When meeting with clients, we are commonly asked “what should I do with my bonus,” OR “if my salary is increased by X, where should I be directing this”?

Aligning your actions to your financial goals is crucial to improving the health of your finances; here are a few points to consider when answering these questions:

Increase that rainy-day account

We can’t control everything around us so for peace of mind it is important to have a rainy-day account, or emergency account, for those unexpected expenses. Having a ‘safe’ amount of cash that you can call on at any given time can cover things that you don’t really plan for such as car repairs or even medical costs. Having this cash means that you can focus on solving the problem rather than stressing on how you’re going to fund it. 

Debt repayment

Directing any bonus or additional salary towards the repayment of your home loan (or any personal loans) would progressively remove the stress and financial cost of servicing debt that simply doesn’t serve you (i.e. non-deductible debt). The quicker you pay off your home loan the quicker you are able to free up cash flow for wealth accumulation and the closer you get to achieving financial independence.

Wealth accumulation

This is the fun part. You’ve paid off the debt that doesn’t serve you, you’ve got your rainy-day account and now you can focus on building that asset base to support you in the future. Investing is the most effective way to build wealth to safeguard you in the here and now, and in the future. It is the only way to achieve a growing asset base (over the long term) which could generate a passive income. An investment strategy (which is a mix of different investments such as Australian and International shares, property, fixed interest, infrastructure and cash) that is aligned your financial goals is the key to helping you achieve that goal.

Take action today

Making small, or even large, deliberate changes now can set you apart and bring forward your financial independence. While a small salary increase may seem negligible, you run the risk of spending this on things that simply do not align with your goals. It is important to have control of how you spend your money and understand what that could mean for you and your family’s future.