It’s that time of the year again – when you anxiously wait for your year end bonus or 13th cheque! And, while your boss might pleasantly surprise you by how generous he/she’ll be, prepare yourself to be shocked when the taxman takes a lovely chunk of your bonus.
You’re probably now wondering how. Well, not only can he take up to 45% of your bonus but if you get it at the same time as your December salary, this could push you into a higher tax bracket. Furthermore, when you go shopping with the rest, you’ll still hand over a further 14% in VAT. Not fair right?
So, while you may feel tempted to splurge this Christmas, there are better things you can do with your bonus. And, I have a few ideas.
1. Top up your pension fund
If your total contributions fall within the 7.5% tax limit of your pensionable income, you’ll be able to deduct it from tax next year. This way you can get a little extra cash when you need it most.
2. Buy a new set of tyres
The more resistance your vehicle has to get moving, the more fuel it will burn. So, buying new tyres will save you on fuel and the maintenance of your car.
3. Save a minimum of 50%
You have to have back up for rainy days. When the economy struggles, you should run your household the way you do your business – by cutting costs. Saving at least 50% of your bonus will give you access to cash when you need it and reduce your need for credit.
4. Pay your child’s annual fees in advance
Most schools give a discount. You could only end up paying for 10 months and not 12.
5. Kick-start your investments
Whether you want to save for your children’s education, retire early or put aside some funds for that five star cruise, this is the time to jump-start that investment portfolio you’ve been dreaming of.
6. Make an upfront payment on your hospital plan or insurance policy
This will increase your monthly net income and you’ll be able to claim a percentage back on your tax return.
7. Prioritise your debt
Accumulated debt can seriously erode your dreams of financial freedom. So, be responsible and clear your debts this year. Forget about the festive hype, there’s always next year. You don’t want to start a new year by paying off the “sins” of the previous one. If your bonus doesn’t cover the full amount, start with the debt you’re charged the highest interest rate on. Credit cards, for example, charge you around 18% per year – so consider starting there.
8. Please spend 10% on anything
You worked hard this year. You deserve the bonus and a bit of fun! But, only 10%! Just remember this, if you want to make a real difference to your financial situation, you have to make the right moves with your money. Don’t spend it all and have nothing to look back on next year…
Spend your money wisely and you’ll start off 2018 on a better footing.