Smarter Ways to Use Your Bonus as a Parent

Key Takeaways

• 1. When choosing how to use your bonus as a parent, consider your underlying financial plan and current financial priorities. A little planning now may make a big difference in the long term.
• 2. Compare short-term priorities (such as paying for education supplies) against your family’s long-term goals.
• 3. Ensure you have a plan in place that provides for your family in the event of an emergency.

As parents, it is natural to want to provide the very best of everything for your child. From small purchases to help them keep up to date with the latest technology, through to longer-term goals like buying a bigger house for your family or putting aside money for your children’s future education needs, parents may find that a significant portion of their income goes towards their children.

It can be difficult to balance competing financial priorities when you have children, which is where good financial planning can help, especially when deciding on how to spend your performance bonus as a parent. We have put together some ideas to help illustrate how a little extra planning can make your bonus go a long way.

Review your family budget

When working out the best way to use your bonus, it’s a good idea to start with your family budget. One approach that is often used is the 50-30-20 rule, whereby you split your after-tax monthly income into three categories: “Needs, Wants and Savings”. Under this method, 50% of your monthly income should be allocated towards “Needs” (the things that you and your family cannot do without), while 30% can be allocated towards “Wants” (the things that you would like to do or have). The remaining 20% of your monthly income goes to savings. A strategy, which follows this type of rule is designed to help you prioritise how you might spend your salary while also maintaining a savings plan for the future.

Look at your financial expenditure over the past six months - have you maintained a consistent 50-30-20 rule? In reviewing your finances, you may find that your income allocations have shifted. For example, you may have had more essential expenses than usual, which has resulted in a greater percentage of your budget going towards “Needs” instead of “Savings”. If there has been a shift, one way to bring your budget back on track is to allocate your annual bonus to the category that has been underserved. In the example we provided, you would use your bonus to top up your savings to the level it would have been had you allocated an even 20% of your monthly income over the previous six months.

Contribute to your child’s education

A child’s education is something many parents spend time considering. With numerous options available at each stage of your child’s education journey, it is worthwhile thinking about the path you would like them to take.

For example, you may wish to allocate some of your bonus payment towards educational expenses, such as electronic devices, books, and school supplies.

Enrichment activities (sports or music, for example) may be another way to contribute towards your child’s education. A bonus payment may help you pay for additional classes or upgrade your child’s equipment.

Your child’s tertiary education expenditure is also an important consideration for parents. You might consider allocating your bonus towards an insurance savings options to plan for your children’s education.

Replenish your emergency fund

Parents know the importance of being prepared for the unexpected. One way to support your family if an unplanned financial expense should arise is to put aside some money into an emergency fund.

An emergency fund is an amount of money set aside to cover costs that may arise from a challenging financial period, such as unemployment, illness or injury, or large one-off expenses that have not been planned for.

If you’ve had to call on your emergency fund over the past year, a bonus payment is a handy way to top up your fund quickly.

If you haven’t revisited your financial situation recently, you may also want to reassess how much is in your emergency fund or how long you want it to support your family and consider whether you should increase either of these parameters.

Save for the future

Providing for your child financially is not only about their immediate care needs. It is also important to look ahead and make plans for your family’s financial future. For example, you may want to grow your family and need a larger home, or you might want to renovate your existing home to accommodate older family members. Or perhaps you would like to reward your child with a vacation or other gift for their achievements.

You may consider putting your bonus towards a high interest rate savings account to help you reach those goals faster.

Top up your retirement savings

You may have heard of the ‘sandwich generation’ – adults who are dealing with the financial burden of raising children while also having to care for their elderly parents. One way that may help your children avoid becoming part of the ‘sandwich generation’ is to build a sound financial plan that considers your desired income during retirement and provides sufficient funds to cover your increased healthcare needs.

Consider topping up your retirement savings with your bonus payment.

Make your bonus go further with Citigold

Using your bonus towards financial goals with your loved ones in mind could give them a great childhood, a comfortable living environment, and a solid financial foundation to fall back on. All of which could contribute to their personal and educational growth in the long run.

Are you considering utilising your bonus towards wealth creation or wealth protection? Join Citigold and let us partner you on your wealth journey, or contact your Citigold Relationship Manager to learn more about our current offers.

Disclaimers

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