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Generally, the dilemma of whether to make investments or finance pending debts is a challenge. There are several factors that an individual must consider before opting to invest or pay current obligations. Based on the given situation, I bear three key personal liabilities which include a loan for the vehicle, student debt, and a mortgage on the condo. Since I am already employed, I have the ability to meet the current debt obligations using my current income. This means that even without the $5,000 sign-on bonus, I will not face a financial crisis. In addition, following the low rate of inflation given to be <1%, there will be insignificant changes in the loan repayment over the given duration. Considering the added advantage, I will invest in the stock exchange market, especially the S&P 500 index.
Since the $5,000 bonus will be subjected to various forms of taxation, such as 6.2% for social security, 22% for the federal government, 5.15% for state tax, and 1.45% for Medicare, it will reduce in quantity. Therefore, the overall tax rate sums to 34.8%, which will be deducted from the initial bonus. After the deduction of $1740, the remaining amount is $3260, which is available for investment purposes or payment of loan products.
Since the stock market offers an annual return of 10%, I will invest the $3260 into one of the renowned companies. In order to obtain the future value after a period of ten years, an Excel function will be used to calculate the value as shown FV= (0.1, 10, 0,-3260) = $8,455.60. In other words, by investing $3260 for ten years, the value will appreciate $8,455.60. Supposing I used the $3260 to clear the outstanding credit balance worth $3,000, I would remain with $260 to invest in the stock market. This will yield a future value of $674.37 (FV = (0.1, 10, 0, -260) = $674.37). Since using the bonus to invest will provide more income than using it to clear the debt, I will opt to invest the sign-on bonus for future benefits. Therefore, the more money I invest in the stock market, the larger the future wealth I will generate.
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