Many people stand to receive a bonus at the end of the year. Whilst these bonuses may be dependent on different criteria, it is often the equivalent of one month’s salary or even a little more in real terms as some companies deduct progressive tax throughout the year. However, very few of us get to experience the full benefit of a bonus.
Why would this be?
In today’s world the need for instant gratification and the pressure on our day to day finances means that many have ‘pre-spent’ the bonus. When the money comes through it is used to “balance the books” by settling the credit and store card debt. Often a bonus is used to buy things that are a ‘want’ and not necessarily ‘need’. Adverts at this time of year prompt you to buy something now on credit because you owe it to yourself. Marketeers use the tactic at the end of the year to coerce consumers to buy the new model before Christmas and only start paying for it in a few months’ time. The average consumer is unable to calculate the resultant destruction to their finances in the longer run through the resultant interest charge. There’s no free credit and you pay for it by means of more interest over a longer period of time.
It is not wrong to spend some of you bonus on items you really need, but because most of us do not budget properly throughout the year it is often used to settle debt with little or no investment for the longer term.
If budgeted correctly, the utilization of some of your bonus can even result in you gaining financial freedom much sooner than you thought or anticipated.
If you, for instance, use some of the bonus to top-up your retirement annuity, you not only benefit over the longer term by enhancing your retirement savings but you also save on income tax. The income tax saving can then be utilized to add to your discretionary investments such as unit trusts. If done consistently over time it can boost your financial independence significantly.
One can safely use the balance of your bonus to buy the Christmas gifts and other articles that you need.
Also, it is worth remembering that a bonus is just that…a bonus. If it does not materialise this year, be careful not to aggravate a potentially already serious debt situation by acquiring more debt. The month of December, with customary festivals and increased social events often places one under considerable pressure to spend more. If you are facing such a high debt scenario as many consumers find themselves in, try and avoid these pressures.
December is a time for family and happiness but avoid irresponsible spending as it will wreak havoc with your carefully constructed long term financial plan. Rather use this time to strengthen your financial plan so that 2019 can be an even better financial year for you.