Introduction
WORKERS expecting a bonus can boost it by as much as £1,200 with a handy trick. While a bonus is welcome news in the cost of living crisis, the extra cash could go a lot further if you can save it for the future.
Make the Most of Your Bonus
Many employers offer bonuses to employees as an extra form of compensation for their hard work. Bonuses can relate to individual performance or employers can award them at a flat rate to all staff. However, any bonus you receive will be taxed, so it's essential to make the most of it.
Transform Your Financial Resilience
Helen Morrisey, head of retirement analysis at Hargreaves Lansdown, suggests that workers who make the most of their bonus now could be £1,200 better off. By following five simple steps, you can boost your extra cash and improve your financial situation.
Step 1: Put it in Your Pension – £1,200 Boost
The biggest boost you can get from your bonus is putting it into your workplace pension. By doing this, you won't pay tax on contributions, thanks to tax relief. For example, if you receive a £4,000 bonus in your bank account, you will pay tax on it. But if you divert the cash into your pension before you get paid, you'll get the full £4,000.
Step 2: Consider an ISA or LISA – £700 Boost
If you don't want to tie up your cash for as long, you can consider putting it in a Lifetime ISA (LISA). With a LISA, you can contribute up to £4,000 per year and receive a 25% government bonus. This option allows you to save for a house deposit or retirement. For a £4,000 bonus, putting it in a LISA would earn you an extra £700 in government bonus.
Step 3: Pay Off Debt or Boost Savings – £900 Saved
Getting a lump sum payment like a bonus is an excellent opportunity to clear debt or add to your savings. By paying off your debts, you can save yourself time and money. For example, if you had a £2,800 credit card balance with a 21% APR, paying it off in one go with your bonus would save you £900 in debt repayments.
Step 4: Help Your Loved Ones – £700 Boost
If you've used up all your ISA allowances, you can use some of your bonus to pay into a Junior ISA or Junior SIPP for your children. Junior ISAs are tax-free savings accounts for children, while Junior SIPP is a type of pension for parents and guardians to invest on their child's behalf. By investing your bonus in your child's future, you can receive a tax relief boost.
Conclusion
By following these simple steps, you can maximize your bonus and improve your financial situation. Whether it's putting it in your pension, considering an ISA or LISA, paying off debt, or helping your loved ones, there are various ways to make the most of your extra cash. Remember to assess your finances before making any decisions and consult with your employer for specific details.
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