iTK Newsletters

DO NOT TAKE A 13TH CHEQUE

20th September, 2009 - Posted by Editor - No Comments

A popular practice amongst companies today is to allow staff to decide whether or not they would like a 13th cheque at the end of the year. The staff member can elect to receive his or her annual salary in 12 monthly payments, or reduce the amount paid each month in order to build up a reserve which is paid out as a bonus, or 13th cheque.

This is fantastic for those of us who know that we will not be able to save up money over the year to cover festive season expenses, as the company enforces the savings plan for us. However, while the company also has the benefit of sitting on these funds over the course of the year, you get absolutely no benefit in terms of interest on these funds.

A far more beneficial option is to take the money each month, i.e. opt for a larger salary, and deposit the difference (i.e. the amount by which your net salary increases by electing not to receive a 13th cheque) into your bond account. You can then draw your “bonus” from your bond account at the end of the year, plus you have saved interest on your bond throughout the year.

Assume that your net salary increases by R1500 per month (i.e. a net bonus after tax of about R18 000 per year) after you elect not to receive a 13th cheque, and you pay this extra money into your bond account each payday from January till November (11 payments), and draw the sum total of these funds out in December. Doing this for just the first year of a 20 year bond knocks 4 months off your bond term. If you repeat the process year after year, you will reduce your bond term by over 2 years. Your salary will probably increase every year, and thus your payments into your bond account will increase, and this will even further multiply your gains.

Don’t forget, you haven’t had to pay any extra money into your bond; you have merely used your bond as a savings account to build up your 13th cheque rather than allowing your employer the benefit of sitting on this money throughout the year.

Two additional advantages to this method are:

• You can draw your “bonus” on whatever date suits you, not when your employer decides
• You can determine how much of a 13th cheque you would like, and increase / decrease your monthly payments into the bond to cater for this.