If you are lucky enough not to have a mountain of debt to pay off, investing your bonus to ensure it grows for later is a good option.
Millions of South African consumers are wating with bated breath for their phones to ping on Friday night showing that their bonuses are now in their accounts.
Most of them have planned already what they want to do with the money but think again to ensure you spend it wisely.
The best option is always to pay off debt to ensure you save on interest and free up more money every month going into the new year, starting with your most expensive debt, such as your credit card.
Thomas Berry, head of sales at PSG Wealth, says you can make your bonus work for you if you do not go out and spend every cent immediately.
“As we approach the festive season, many consumers are eagerly waiting for their annual bonuses, a well-deserved reward for a year of hard work.
“And while the temptation to splurge is strong, using this money wisely can reshape the course of your long-term financial future.
“Allocating even a portion of your bonus to strategic investments can unlock opportunities for growth and financial security.”
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Two smart options to invest your bonus
Two smart options for South Africans who want to maximise their bonuses are retirement annuities (RAs) and tax-free savings accounts (TFSAs).
“These tax-efficient investment vehicles do not just grow your wealth, they also offer distinct advantages that make your money work for you and now is the perfect time to start.”
Berry says time is one of the most powerful tools in your investment arsenal.
“Thanks to the power of compound interest, even small contributions made today can yield substantial returns over time. Compounding allows your investment to grow not just from your contributions, but also from the returns generated on those contributions, creating a snowball effect.”
However, he points out that timing is not just about starting early. “The end of the tax year, which falls at the end of February 2025, is a critical window to take advantage of tax benefits tied to RAs and TFSAs.”
Berry says retirement annuities are always a win.
“An RA is not just a retirement tool. It is a tax-saving powerhouse. Contributing to an RA 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.”
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Retirement annuities for long-term savings a good idea for your bonus?
RAs are designed for long-term savings, with access restricted until you turn 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.
Berry points out that tax-free savings accounts offer growth with flexibility.
“TFSAs offer the perfect balance of tax efficiency and accessibility. You can contribute up to R36 000 annually and unlike an RA, you can access your TFSA funds at any time, making them a great option for medium- to long-term goals, such as saving for education, a home deposit, or even as a backup emergency fund.
“Just remember, withdrawals permanently reduce your lifetime contribution limit of R500 000.”
He says another unique feature of TFSAs is the freedom to invest across asset classes, unconstrained by Regulation 28 of the Pension Fund Act which 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.”
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Use your bonus to build a legacy
You can use your bonus to build a legacy, one smart choice at a time, Berry says.
“Using your bonus to invest is not just about you, but about setting an example for your family. It is proof that making a smart decision today can build lasting financial security.
“Whether it is through the disciplined growth of an RA or the adaptable benefits of a TFSA, the choices you make now can create a legacy of sound financial planning.”
Berry says the key to making the most of these options is strategy.
“Work with a financial adviser to determine how much of your bonus you can allocate, how to balance short-term needs with long-term goals and which vehicle best suits your unique situation.”
This festive season, give yourself more than just a short-lived reward. Invest in your future and let your bonus be the gift that keeps on giving. You worked hard for it, now let it work hard for you, Berry says.
