Economic and political uncertainty is dominating global news headlines this year and it looks set to continue into next year. With that in mind, if you are lucky enough to receive a bonus, the question becomes: should you save it, spend it or invest it?
While many of us have long-term goals and dreams, we are often short-sighted when it comes to the actions needed to achieve them. This becomes very clear in our financial decision-making.
If you receive a bonus, consider using some of the money to make additional contributions to existing investments, such as your annuity, or to start a new investment instead of spending it all on your vacation.
Reconsider excessive spending on expensive items. This can help you make informed choices so you can enjoy the lifestyle you want, now and in the future.
With that in mind, here are some reasons why investing your bonus may be a good idea:
Create money by investing money
Time makes the money you invest grow, and its composition makes it work harder for you. Over a long period of time, compounding dramatically increases the value of your investment. This means that less of your total investment will come from contributions and more from growth.
Investments help buffer against the consequences of inflation
Inflation erodes the purchasing power of your money in the long term, while market volatility is generally a short-term phenomenon. Certain items, such as vehicles and consumables, tend to depreciate in value over time and so do not protect you against inflation. The increase in our cost of living is an important issue and should always be taken into consideration when planning for the future.
You have more options
Building an investment increases your options and buffers you against unforeseen circumstances. If you spend your entire bonus, you will miss out on this opportunity.
It prevents buyers’ remorse
When we reach into our wallets, we are faced with the choice between spending and saving. This choice compares our future needs with our current wants and needs. We often regret the things we buy impulsively when we realize that the money could have been used elsewhere.
It is a positive step towards financial security
It’s easy to justify spending money now because the consequences of not having money for retirement won’t be felt until far into the future. Investing a bonus is a step towards security and each step becomes easier and its benefits clearer.
Your patience will pay off
Your patience will be worth it, even though it’s tempting to avoid long-term decisions and focus on goals that offer satisfaction that’s a little more immediate.
Carefully researching your investment options is essential. Choose one that suits your return goals, time horizon and your ability to weather ups and downs or uncertainty over different periods of time. There are many excellent independent financial advisors if you need help with your financial decisions.
Considering your personal goals and changing your financial behavior can have an impact on your savings over time.
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