It's time to put your bonus to good use
It’s the time of the year we look forward to the most - it’s the moment when you receive your well-deserved bonus. In that instant, all the blood, sweat and tears that you’ve put into your work for the company seem worth it… almost.
After the initial euphoria wears off, you start thinking carefully about what to do with this newly acquired sum of money. Surely this is the chance to spend on that trip that you’ve been thinking about, or the new bag that you have been eyeing on for months. While we say yes you should treat yourself after working so hard, there’re also merits in thinking about how to derive more value from your bonuses in the long run.
We take a closer look at five ways you can put your bonus to good use.
We have to talk about the “i” word
Yes, investing. Remember the times when you were young, when your parents nudge you by topping up your account with a small bonus if you manage to hit your savings goal?
Well the “adult” equivalent are investments. By regularly putting a portion of your bonus (we recommend you apply this rule to your monthly salary too) into regular investment plans, you put yourself in an advantageous position to receive a huge bonus in the later stages of your life. A good habit to nurture is to save at least 30% of your bonus. The rest can be put into an investment plan.
One way you can do that is to sign up for a Regular Savings Plan, which allows you to invest a fixed amount into a fund that has a diversified holding of stocks and bonds.
For those of us with a greater understanding of investments, you may consider one-off lump sum investments in Unit Trusts or Exchange Traded Funds that cover different assets, geographies, sectors or strategies. Alternatively if you prefer to exercise more autonomy in your investments, you could also invest in Equities.
Recommended: Set aside 30% of your bonus for investment.
Don’t forget to invest in yourself
Investing doesn’t just have to be limited to the financial markets. You can also set aside a portion of your bonus to learn new skills, ranging from digital to physical skill sets. The benefits of learning a new skill can far outweigh its short-term cost. So, it may now actually be opportune to put your SkillsFuture credits to good use.
At least for a start, learning a new skill will increase your knowledge. It also enables you to take on a larger portfolio or scope at work, which could give you both a renewed sense of motivation and brownie points for promotion.
It may help you complete your usual work with much higher efficiency too, saving you time and expanding your bandwidth to achieve more within a single day. The time saved can be spent doing things you like, such as having more family time or more time to explore other interests.
Recommended: Set aside 10% of your bonus to invest in yourself
Rainy days happen: don’t get caught off guard
Bonuses are like mini windfalls, unpredictable and likely to depend on company performance. Thus, it is always wise to save some of these for rainy days.
It is recommended to set aside at least 3 to 6 months of your monthly expenses as liquid cash savings for contingencies. If you have dependents, you may need to set aside at least 6 months or more. Should you not have the required savings yet, start by setting a goal and saving towards it.
To deep dive further, saving for retirement is also important. Starting to save for retirement from young can go a long way, especially if you know how to take advantage of compound interest. By simply saving $500 a month and growing your savings at 6% per year, you will be sitting on a retirement nest of $1,000,000 in 40 years.
If you do not know how you should embark on retirement saving, there are tools such as the online retirement planner to provide you guidance. It helps you work out your retirement goal in 4 simple steps, and takes less than 15 minutes of your time to complete.
Recommended: Set aside 30% of your bonus for that rainy day.
Avoid interest fees at all cost
Debt is a loaded word and many of us try to avoid talking about it. But it does exist. While most Singaporeans have some form of debt, unsecured loans (e.g. Outstanding credit card balances) are the ones you should try to clear first due to their interest nature. We suggest setting aside a portion of your bonus to do this, if there are outstanding payments to be made.
Did you know that a credit card debt of $2,000 might take you almost 30 years to pay off entirely if you are merely repaying the monthly minimum payment? (Assuming an interest rate of 18% per annum).
By using your year-end bonus to settle debts, you can save on interest payments in the long run. These savings can be translated into additional cash for you to spend, invest or save, be it now or in the future.
Recommended: Use 20% of your bonus or as required to clear your debts
Your bonus is a reminder and validation of how hard you have worked throughout the year. You absolutely should treat yourself to something nice – be it a good meal, a short vacation with family and friends, or a gift for your loved ones (or yourself!). Take this occasion to give yourself a pat on the back for a year of hard work as you get ready for another great year ahead.
Recommended: Take 10-15% of your bonus to treat yourself or your loved ones
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.