Make your bonus work for you
If you are fortunate enough to be receiving a bonus at this time of year, whether that is in cash, company shares or both, it is important to think about how best to use it and apply it to what is most important for you. How you deal with this additional capital can have a real impact on your quality of life now and in the future.
This article is not limited to those receiving bonuses though, it is for anyone who has received a lump sum from any source. For many people, receiving a lump sum can often be stressful as the pressure of making sure they make the right decisions can be paralysing.
Here are 4 factors to consider if you receive a bonus or a lump sum of cash from another source, to help you make the best decisions for you and your loved ones.
1. Values
Start with your values. It is a good time to stop and think about what is most important to you in your life. Both in the immediate and in the longer term. What drives you? What could you do and what would you not do with this money in relation to your values?
2. Objectives
The next level down from your values is your objectives. These are more tangible and might include items such as buying a home, retiring at a certain age on a particular level of income, taking a vacation (when we can travel again), or saving for your children’s education.
Make a note of what is most important to you and prioritise these goals.
3. Get professional advice
Get professional advice. Make sure, you get advice from a firm like Black Swan Capital, that is independent and working in your best interest. Some people turn to family and friends, but they can turn out to be a source of stress. We have helped clients manage the stress as family and old contacts emerge as your ‘new best friends’, asking for loans or pushing you to invest in schemes that seem too good to be true. Remember, if it seems too good to be true, it probably is.
4. Make a plan
The best way to ensure you make the most of the opportunity of receiving a lump sum is to have a structured plan. One that starts with your values and objectives, maps your current position and tracks that relative to your goals, so that it can apply these lump sums in the best way for you. It has to consider risks, tax and other jurisdictional and compliance issues and have provisions for life changes. It is important to build in contingencies with flexibility and liquidity so if life changes unexpectedly your plan and your money can adapt and change with you.
We spend a lot of time with our clients mapping out, refining and reviewing their plans.
Then you can follow some core principles:
Diversify– make sure your assets are spread to control volatility, reduce risk and avoid the concentration risk of having too many assets in one place. This can happen accidentally for expats that receive company stock, where they find they have too much reliance on their employer as they have shares in the company, as well as a pension and are reliant on them for their income. This can leave one vulnerable should something happen to the company.
Quick wins– There are some quick wins that can have a big impact on your daily life. Reducing debt by paying down high interest loans can ease your monthly cash flow and reduce the total amount payable. Another quick win is putting a rainy-day fund in place. It may not be exciting, but having a cash reserve to cover unexpected expenses can give peace of mind and wellbeing.
Don’t leave it in cash – Finally, don’t leave all your money in the bank. With interest rates at, and sometimes below, zero, you are going backwards by the rate of inflation and losing purchasing power. Once you have a reserve fund in place, you should be making your money work for you to achieve your objectives.
If you are receiving a bonus at this time of year, or receive a lump sum of cash from elsewhere, take your time to make the right decisions for you, and if you would like some guidance, reach out to us at Black Swan Capital and we will be happy to speak with you.
