What to do with your 13th cheque or annual bonus

In some workplaces, people receive what used to be called a thirteenth check. It happens at different times in the year, either in your birthday month or the end of the year. It brings a critical choice: immediate gratification or long-term security?

Stephen Grootes speaks to Warren Ingram, financial adviser and co-founder of Galileo Capital, about what to do with your 13th cheque or annual bonus. Listen Below...

The first mistake people make, Ingram explains, is a psychological one. We often treat this hard-earned money as a "lucky windfall" instead of what it truly is: another month's salary. "There's no way that you would take your normal monthly salary and just spend it all on one holiday," he points out. His recommended mindset shift is simple yet powerful: view the bonus as a lump sum to be divided thoughtfully, not a single amount to be spent freely.

So, what should you do with it? Ingram advises a structured approach, starting with what he calls "financial fires."

• First, extinguish high-interest debt. This includes credit cards, personal loans, and especially informal loans. "If you've got a debt that costs you more than twenty percent a year, that's a financial fire," Ingram states. Paying off a credit card charging 25% interest offers a guaranteed return that far surpasses most investments, freeing up your cash flow for the months ahead.
  
  
• Second, build your financial shock absorbers. "The thing that separates people who get onto that financial freedom path is an emergency fund," Ingram emphasises. Aim for three months' worth of essential expenses. This fund acts as a buffer for unexpected car repairs or medical bills, preventing you from falling back into debt.
  
  
• Third, get ahead of known future expenses. For parents, January brings school fees, uniforms, and books. For others, the new year may bring increased rent. Using your bonus to pre-pay or set aside money for these predictable costs eases the financial pressure of the first quarter.

Finally, once the essentials are covered, Ingram gives permission to enjoy a portion, perhaps 10-20% guilt-free. "We should reward ourselves," he says, "but we should just do it in balance." By allocating your bonus wisely, you can secure your finances and still enjoy a well-deserved treat, turning a short-term windfall into lasting financial progress.