What the tragic year 2020 has been? COVID-19 will leave a deep scar in our global history having devastated lives and livelihoods.

The worldwide lockdown created records in the financial markets which in turn left some big questions for your personal finance.

The Global Stock Markets recorded the fastest fall in financial history and the most devastating crash since the Wall Street Crash in 1929. In the same year, the S&P and the Dow reached record levels.

Should I invest in shares?
Shares are risky and should be well understood before investing. They tend to do better over time. However, the sharp fall experienced this year could be a precursor of things to come. A concern is how companies will make manage their way through our devastated economy to make profits to pay dividends.

Interest rates reached their lowest in nearly 47 years with the Reserve Bank cutting rates 3% in 2020.

Should I fix the interest rate on my bond?
The bank sets the rate if you decide to fix it. This will probably be at a higher rate than the current level. They anticipate future interest rate movements and cover themselves for probate outcomes. So you will probably pay more now for the foreseeable future until interest rates increase to the fixed rate.

The Rand reached the weakest level at R19 against the US Dollar in April this year.

Should I invest offshore?
The rand is volatile and 60% undervalued. Conventional wisdom is to invest abroad in other currencies to protect value. The problem is which currency and what investment? Interest rates offshore are zero. Property and stock markets are expensive and risky. The decision is difficult with the uncertainty of the pandemic still playing out throughout the globe. Paying off debt whilst interest rates are low is a certain option which should not be ignored.

These questions do not have quick answers and should research carefully.

Using your credit and debit cards more efficiently can save you a lot if you get to understand them a whole lot better.

Debit Cards                                                                                                                Debit cards are linked directly to your bank account. So when used to buy something
the money is immediately debited off the balance in your account. Pretty useful for those who are weary of overspending during the month.

Credit Cards                                                                                                              Credit cards work a bit differently. The bank allows you a limit to use the card during the month. However, you need to pay back the amount owing at the end of the month otherwise you pay around 20% interest on the balance. The bank gives you around 3 weeks from the statement date to make this payment before it levies the interest. So you need to be aware of the balance and make your payment in time to avoid the costs.

At the outset, it appears that debit cards are the way to go. Less hassle as you are spending your money and don’t need to worry about getting into debt which costs you interest.

But wait a bit……there are fees to consider

The debit card charges you for each transaction that you make whereas credit cards don’t. So here is where you can take charge and earn a bit extra.

If you plan your month more carefully setting aside an amount of money which you intend to use then you should use your credit card
for all transactions, saving you a fortune in transaction fees. Come to the end of the month you have the money set aside to settle the balance and avoid the interest.

So the outcome of using a credit card wisely is that you are using the bank’s money free of charge. You can get extra mileage if you keep the money in your access bond or an interest-bearing bank account. You could get even savvier by linking these accounts to your Internet banking profile so that you can keep an eye on the credit card balance and transfer the balance immediately when you need to.

Understanding the way these cards work can turn the costs into a benefit…..

Assume you make 20 transactions on your debit card in a month. You pay R4 per transaction which amounts to R80. Using your credit card will save you this R80. If you have a spend of R10 000 in a month and keep this in your bond @ 10% then you receive and extra R80. You then have made R160 for the month. If you reinvest this earning say 5% then you will have R10894 after 5 years.

So getting savvy with your cards can make a difference if you really set your mind to it. It takes focus and discipline.

A year-end bonus, 13th cheque and or any other extra cash that you might be lucky enough to have at this time of the year creates opportunities if you are aware of them.

What does money mean to you?
Wealthy people have an understanding of how money makes money. They look for opportunities to grow their wealth. That’s why they are wealthy.

They tend to:

Delay gratification
Save first and spend the rest
Live within their means.
Earn interest rather than pay it.

The antithesis of this is:

Live for today… so buy now and pay it off
Immediate gratification.
I want it because I want it

A plan for your bonus

Challenge yourself to keep as much of the bonus as possible away from the festive spend which sets you up for the New Year.

Contingency Fund
Allocate some money towards a contingency fund for emergencies and unforeseen expenses. Money market accounts are ideal for this as they offer higher rates of return than retail savings accounts and provide immediate access to your funds when you need them.
Generally, one should have between 3 and 6 months of one’s monthly expenses. So start this fund with a generous allocation from your bonus.

Target your debt
Your debt repayments should ideally be no more than 30% of your income. Every rand allocated to debt effectively earns the rate of the interest being charged. So target your highest interest-bearing debt first as this will earn the most in savings.

Save first and spend the rest
It’s year-end and of course, you have to splurge a bit. However, saving a portion in cash and reducing that debt will go a long way to placing you on the front foot of your financial planning. What is left behind is for your festive spending. Enjoy it with peace of mind that you have some savings.

COVID-19 and the lockdown put many of us under financial stress. If we had had a cash reserve and fewer debt things would have been so much easier. Your bonus is a special opportunity so use it wisely.