Make the most of your stokvel payout

Plan your spending

The end of 2015 is almost here, and this means it’s the time for your stokvel to pay out. Often, stokvel payouts are spent on food, Christmas gifts, clothing and furniture. But instead of seeing this money as an opportunity to spend more on Christmas gifts or splurge on unnecessary items, consider it an opportunity for wealth creation. What is the best way to utilise this money?

Be wise: budget

Most of us tend to start spending the money before it is even in our account. This can lead to bad spending habits and get us into debt. Make sure you know the state of your financial affairs by creating a budget to keep tabs on your expenditure and prevent any impulse buys. Plan your spending, so you know where your money is going.

Believe it or not, it’s the end of the year in just a few weeks, and traditionally this is the time when stokvels pay out to their members. What will you do with your cash?

Pay off debt

Don’t put the money paid out by your stokvel into a savings account, even though this sounds like a wise plan. If you have any debt on an account, credit card, home loan or car, it is in your best interests to pay these off as soon as you can. Any credit provider will charge interest on the money you have loaned for a purchase, and this interest will continue to add to the amount you owe. By paying off the debt you have, you will save on the interest being added to the debt monthly. Paying off what you owe ahead of the scheduled payments will also improve your credit score. Your debt will cost you more on a monthly basis than the interest earned if keeping the money in a savings account. Start by paying off the debt with the highest interest rate first, or the account you are closest to paying off.

Invest in your retirement

Very few South Africans have made adequate provision for their retirement, with many relying on their children to provide for them in old age. Many pensioners also rely on the state for grants – these barely cover essential needs, never mind putting money aside for the future. There is a gap in the market that stokvels could fill. By taking the principles of stokvel savings into a retirement plan, members would gain several benefits:

  • The low-cost nature of stokvels would result in a cost-effective retirement plan for members.

  • The clearly defined savings period could be adjusted to suit the needs of various members, depending on the ages of the participants.
  • The nature of stokvels would encourage members to keep their money in a savings account, and prevent members from withdrawing their savings.
  • Members would have direct control over their assets, although there would be a need for a regulatory board to oversee the administration of the funds. The stokvel would have to be underwritten by the government for legal purposes.
  • Such a retirement plan could also offer tax benefits for stokvel members.

Open a tax-free savings account

Saving money means there is a boundary between you and your cash – it prevents you from spending it rashly. New legislation means South Africans can now invest in a savings account, completely tax-free. So put your payout to work by investing in such a tax-free savings account – with no minimum deposit required, you can invest up to R30 000 in a tax year and R500 000 in total during your lifetime without paying any tax on that money. You also have flexibility, as you can contribute either a lump sum or regular amounts – plus there are no exit penalties if you decide to close the account or withdraw a certain amount. However, taking money out of the account will affect your savings goals as well as using part of your lifetime limit for tax-free savings, so it is best to leave the funds in the account. Keep in mind that tax-free investments only apply to new investments.

Grit your teeth and do the grudge purchases

Spending money on things like school fees and car tyres isn’t as glamorous as going on a shopping spree, but it is necessary. Plan ahead for the next few months and create some breathing room for yourself financially. Pay school fees and do any maintenance around the house that requires immediate attention – this will have the added benefit of enhancing the value of your property. Alternatively, put some of your stokvel payout into your bond to reduce your monthly bond repayments. One of the best and most responsible things you can do with your cash is put aside some funds for emergencies, so that you are not caught off-guard. This can prevent you from using credit and ending up in debt when you least need it.

Your stokvel payout is the result of many months of responsible saving on your behalf – use (or save) your hard-earned cash wisely and pave the way to a more financially secure future.