It’s the time of the year we look forward to the most. No, we don’t mean Christmas (though that’s great too). It’s the moment when you receive your year-end bonus. And in that moment, all the blood, sweat and tears that you’ve put into your work for the year seems worth it… almost.
After the initial euphoria wears off, you start thinking carefully about what we want to do with this newly acquired sum of money. Surely, it’s time to spend on that trip that you’ve been thinking about, or the new bag that you have been eyeing for months. While we say yes, absolutely, 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 year-end bonus to good use.
We have to talk about the “I” word
Yes, investing. Remember the times when you were young, and your parents would encourage you to save? They would encourage you by topping up your savings with a small bonus if you manage to hit your savings goal.
Photo: Fabian Blank
Well the “adult” equivalent are investments. By regularly putting a portion of your year-end bonus (and actually, 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 later stages of your life. A good habit to nurture is to save at least 30% of your year-end bonus. The rest can then be put it into an investment plan.
One way you can do that is to sign up for a regular savings plan, which allows one to invest a fixed amount into a variety of instruments.
For those of you with greater understanding of investments, you can consider one-off investments in funds or unit trusts that covers different assets, geography, sector or strategy.
Recommended: 25-30% of your bonus
Don’t forget to invest in yourself
Investing doesn’t just have to be limited to the capital market. You can also set aside a portion of your year-end bonus for yourself to learn new skills, ranging from digital to physical skill sets. The benefits of learning a new skill can outweigh its short-term cost significantly. Also, it may finally be time to put your SkillsFuture credits to good use.
For a start, learning a new skill can increase your knowledge. This allows you to take on a larger portfolio at work, which could give you both a renewed sense of motivation and added opportunities for promotion.
It can also help you complete your daily work with much higher efficiency. This helps you save time and expands your bandwidth to achieve more within a single day. The time saved can be spent doing things you like, i.e. more family time or more time to explore other interests.
Recommended: 10% of your bonus
Rainy days happen: Don’t get caught off guard
Bonuses are like mini windfalls that may not happen on a regular basis. For most of us, it is dependent on performance. Thus, it is always wise to save some of it for rainy days.
Photo: David Marcu
Going one step 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 are having trouble finding where to start your retirement savings from, we suggest using this online retirement planner. It helps you work out your retirement goal in 4 simple steps and takes less than 15 minutes.
Recommended: 20-25% of your bonus
Avoid interest fees at all cost
Debt is a loaded word and many of us try to avoid speaking about it. But it does exist. While most Singaporeans have some form of debt, unsecured debts (e.g. credit card debts) are the ones you should clear first due to its high interest nature. We suggest setting aside a portion of your bonus to do this.
Did you know that a credit card debt of $2,000 could take you almost 30 years to pay off the debt entirely if you only make the monthly minimum payment? (Assuming an interest rate of 18% per annum).
Photo: Alice Pasqual
By using your year-end bonus to settle debts of high interest rate, you can save on the interest payments in the long run. These savings can be translated into additional cash for you to spend, be it now or in the future.
Recommended: 20% of your bonus
Photo: Philipp Kammerer
When receiving your year-end bonus, it is a reminder and validation of how hard you have worked over the year. So, you absolutely should treat yourself to something nice – be it a nice meal, a short vacation with your family and friends, or a gift for your loved ones. Take this opportunity to give yourself a pat on the back for a year’s worth of hard work.
Recommended: 10-15% of your bonus