Highlights in this issue:

*** Don’t forget the 10:90 split – after all, you deserve a reward too…
*** Top tip: Run your finances like you would a business…
*** The 10 things financial advisors believe you should do with your cash…

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From the pen of Karin Iten…

Dear Investment Academy Reader,

It’s that time of the year again. When the festive season takes over and employers embrace the holiday spirit of giving. And even though your Christmas bonus probably won’t shoot the lights out this year, a little extra money never hurt anyone.

But with it comes a new stress: What do you do with all that extra change? Do you go out and splurge on a little something for your wife? Or do you do the responsible thing and pay a little more off on your home loan?

Obviously, it’s up to you. But in case you’re stuck, I’ve scoured my bank of personal finance contacts to help you do the very best with your bonus this year.

Here’s the top ten on my list…

Tip #1: Go on, live a little!
You’ve worked hard to earn that extra cash, so go on, treat yourself to something nice you wouldn’t be able to afford without the extra cash injection, advises mortgageloan.com’s Anders Bylund, but use a modicum of control and don’t blow it all on fun-filled goodies.

To make sure you don’t get carried away, set aside a predetermined portion of your bonus to spend on frivolous fun – say 10% or so. And don’t let yourself feel guilty – after all, we all need to indulge from time to time. Use the 10:90 split - 10% for you and 90% for your savings.

Tip #2: Save a minimum of 50%
According to the Debt Help Financial Services’ (DHFS), Levin Born, during a downturn, South African’s should run their households as they would a business – by cutting costs.”

And that’s why this Festive Season, they’re advising you save a minimum of 50% of your annual bonus. Doing so will not only give you access to “cash” when you need it, it’ll reduce the need for credit.

Tip #3: Kick-start your investing habits
“Whether you want to retire early, save for your children’s education or put aside some funds for that pilgrimage to Israel, this is the time to pump up your savings or investment funds,” says The Star.

And there are numerous investment tools out there where you can park your funds and leave them to grow for you.

Products such as the FNB Money Market Investor account are an ideal product for this purpose suggests MoneyWeb.

Tip #4: Bolster your emergency fund
Do you have three to six months' salary stashed away in your emergency fund? If not, you could be in big trouble if you lose your job. But since you’ve been lucky enough to get a bonus this year, why not save part of it for a rainy day? If something unexpected and expensive were to happen, you’ll have a cushion to soften the blow. It’ll also help you ensure you don’t dig yourself further into debt at a time when you can least afford it.

Handy hint: It’s no use stuffing a few rand under the mattress. You need to use a vehicle that’ll help you beat inflation. So talk to your financial advisor about the best high-interest savings or money market option out there – just make sure you find out how easily this will be available should you need to access this money in a hurry.

Tip #5: Prioritise your debt
Over time, the cumulative effect of overdue balances can seriously erode your dreams of financial freedom, so be responsible and clear your debts this year.

According to Deon Hattingh, an authorised independent financial advisor, the most important thing you can do with your bonus is pay off arrears, debts and other financial necessities.

Let’s face it, no one wants to start a new year by paying off the “sins” of the previous one. But if your bonus doesn’t cover the full amount, start with the debt you’re charged the highest interest rate on. Credit cards, for example, charge you around 18% per year – so you might want to consider starting there.

The Debt Help Financial Services’ (DHFS) 5 top ways to spend your bonus…

Tip #6: Buy a new set of tyres. Doing so will help you save on fuel and the maintenance of your car.
Tip #7: Pay your child’s annual school fees in advance – you’ll generally get a discount and only end up paying for ten months and not 12. So speak to your child’s school about this to find out what discount you’ll be entitled to.
Tip #8: Pay off at least two of your outstanding credit facilities (whether it be credit cards or personal loans) and close them.
Tip #9: Pay a hospital plan or insurance policy upfront for a year – this should drastically reduce the amount you owe insurers over the coming year. Plus, it’ll free up extra cash.
Tip #10: Pay all outstanding service bills such as electricity and water. With Eskom’s 2010 35% price hike just around the corner, you won’t want to be stuck paying more than you have to.

Well, that’s all for this year. We’ll be back on the 8th of January 2010 with our first issue of Investment Academy for the year. So here’s wishing you and your family a blessed festive season.

See you in the new year…

Karin Iten
For the Investment Academy