Economic and political uncertainty dominated the global news headlines last year and uncertainty looks set to continue this year. With that in mind, if you’re fortunate enough to receive a bonus, the question becomes: should you save it or spend it?
While many of us have long-term goals and dreams, we tend to be shortsighted when it comes to the actions needed to achieve them. This becomes quite evident in our financial decision-making.
If you receive a bonus, then consider using a portion of the money to make additional contributions to existing investments, such as your retirement annuity, or starting a new investment instead of spending everything on your holiday.
Reconsider excessive spending on expensive items. This can help you make calculated choices that will allow you to enjoy the lifestyle you want, now and in the future.
Here are five things to consider before you decide what to do with your bonus:
Create Money By Investing Money
Time allows the money you invest to grow and compounding makes the money work harder for you. Over a long period of time, compounding dramatically increases the value of your investment. This means that less of your total investment will come from contributions and more from growth.
Investments Help To Buffer Against The Effects Of Inflation
Inflation erodes the buying power of your money over the long-term, while market volatility tends to be a short-term phenomenon. Certain items, such as vehicles, and consumables tend to decrease in value over time and thus do not protect you against inflation. The rise in our cost of living is an important issue and should always be considered when making plans for the future.
You’ll Have More Options
Building up an investment increases your options and buffers you against unforeseen circumstances. Spending your entire bonus foregoes this opportunity.
It Prevents Buyers Remorse
Reaching into our wallets presents us with a choice between spending and saving. This choice pits our future needs against our current wants and needs. We often end up regretting the items we buy on impulse, when we realize that the money could have been used elsewhere.
It Is A Positive Move Towards Financial Security
It’s easy to justify spending money now, since the effects of not having cash to retire will only felt far in the future. Investing a bonus is a step towards security and each step becomes easier and its benefits become more apparent.
Your Patience Will Pay Off
Your patience will pay off even though it is tempting to avoid any long-term decisions and focus on goals that offer gratification that is a little more immediate.
Carefully researching your investment options is essential. Choose one that suits your return objectives, time horizon and your ability to weather any ups and downs or uncertainty over different periods. There are many excellent independent financial advisors if you need help with your financial decisions.
Considering your personal goals and changing your financial behavior, may have an impact on your savings down the line.
Photo Credit: free pictures of money
What else would your bonus be for if not for retirement? You shouldn’t depend on your bonus, just sock it away until retirement and enjoy the rewards!
I still have my bonuses received just last year, and I am planing to invest it. I know patience really pays off.