Even in these difficult economic times many are the recipients of much anticipated end of the year bonuses. Here are some tips on what to do with your bonus.
Firstly, rule number one is not to commit yourself to spending your bonus before you get it – eg via credit cards or by committing yourself to some expense in anticipation of receiving a bonus.
Rule number two is to think of your bonus as part of your normal income and not as a financial windfall to be spent or even squandered as quickly as possible.
Rule number three is to remember that your bonus will be taxed at your marginal (highest rate) of tax – being additional to your normal taxable income.
Once you are certain that you will be receiving a bonus, plan to allocate it using the 50/30/20 principle where 50% is allocated to reducing expensive debt such as credit cards, personal loans and retail accounts. Then 30% is allocated to certain financial priorities such as making provision for additional retirement annuity contributions, other investments such as unit trust portfolio, boosting your emergency or contingency fund or providing for any medium to long term financial goals. Finally, the remaining 20% can be spent on your wants and not on needs.
Depending on individual circumstances these percentages can be changed but the overall guiding principle remains.
- 5 Dec, 2019