We are all advised to have financial targets. This is something that will encourage you to use your money wisely. It will keep you from any unnecessary expenses because you have a target in mind that you want to achieve. When it comes to deciding if you want to buy something, you only have to go back to your goal to help you decide if the purchase is necessary or not. These goals can be anything – it can be regarding your future or something about your past that you want to close.
In most cases, though, your financial goals are difficult to reach because your income is only enough to sustain your monthly expenses. During these times, you will really appreciate that unexpected financial boost that a bonus will provide.
Getting a bonus is one of the greatest feelings in the world. When your boss unexpectedly announces that everyone in your department is getting a monetary performance incentive, everyone is already counting the money even before they are credited to each employee.
This is a great and unexpected financial surge in your budget and could work either to your advantage or disadvantage. If you will be using this money to buy unnecessary wants, it will only satisfy a temporary craving and pull you away from financial goals. But if you put your financial targets on top of mind, your bonus would serve a better purpose in your life.
Study reveals that people who have a set goal have a higher chance of reaching them than those who do not have any plans at all. According to an article published onDominican.edu, those who wrote down their goals, informed someone about it and shared their progress is 33% more likely to achieve the target. It is always better to be shooting for a target so you can quantitatively measure your efforts.
4 financial goals that you can advance through your bonus
If you are expecting or you already got our bonus, there are four financial targets that you can advance because of that unexpected financial boost.
Secure your future
One of the most important things you can do for yourself and your family is to secure your future. You owe it to yourself to make sure that whatever you are earning today will also be for the benefit of your future self. Here are four ways that you can do this.
- Boost your emergency fund. If you know that your savings will not be enough to sustain your family during a crisis, then you may want to add more money into your emergency fund. That way, when something unexpected happens, you do not have to borrow money to finance it.
- Set up your child’s college fund. For parents, it is also a good idea if you opt to put the money in your child’s college education. That way, they do not have to be subjected to the difficulties of owing on student loans.
- Start your insurance plan. Another way to strengthen your emergency plan is to have an insurance policy. This is more specific than your emergency fund. You can invest in a life or health insurance policy.
- Contribute to your retirement fund. The last option for this financial goal is to put the extra money you have into your retirement plan. This is the direct way to ensure that you will have enough money when you retire.
Lower your credit
The second of the financial targets that you can consider using your bonus on can be towards your debts. If you still have mounting debts, you may want to make a big payment towards any of them to help you lower the money wasted on interest rates.
- Pay down your credit cards. If this is the option that you want to follow, you can start by paying off your high interest credit cards. This is a great option because you can pay any amount towards your cards without suffering prepayment penalties.
- Make a lump sum payment on applicable credit accounts. If you do not have any credit card debt, you can focus on other credit accounts instead. Look at the different credit accounts that you owe and see which of them does not have prepayment penalties. Make a lump sum payment on any of them.
Grow your assets
A lot of people have financial targets that involve investments but they rarely push through with it because they think that it is not at par with the other necessary expenses they have to spend on. An article published in 2011 on CNN.com discussed the results of a survey that was conducted on 1,000 investors by Prudential. 44% of the investors said that they do not want to invest anymore because they lost money after the Great Recession. They do not want to invest anymore of their extra money on this for fear of losing it. This fear is not healthy because you need to set up a system that will ensure your money is paying you back. Investments are the best way to accomplish this. If you have the bonus to invest, you have to seriously consider using it on investments. Here are two of your options to do this.
- Invest your money in stocks, bonds, mutual funds or similar. One option is to buy stocks, bonds or invest in mutual or equity funds. This will help you set up your money so they earn you income even if you are not doing anything.
- Increase your home equity. If you still owe money on your mortgage, you can opt to increase the equity on your home by making a lump sum payment on it – if there are no prepayment penalties at least. Or you can opt to renovate your home to increase its value.
Fund your dreams
The last of the financial targets is to fund your dreams. If there is something that you have always wanted to buy, this is the right time to do that. Put your bonus in your savings to finance your dreams and aspirations.
- Save up for your car. Since cars depreciate in value, it is always best to buy one with cash. That way, you do not have to pay any interest on the total value of the car.
- Save up for the down payment of your house. Although it is the common practice to buy a house through home loans, you still have to put up some cash for the down payment. The higher the down payment that you can provide, the less you need to borrow.
- Save up for a vacation. You can also opt to reward yourself by saving up for a vacation. Just make sure not to splurge your whole bonus on this.
Don’t forget to reward yourself for the financial achievement
Despite all of the financial targets that you need to meet, you may want to give yourself some sort of reward for the bonus that you got. While you deserve it, make sure that you do it the right way.
When you receive your performance bonus, the company is rewarding you and the other employees for a job well done. It is also meant to be an incentive and drive for the employees to perform better in the future. Your company could have used that money to just pay off some creditors or put it in the income bracket and declare as company earnings. However, they chose to reward the people that worked hard on achieving the company’s financial targets.
You can also apply the same concept of rewarding for a job well done. There are two basic requirements for this concept to work favourably on a borrower’s budget:
- Financial Target Achievement. The reward should be the effect of reaching a goal. Do not reward yourself just because you feel like it. Allow yourself to spend your extra money because you have done something. This will keep you from getting used to spending beyond what is necessary.
- Commensurate Reward. Another requirement in rewarding yourself is to make sure that the money you will spend celebrating your success is not more than the amount that you got. If your bonus is $500, spend only a portion of that money and use the rest on your financial targets.
Rewarding yourself for reaching financial targets is a great motivation to improve your financial standing even further. But keep in mind that it should not be abused so you will not lose the value of the bonus that you got.