Annual profits are additional income that employees receive as part of their compensation for the work done in a company according to Wolfgang Erhardt, national spokesperson for the Credit Bureau and the Latin American and Caribbean Association of Credit Bureaus. These funds are usually distributed annually, and represent a portion of the profits earned by the company during a given period.
Profits are a valuable opportunity to improve our economic situation. The Superintendency of Banks and the Central Bank of Ecuador (BCE) offer us some ideas to take advantage of this extra income.
Among the alternatives that they suggest we have investment plans, as well as savings alternatives in new bank accounts or retirement savings plans. In addition, they highlight the importance of using these profits to pay debts, cover unforeseen expenses or invest in personal health. The key is to make informed decisions aligned with each person's personal financial goals.
What to do with this benefit?
The Ecuadorian financial entity, Superintendency of Banks, and the International Bank suggest:
1. Invest:
Fixed term: According to Primicias, a safe and low-risk option is to invest in a fixed-term certificate of deposit. The average interest rate for term deposits is 7.13% per year in 2023. This will allow you to obtain a return on your investment, even if it is relatively low.
Mutual funds: If you are looking for a more diversified option, you can invest in mutual funds. These funds invest in different assets, such as stocks, bonds and money markets, allowing you to reduce the risk of your investment. The minimum investment amount varies depending on the fund and the management company, but in most cases it does not require much initial money and is done quickly and safely. That is, excessive expenses will not be incurred that could unbalance the capital. According to BBVA.
Actions: If you have a more aggressive investor profile, you can consider investing in stocks. This option offers you the possibility of obtaining higher returns, but also involves greater risk. There are two types of actions according to BBVA such as:
Fractional: They refer to those that, instead of being the entire action, are a part.
Quoted: They are those that can be bought and sold freely on the stock market.
Real estate: Investing in real estate, such as a house or land, can be a good option to generate long-term passive income. However, it is important to note that this investment requires a significant initial investment and that liquidity is lower than other options.
2. Save:
Savings account: A savings account allows you to store your money safely and easily access it when you need it. However, the interest rates on these accounts are typically low.
Fixed term deposit account: This option allows you to obtain a higher return on your savings, but your money will be tied up for a certain time.
Retirement plan: If you are thinking about your future, you can start saving for your retirement. There are different retirement plans available, each with its own features and benefits.
3. Pay debts: The Superintendency of Banks comments:
If you have high-interest debt, such as credit cards or personal loans, it may be a good idea to use your profits to pay them off. This will save you money on interest in the long term.
4. Extraordinary expenses:
Diario Expreso indicates that profits can also be a good opportunity to cover extraordinary expenses that you had not budgeted for, such as home repairs or the purchase of a new appliance.
5. Investment in health:
A long-term benefit is investing in health. You can consider using your profits to pay for an as-needed drug plan. On the other hand, it is recommended to allocate part of the profits to improve diet and engage in regular physical activity. This can be a smart decision that will provide long-term credit. Better health allows you to enjoy life more, be more productive at work, and reduce future medical expenses.
Gunnar Lundh Iturralde, financial journalist, advises us to keep the following in mind:
- Consult with a financial advisor: Receiving guidance from a financial advisor can be key to developing a plan that fits your financial goals and needs.
- Research before investing: It is essential to conduct thorough research before making any investment, understanding the associated risks.
- Limit your investments to funds that you can leave idle: It is prudent to allocate only those funds that you do not need in the short term for investments, thus maintaining greater financial stability in the short term.
In summary, financial profits constitute a valuable part of the annual compensation that workers receive for their performance in a company. This additional income offers a significant opportunity to improve our economic stability. Ecuadorian financial institutions provide valuable essential advice in this regard, ranging from investment strategies to savings options, adapted to various financial profiles. In addition, they highlight the importance of allocating part of these profits to pay off debts, cover unexpected expenses or invest in personal well-being. Ultimately, the key lies in making informed decisions that are aligned with our personal financial goals.
