Bonus day is approaching…
So, Christmas seems a distant dream; a bauble of memories and we are back to reality. The stark dreariness of the last few weeks of winter ahead, with the old worries returning – Covid, Ukraine, Meghan and Harry and the cost-of-living crisis coming back to the fore. If you are one of the lucky ones, as the tax year draws to a close you may have an annual bonus to look forward to. Not everyone is in this fortunate position, but if you are retired, self-employed, freelance, or work for a company that does not give bonuses – still read on as what I am about to say can be applied to any lump sum or windfall – a win on the premium bonds, an inheritance or just an extra good month of takings.
For some (and here I mean bankers) bonuses can be huge sums of money. At the higher end they can reach over 100% of base salary and are linked to performance; the sort of money that could buy a luxury car or a yacht. In last year’s mini-budget, as part of deregulation and a move away from the EU, the ‘bankers bonus cap’ (which limits staff bonuses to 100% of fixed pay or 200% with shareholder approval) was scrapped. The rationale is to encourage banks to invest in London rather than other financial hubs and the argument is that all the cap did anyway was to push up basic salaries. Most of us, sadly, do not have the pleasant conundrum of what to do with £300k. Most bonuses, usually paid as a percentage of salary and related to performance, range from a few hundred to a few thousand pounds with corporates, businesses, media and public bodies leading the generosity tables. One shocking statistic, but perhaps unsurprising, is that the gender pay gap is reflected in bonuses as well as salaries – 33% of male employees received a bonus in the UK to June 2022 compared with just 23.7% of women. Men also received higher bonus payments of £2907 on average, versus £1761 awarded to women. So for most of us we are not talking megabucks.
White Letter day finally arrives!
Back to the office…….. the white letter from HR arrives highlighting that blah, blah, blah your bonus is linked to the state of the business blah, blah, blah and our personal contribution blah, blah, blah and business has been difficult this year, etc, etc, etc – all you want to know is HOW MUCH?
You may have already spent your bonus in your head 11 months ago anticipating its arrival. Or, it might be like finding the last favourite sweet in the tin, you know it’s there but you won’t unwrap it until the right time and then savour the moment.
How not to spend your bonus…
Whatever your approach to a lump sum – a bonus or another source – in this uncertain world, it may seem a welcome relief to obsess about the possibility of that new Apple phone 32, Beauty Pie subscription, or where to book long haul. Of course you may absolutely need and deserve such luxuries, but before tapping the Pay Now button, try to take a minute to assess your overall financial situation. You owe it to yourself to do a financial health check and there is no better time than when there is something spare to play with. Ensure first that all essentials are paid from your salary so that the bonus is discretionary spending, and as part of that exercise look at better ways to invest that money.
Gender Wealth Gap
The Inspiring Women’s Futures has done a huge amount of research on the gender wealth gap and the significant risks women experience. Another shocking statistic is that the average pension pot for a 65-year old woman in the UK is £35800 merely 1/5 of that of the average 65 year old man. And the average cost of residential care for women aged 65-74 is £132,000 (£82,000 for men). Over the last decade men’s occupational pensions have risen 83% more per week than women’s – just £23 for women but £42 for men.
Consider a Tax efficient wrapper
So maybe take a look at your own pension situation – do you have gaps due to years taken out for maternity or education that can be filled? Paying into a pension is an extremely efficient way to use a lump sum, with large tax incentives to do so and the benefits compound over time. Similarly, have you used your annual ISA allowance – another tax efficient way to save? What about outstanding debt – could this be paid off early to improve your overall financial situation?
Now, I know all this seems a bit dry compared with the thrill that you might experience from rewarding yourself by spending your bonus on a luxury item or experience, or treating your children. And, it may seem counterintuitive to look at a revitalised balance in your account and say ‘now I am going to put you somewhere sensible and safe, where I will benefit from you in the future’. But you will feel good if you do, and developing good financial habits will pay huge dividends eventually.
We are here to help
At Women’s Wealth we can help you every step along the way to get your finances in order and to invest wisely. We understand the way that women approach finances and the unique pressures upon them. We can help sort out your financial future to help you avoid being one of the sad statistics. So, reach out and we would be delighted to join you on your financial adventure.