way to get the most bang for your buck. It may not be the most festive prospect, but the huge financial impact it can have could see you celebrating far more than just the holiday season.
“By investing that R21k into their bond, Kondowe says the bondholder would not only reduce their loan repayment term from 20 years to 18.75 years, but also reduce their total loan amount to be paid as the additional payment will be reducing interest payable over the lifespan of that mortgage bond."
Kondowe does, however, caution homeowners not to expect their minimum monthly repayments to change if they invest their bonuses this December.
“A lot of people assume that if they pay more than their minimum bond payment one month, they can pay less in the following months because they’re ahead of the curve, so to speak,” he says. “This really isn’t the case – the contract you have with the bank lists specific minimum monthly repayments and those figures are binding, no matter how far ahead you may be on your repayment schedule. If you don’t meet your monthly minimums in future, you’re not only going to erase any long-term benefit of putting your bonus into your bond, you’re going to land up in big trouble with your bank and jeopardise the security of your home loan.”
If the thought of being responsible with all your bonus money is too hard to bear, Kondowe says keeping some aside for festive fun isn’t the end of the world for your financial wellbeing. However, if you’re keeping cash aside as an emergency fund, he strongly suggests storing it in your bond instead, and using the access facility to withdraw it again if you find yourself facing a financial emergency.
“Any equity you accrue in your bond – payments above and beyond your minimums – helps minimise the interest you pay in the long term, but can be withdrawn at relatively short notice,” he says. “That means you can get all the benefits of investing your bonus into your home loan without losing the safety net of extra cash in hand for unexpected expenses. It really is the best of both worlds, and that’s something to celebrate!”
