Itโs time for joy and celebration. Many of us have special cause to celebrate, as it is when we receive an annual bonus.
Itโs easy to make any extra cash fund the traditional overindulgence of the season, but it might be wiser to look at options which could benefit you long after the festivities have ended.
At Continuum we are looking at ways to potentially make a Christmas bonus work for you all year round.
1. Pay Down Debt
One of the most effective uses for any extra income is to reduce debt. If you have credit card balances or personal loans โ and this time of year most of us will be tempted - using part or all of your bonus to pay them down can help reduce the financial burden and save you money on interest.
High-interest debt, such as credit card debt, can be particularly costly, so channelling your bonus towards your cards could be a priority.
Paying off debt is not as much fun as buying a fancy meal or a winter sports break (depending on the size of your bonus) but it will leave you with more disposable income in the new year.
2. Boost Your Emergency Fund
Life is unpredictable, and an emergency fund could be one of the best ways to protect yourself from financial setbacks. If you donโt already have an emergency fund, your bonus could be the perfect opportunity to start one. Financial experts recommend saving three to six monthsโ worth of living expenses in case of events like job loss, illness, or urgent home repairs.
If you already have an emergency fund, consider your bonus to increase it. Having a robust financial cushion could help give you peace of mind and help make it easier to weather any future storms.
Your emergency fund is a lot more exciting if you enjoy a good rate of interest on it. Call us at Continuum to find the savings accounts that offer the instant access you need in an emergency as well as attractive interest rates.
3. Pay it in to your Pension fund
Your pension contributions not only help you build a brighter future, but they also help you keep cash away from the taxman. You can make additional contributions to your workplace pension scheme or an individual pension plan, such as a Self-Invested Personal Pension (SIPP). These contributions could even be tax-deductible, meaning that you can reduce your tax liability while securing your financial future. Your pension contributions are limited by the pension annual allowance which is currently 100% of your income, with a cap of ยฃ60,000 each tax year.
Pensions can be confusing, and to see clearly how your contributions work it can help to have an expert guide. At Continuum we can help you see how your bonus can best be used to maximise your eventual pension payout.
4. Invest in a Stocks and Shares ISA
Already built up an emergency fund and reduced your debt? Congratulations. You could be ready to consider investing your bonus. A Stocks and Shares ISA could be the most rewarding way to do it.
Assuming your bonus is under ยฃ20,000, and you have not already paid into an ISA this year, you could invest it all. You could be secure in the knowledge that the taxman cannot help himself to your profits, or even take a share when the time comes to cash in.
ISAs invest in a wide range of assets, such as stocks, bonds, and funds. The gains you make within the ISA are free from both income tax and capital gains tax, making it an sensible option for long-term wealth growth.
Before investing, itโs important to assess your risk tolerance and investment goals. If youโre unsure about where to start, call us at Continuum for some advice.
Get some help
Properly used, your bonus could make a significant difference to your financial position. Before you decide what to do with it, you need to ensure that it aligns with your long-term financial goals.
To help make the most of your bonus, you should probably start with some expert advice. The simplest way to get it is certainly to talk to us at Continuum.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice, or a recommendation to a particular saving or investment strategy you should seek independent financial advice before embarking on any course of action.
The value of an investment can go down as well as up and you may get back less than you invested. When investing Capital is at risk.
Investors in ISAโs do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers.
ย Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.
Stocks and Shares ISAs do not include the same security of capital which is afforded with a deposit account.
The Financial Conduct Authority does not regulate taxation advice and deposit accounts.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits areย taken. Pension savings are at risk of being eroded by inflation.
The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.
