Saving a Raise or a Bonus
Did You Get a Raise or Bonus? Save it!
Receiving a raise or a bonus is a great accomplishment that lends a feeling of accomplishment and celebration. Many of us opt to use the bonus to buy something we’ve been wanting, like that flat screen television, for example. Rather than splurge, however, why not hold onto that bonus or raise and invest in wisely?
Saving a Raise
If you are not already on a pre-authorized contribution (PAC) to a savings or registered account, now is a great time to do so. Each pay, or each month, have a predetermined amount removed from your bank account and placed into savings. Once the funds are in a savings account (and removed from quick and easy debit card access), they can be used for several purposes:
Pay down debt:
- Especially high-interest consumer debt like credit cards
- Pay off your mortgage sooner: Save money for the future by increasing the mortgage payments above the minimum amount or increasing the payment frequency (bi-weekly instead of monthly)
Maximize the use of a “Registered” account:
- Place the pay increase directly into a registered account like an RRSP to increase savings
- The pay increase could also be placed directly in a TFSA, which gives you the flexibility to pull those funds later if required.
In most cases a blended approach is best. Paying down debt alone doesn’t afford you the opportunity to amass a small, liquid, emergency nest-egg to cover unexpected expenses.
It is also worth nothing that in the current climate, some raises may not be in excess of inflation. The raise and may be required to keep up with the higher cost of living, rather than putting the increase away for future use.
Saving a Bonus
Unlike a raise that should affect all future earning and raises that follow, the one-time bump on a bonus can disappear as mysteriously as it arrived. Rather than spend your bonus on a one-time, self-gratification, why not use it to strengthen your financial future?
Pay down debt:
As explained above, the pre-tax earnings required to pay post-tax debt can be significant. A large, one-time bonus can significantly affect the short and long-term savings of your family.
- Paying off a large portion of your mortgage: a reduced balance causes each subsequent mortgage payment to have a larger portion dedicated to reducing the principal
Maximize the use of “Registered” accounts:
- Place the bonus (or part thereof) directly into a registered account like an RRSP to increase savings
- The pay increase could also be placed directly in a TFSA, which gives you the flexibility to pull those funds later if required.
Often you may feel that as if your raise or bonus didn’t actually happen. You earn more, but don’t enjoy any of the benefits. A small celebration allows you to acknowledge and move forward. The celebration could take many forms, but it is best if it is unusual and distinctive.
Bottom Line
Getting a raise or bonus is an impressive accomplishment. Often, you may feel like you didn’t even get a raise which is why it is important to commemorate your accomplishment with a small celebration. Take some of that money and treat your family to dinner, go to the spa or celebrate however you see fit. Then, contact your Advisor for assistance to determine how to best utilize the extra funds.
Have Questions?
Contact a Ward & Uptigrove Wealth Management representative
at 519-291-3040 or email info@w-u.on.ca.
