Thought Leadership: Plan your bonus to last the long run

By Samuel Linyondi, Bank Windhoek’s Strategic Communication Manager

In October, the Bank of Namibia (BoN) left the repo unchanged at 7.75%, the highest in the past 14 years. If a repo rate increases, borrowing becomes more expensive, and product and service prices increase for consumers. The repo rate is one of the monetary tools to either control inflation or stimulate demand. Conversely, inflation is the rate of price increase over a given period. It is a broad measure of the cost of living in a country.

In one of its monthly reports, IJG Namibia said that Namibia’s annual inflation rate edged up to 6.0% in October from 5.4% year-on-year in September, the highest rate since May 2023. As a result, the repo rate and inflation influence our spending as we approach the Festive Season, especially now that most people will receive annual bonuses.

The Festive Season is when we spend the most on ourselves, holidays, Christmas shopping and New Year celebrations. With the current challenging economic situation and high inflation rate, bonuses disappear more quickly due to the high cost of living. However, if we plan our bonus and prioritise our expenses, we can see savings in the long run. How can this be achieved?

Ask yourself what you want to use the bonus for

Thinking about everything you want to buy or planning an extravagant vacation can be tempting as we approach the Festive Season. But before that extra deposit gets into your bank account, take some time to consider how you want to use it. No matter the size of your hard-earned bonus, you should consider how it can best serve you and your short and long-term goals. For instance, you can plan it in such a way that it will relieve your expenses for the first two months of 2024. Think of it as an opportunity to reset and prepare for the following year by doing the following:

Plan: We all know that January comes with financial obligations such as school fees, school supplies, and school uniforms. All these expenses happen before receiving our first salary in the new year. Set aside some of your bonus to ensure you are ready for these expenses at the beginning of the year. Ideally, financial planning should be forward-looking for at least 12 months and include already-known once-off costs.

Pay off some debt: It is essential to know that you should first pay off your loans and other obligations to avoid excess charges and potentially being blocked by a credit agency, as this will hamper your ability to borrow again. If you must catch up on due amounts, this is an excellent opportunity to make good on those payments and start 2024 fresh and worry-free.

Buy essentials now: Besides the looming Festive Season, there is also the temptation of Black Friday sales. There are some excellent prices on everyday necessities, and it is a good idea to use your bonus to buy extra groceries that will last from December until the end of January.

How about buying double the amount in pre-paid electricity to ensure the lights stay on in January. You can even ask the school if you can pay your child’s tuition for January 2023 in December to ensure you are ready for the new year.

Cover regular critical expenses in advance: If you can use your bonus to pay the rent or mortgage a month in advance, do it. Buy airtime vouchers and store them somewhere safe to recharge your phone and data in January. These ideas could help give you peace of mind for January so that you can enjoy your Festive Season.

Every year, we promise to do better the next. A good place to start is to budget. A proper budget begins with a detailed list of your expenses. What does your monthly grocery bill look like? How much is your rent or your mortgage? What do you spend on electricity and water, rates and taxes? Does your budget include savings? Detail all these expenses and see how they impact your income.

Remember, budgeting is a family matter, so the more input from the family on where to save on expenses, the more success you will have in sticking to the budget. Plan your budget for 12 months ahead and update it every month. You will be able to see emerging patterns in your expenses, like the month your vehicle license is due and those pressure points. You can adjust your spending accordingly or postpone certain costs to smooth out your financial position.