Build, don’t blow your annual bonus

(NC)—More and more companies are incorporating a bonus structure into compensation programs. Bonuses are generally based on performance and are tax advantageous for companies.

If you’re one of the fortunate ones who will receive a bonus this year, what will you do with it?

“The key to using your bonus wisely is to find the right balance for you,” says Linda Put, a CIBC Imperial Service financial adviser based in Surrey, B.C. “Because everyone’s situation is different, water cooler advice won’t help you to maximize your financial potential.”

In making important financial decisions, the most powerful information you can have is to understand where you are and where you want to be financially. “Having a financial plan, whether formal or informal, can help you prioritize your overall goals and allow you to see more clearly how your bonus fits into that picture,” says Put. “Seek the advice of a professional who understands the whole picture, not just investments.” To help you understand how to make the most of your bonus, Put offers the following considerations:

Get professional advice: Every person is unique, with different financial situations, comfort levels and timelines. A financial adviser can help you understand your financial situation and work with you to help you achieve your goals. For example, you may choose to use your bonus to pay down debt, to contribute to your RRSP, or a combination of the two.

Look at the whole picture: It’s important to look at your current financial picture – the money you owe today and the money you want to put away for your future. If paying off a debt, like your mortgage, will prevent you from capitalizing on an investment opportunity, you need to determine which will pay you the most in the end. Again, it’s important to work with a qualified financial adviser who will look at your specific situation and plan accordingly.

Pay yourself first: If you get RRSP loans every year, why not use this bonus to invest in your future and break the loan cycle? Then set up a pre-authorized payment plan so you can invest in your RRSP monthly and avoid the cash scramble in February. When the bonus comes in, you’ll have the financial freedom to make the financial choice that’s right for you.

Go on, treat yourself: The best part about advance planning and factoring your bonus into your overall financial plan, says Put, is the opportunity you will have to treat yourself with some of the funds. With the help of your financial adviser and your financial plan, you will stay in control of your financial affairs and can look forward to reaping the rewards of the plan, and your bonus. So go ahead and treat yourself to something special. After all, you’ve earned it!

This article is intended to provide general information and should not be construed as specific advice. This article is not applicable in Quebec.

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