Many people tend to spend their year-end bonuses by the end of December, but it’s important to remember that the holiday season is about spending time with the family and not solely about spending money.
Wade Trussell, Financial Advisor for Discovery, says it’s wise to plan how you are going to spend your bonus. “After a year of working hard, it’s very tempting to go on a shopping spree. But it’s important to consider your short-term and long-term financial goals. What are you hoping to achieve financially in the next six months or year? How can this extra money help you accomplish those goals?”
The following guidelines from Trussell can help you make informed decisions:
Pay off your debt
Making lump sum payments can reduce your interest, particularly on your big debts, and can assist in freeing up more disposable income in the long term.
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Reduce your long-term mortgage by paying extra lump sums on a regular basis. In time, this will help you take months, even years, off your bond repayments.
Make advance payments
It may be to your advantage to pay upfront for things that require a monthly payment. For example, some schools offer a discount for paying your children’s school fees upfront.
It’s always wise to invest your money. There are a wide variety of short- and long-term investment options available. For more information, consult a financial advisor to find an option that caters to your needs.
Put it towards your pension
To avoid paying tax on your bonus, request that your employer pays your bonus directly into your pension scheme. It is always advisable to put extra money into your retirement fund, be it through your employer or your personal pension plan.
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Life has a way of throwing you some unexpected curveballs. You should always have six times your monthly salary for unexpected expenses, so stash your bonus away for a rainy day.
Pay for big purchases
Have you been meaning to service your car, make renovations to your home or buy furniture? Use some of your bonus to pay for these miscellaneous purchases.
Treat yourself and your family
Once you have identified your financial needs and used some of your bonus to pay off your debt, use some of the money to spoil both yourself and your loved ones.