December is here and there is so much to enjoy: holiday parties, extra time with family and friends, and – if you’re lucky – a year-end bonus. Once the cheque (or more likely, the direct deposit) rolls in, how you spend your bonus is as limitless as the world of online shopping.
However, before you rush to spend your extra cash, take a moment to weigh the short-term and long-term options available to you. An extravagant purchase can certainly give you a surge of enjoyment here and now, but certain types of strategic spending can set you up for a lifetime of joy.
Ditch your debt
Not all debt is bad – a mortgage is one example of helpful debt, since you can likely find ways to invest your money and earn higher returns than the relatively low interest rate on your mortgage. However, any debt on which you’re paying double-digit interest (think credit cards) is expensive to maintain. Using your year-end bonus to pay off this type of debt is generally a financial win.
Once your expensive debt is paid off – or if you were in the fortunate position of not having any in the first place – you now have the opportunity to do something even more meaningful with your bonus that will have lasting positive consequences.
Generate long-term benefits
If your year-end bonus is the reward at the end of 12 months of hard work and long hours, the appeal of celebrating with a big purchase is clear. You’ve earned it! And although the benefits of extravagant purchases are often short term (we’re looking at you, new car), this isn’t always the case. A round-the-world trip of a lifetime with your kids can have life-altering, long-lasting benefits.
In general, however, the rewards that you reap from splashing out your bonus likely won’t last long. Here are a few suggestions for ways to transform your bonus into a lifetime bounty, or at least long-term benefits:
- Max out your RRSP and TFSA contributions. Despite their differences, RRSPs and TFSAs share one important trait: they both facilitate rapid wealth accumulation by allowing your investments to grow tax-free within the account. Using your bonus to max out your RRSP and TFSA contributions will ensure you’re not missing out on this potential for tax-advantaged investment.
- Protect your financial well-being with insurance. If you prefer to use your bonus for long-term benefits rather than short-term fun, ensuring you have adequate insurance coverage is a wise way to financially safeguard yourself and your family. Whether it’s permanent life insurance to benefit from tax-free investment growth or disability insurance to protect against the unexpected, this is an investment that provides a lifetime of value.
- Fund your children’s or grandchildren’s education. Education provides a lifetime of rewards, so using your bonus to contribute to an RESP for your child or grandchild is one of the best investments you can make. The funds within an RESP can grow tax-free and in some cases are topped up with federal or provincial grants and bonds, multiplying the positive impact of your contribution.
- Share your good fortune with philanthropic giving. If you’d like to use your year-end bonus to bring joy to others, there is no shortage of people and causes for whom your contribution would mean the world. Directing your bonus toward a philanthropic initiative is even more meaningful when it is aligned with your values and those of your family.
Put your bonus to work
How you choose to spend your year-end bonus is entirely up to you. A new set of golf clubs or a huge New Year’s party can be a fun way to cap off a successful year, and you certainly deserve to celebrate.
However, if you decide you’d like to transform this year’s bonus into long-term benefits, Rubach Wealth can help. Whether it’s boosting your retirement nest egg or sharing your wealth with future generations, we can guide you in implementing the right strategies for a lifetime of joyful outcomes. To discuss your needs, contact us at (647) 349-7070.