Key steps to Maximizing Your next Cash Bonus
Everyone can relate to that feeling of excitement when receiving a bonus and all of a sudden, you feel that your financial problems have come to an end. However, after a month or two, not many can account for how the money was spent, it seems to disappear with every other money that comes into the bank account (i.e. regular earnings). It’s that time of the year again when most companies will soon start announcing their financial results and employees can expect to receive communication on bonuses. Most bonus payments these days are performance related so if you receive one, it comes with a feeling of success and fulfillment that your hard work is finally being recognized. Regardless of how much you are expecting to receive, it is important to carefully plan how you’ll spend it so that you can receive the most value out of it. Proper planning will ensure that you are able to account for every penny that comes in and motivate you to work even harder towards the next bonus. So how can you really maximize your bonus? First and foremost, you need to reward yourself for all the hard work. You have worked hard all year, dedicated your time and talent towards your company, and fully earned the bonus so you deserve to celebrate and treat yourself. Splurge on that expensive item that you’ve always wanted to buy or indulge in your guilty pleasure without feeling guilty for once. However, keep this to 10% – 15% of your bonus earning and try not to go over the threshold in order to fully maximize the amount. If you are a parent or working mother, you might feel the need to also spoil your family. Why not? They have supported you all year and been patient with you on those days when you’ve had to work late nights or work away from home so they also deserve to be rewarded. Spend about 5% to 10% on the family and kids and buy everyone lovely gifts to appreciate them for their support towards your achievement. Consider allocating the remaining 80% of your bonus in the following order: 1. Pay off any debts that you owe The cost of servicing debts is going to be higher than any income you are likely to receive on savings or investments. Except if your debts are non-interest bearing with no repayment commitments, it is more effective to pay off your all your debts before you think of saving or investing your bonus earnings. [bctt tweet=”Treat your bonus differently from your regular earnings” username=”SheLeadsAfrica”] 2. Put money into long-term savings or investments Any money left after you have cleared your debts should go into your long-term savings or investments. On average you should be putting 10% to 20% of your normal earnings into long-term (or retirement) savings or investments options on a monthly basis, so if you can, try to spend at least 10% to 20% of your bonus earnings in the same manner. The money can go towards your pensions, ISAs, other long-term investments products or even your personal business venture. This money is important for securing your future in the days when you don’t have the energy to work as hard as you are working now. Just as the saying goes to ‘make hay while the sun is shining’. If you have not already started saving and investing towards your future, then maybe you can start with your bonus this year. It’s never too late to start and $1 invested today can go a long way in the future with compound interest. 3. Top up your short-term savings or emergency fund If you still have money left after saving for the future, then you can use it to top up your short-term savings. This is the money you put aside for the short term emergency spend that you don’t plan for (i.e. unforeseen events) or the rainy day. Naturally, you should already be putting aside at least 10% of your regular earnings towards this account to cater for the unexpected spending commitment. The recommended practice is to have about three months of income in your emergency account as a minimum. Anything left can go into your miscellaneous account towards your next holiday or luxury spend savings (to fulfill your ‘wants’). To conclude, the bonus is a special earning that you’ve worked for and it’s important to treat it differently from your regular earnings. A fully maximized bonus is more memorable and being able to account for every amount makes it feel even more rewarding. A financial planner can assist you with savings and investments options that suit your goals, life commitments and risk profile (capital at risk). Good luck with the announcements. Hope you smile to the bank by getting a bonus payment that rewards all your hard work over the last year. Got a story you’d like to share with us? Share their story with us here.
Quick Read: Your 1 minute guide to startup financing
You already know that it takes more than a stellar business plan and an ace team for your startup to thrive. You also need financing to get your ideas off the ground. COLD. HARD. CASH. But what type of financing is available for me, you ask? Well, you have 3 options: 1. DEBT FINANCING Your company receives a loan and gives its promise to repay the loan. It includes both secured and unsecured loans, and can be long-term or short-term. Pros: You aren’t giving away any part of your business. Cons: Defaulting on the loan = signing your life away. 2. EQUITY FINANCING Your company obtains finances from potential investors, family and friends, business angels or by issuing an Initial Public Offer (IPO). Pros: You are not obligated to pay a dividend Cons: Equity finance generates capital from external investors in return for a share of the business. 3. MEZZANINE FINANCING This is a combination of both debt and equity financing. It begins as debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. This type of financing allows the owner both debt and equity options. Pros: Allows you to get the money you need without giving up a huge chunk of your company’s ownerships…as long as you pay your debt on time. Cons: Interest rates are much higher than traditional debt financing. Want to learn more about financing and savings options for your business? Visit PAL Pensions to learn more about their unique products for young entrepreneurs.