Yahoo Finance 5 Unconventional But Sensible Ways To Spend Your Bonus
Look, I get it – you’ve worked your ass off for that year-end bonus. You really do deserve to spend it on that Louis Vuitton bag, Rolex watch, or that Playstation 4 you’ve been drooling over (don’t worry, we won’t tell your wife or girlfriend).
Before you go to Orchard Road to join thousands of people who will perform a disappearing trick on their bonus, ask yourself this question: “Am I REALLY going to be financially comfortable by blowing my entire bonus?”Your
If the answer is no, then that bonus pay should be put to better use – such as paying off debt, boosting your retirement savings, or saving up for your children’s education.
A Little Self-Discipline Today Goes a Long Way
Must… resist… the temptation…
If you want to make the most of your hard-earned bonus, you must first evaluate your financial situation and prioritize where to allocate your bonus. That means going over all of your debts, loan repayments, and other financial obligations to see what financial “pain” can be alleviated with your bonus.
For example, if you’ve racked up a nice bit of credit card debt that you’ve been carrying around like a fiscal tumor, buying an LV bag with your bonus makes about as much sense as jumping into the deep end of the swimming pool… without knowing how to swim.
Depending on your financial priorities, you might allocate your entire bonus to debt reduction, or divide it up among the following:
Your Debts
Any outstanding debts that can be fully paid or at least partially reduced should be your #1 priority when it comes to divvying up your bonus funds – whether you put your entire bonus or the majority of it into reducing your debt.
Why?
Because by paying down your debt, you’re actually freeing up more income that can be used to either pay down other debts or build up your emergency fund/retirement savings & investments. So in essence, by using your bonus to pay off debt, you’re actually creating a mini bonus effect that pays you back those monthly repayments you would have made. And trust me, 24% per annum on rolling credit debt is not funny when you look at the figures a bit further down the road.
Your Emergency Fund
The bonus amount you should put into your emergency fund really depends on how much debt you have and whether you have an emergency fund to begin with. If you’re pretty much debt free but don’t have an emergency fund in place that has at least 3 months worth of income (for “rainy day” emergencies), allocate at least 30%-50%+ of your bonus towards it.
If you’ve got debt, you should still allocate at least 20%-25% of your bonus to an emergency fund so you at least have something to build upon every month.
Your Retirement Savings & Investments
Much like your emergency fund, the amount you put into your retirement savings & investments depends on how much debt you retain. If you’re not saddled by too much debt, you can put aside 20%-50% of your bonus towards growing your retirement savings by either socking it away in your Supplementary Retirement Scheme (SRS), topping up your CPF OA, or by investing it.
If you’re not too familiar with investment products, Ryan Ong’s article 5 Different Ways You Can Invest in Stocks & Bonds will give you a good idea of what’s available. And for those of you who are thinking of starting to invest, this is a great way to begin. No more excuses about not having enough capital and leaving it to another day.
Your Children (Where Applicable)
Ah, now here’s one option you can forego if 1) you believe in the power of self-reliance and want your current/future offspring to pay their own way through University, or 2) you still have outstanding debt that you need to settle first.
But if you’ve got the heart to make your current/future kids tertiary journey a bit less challenging, there are numerous education insurance plans available for you to put 20%-50% of your bonus into.
Yourself
If you can afford to treat yourself, why shouldn’t you? Setting aside 10%-25% of your bonus is certainly a fair amount to spend any way you like. You’ll really need to fight the urge to use any more than that, but it will pay off. Also, you should bear in mind that there are ways to save money while spending it too! For example, for those of you who are planning a short vacation, you’ll want to see if you can get free travel insurance with your credit cards! You can also find which credit card suits your rewards preferences best on sites like SmartCredit.sg.
Of course, depending on how much you’re left with, that trip to Paris might be out of the picture, or you might have to settle for… Steve Madden instead of LV – but I guarantee that if you have the discipline to do this every year, your “future” self will be most thankful that you did! Stay tuned with us on Facebook as we share more ways to grow your money.
How will you be spending your bonus? Share your thoughts with us on here.
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Wandira!
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