In line for a 13th cheque? How best to use the money

Come the end of the year, there will be those fortunate people who receive a 13th cheque or annual bonus.

If you're one of the lucky ones, NOW is the time to start planning what you'll do with that money, is the word from personal financial adviser Warren Ingram.

The most common mistake people make is to treat this 'extra' income as a windfall, because it's a big amount that arrives in your bank account all at once, he says.

"We would treat it very differently if we received this money in monthly instalments over the year."

You would probably never spend your entire monthly salary on a holiday, but many people will do that with their 13th cheque, notes Ingram.

The personal finance guru shares his tip for making the best use of the money.

1. PUT OUT THE FINANCIAL FIRES

Before spending the money on anything fun, handle these:
Outstanding rates bills or rent amounts that are overdue
School fees for January (avoid the scramble)
Any short-term debt that's costing you more than 20% interest (e.g. credit cards, overdrafts, personal loans)

2. START OR TOP UP YOUR EMERGENCY FUND

This is where the real power is:
Put at least one month's expenses into your emergency fund. 
If you don't have one, start it now. Even R3,000 is better than zero when your car breaks down in February.

If your emergency fund is good then you can:
Top up your retirement annuity before February tax deadline (you'll get up to 27% back)
Make an extra bond payment (saves you years of interest)
Start a tax-free savings account if you haven't yet

3. PREPARE FOR THE EXPENSIVE MONTHS AHEAD

January and February are often the most expensive months of the year -  your rent might be increasing, or you might have new school-year expenses
Set aside money now for these increases so that you start from a positive footing instead of trying to spend the rest of the year catching up

At the same time, enjoy some of the money IF YOU CAN, says Ingram.

One suggestion is to split your 13th cheque three ways: one third for catching up and getting ahead, one third for upcoming expenses, and one third for right now.

To hear Ingram's detailed advice, listen to the interview audio at the top of the article