At this time of the year, some of us are fortunate enough to be in ‘bonus’ discussions with our employer. If you are gearing up to receive a bonus this year, there is certainly no shortage of possibilities of what to do with it.
Save or splurge?
Christmas is just around the corner as is sale season so after what may have been a busy and demanding year, you might be tempted to splurge your money on a little indulgence. Of course, if you are on top of your finances and your debt is tracking well, a splurge may be just the boost you need to start 2017 refreshed.
For the prudent savers, you could consider some longer term opportunities that could help build your personal wealth as we forge into the new year.
We have a list of options for you to consider and of course, your financial adviser is the person to speak to about how you could make a little bonus work a little harder.
Reduce your debt
A savings account can be a good start, especially if you manage to secure a decent interest rate. However, with the money being so easily accessible there is the temptation to spend it before it has had the opportunity to really gain momentum.
An alternative option is to consider paying down your mortgage or other personal debt. This could reduce the amount of interest you pay over the long term and help you be debt-free sooner, allowing you to then consider some wealth accumulation strategies.
Another option is to talk to your financial adviser about investment opportunities such as shares, a managed fund or possibly bonds. Based on the amount you have to invest, your financial goals and your tolerance to risk, an investment strategy tailored to you may be a way to get your money working hard over the medium to long term.
Boost your super
Superannuation is an important part of our future. Having the financial freedom to retire when we choose with an ongoing income attune to our current lifestyle is the dream for many of us.
Directing your bonus toward your superannuation fund can be a good way to build for your long term future due to the concessional treatment it attracts and because it may be invested for long enough for the cash injection to grow significantly between now and your retirement.
If you have salary sacrifice arrangements with your employer, you may be able to direct your bonus to your superannuation as a ‘before tax’ contribution. Keep in mind, superannuation rules can be complex so it’s best to discuss your options and the impact with your Judge adviser before deciding what action to take.
If you don’t have a salary sacrifice arrangement, you may be able to contribute up to $30,000* a year of ‘after tax’ dollars to your super. While there is no tax deductibility on this contribution, there is also no contribution tax and the returns on your super investments are taxed at a maximum rate of 15%. This can be attractive when compared to other types of investment where returns are generally taxed at your marginal tax rate which can be as high as 47%.
Assess your options objectively
If you receive an end of year bonus, think about how you want to spend it. Have a conversation with your Judge adviser so you understand all the options available and can make an informed decision that you can feel good about for the new year.
Whether your bonus is small or large, there can be a way to make it stretch further!
Contact your Judge Adviser on 02 4032 7934 to start a conversation about your financial future.
Matthew McCabe is an Authorised Representative of RI Advice Group Pty Limited ABN 23 001 774 125, AFSL 238429. This editorial does not consider your personal circumstances and is general advice only. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.