Skip to main content

Advertisement

Advertisement

What to do with your bonus

Civil servants will receive a half-month bonus at the end of the year, and many workers at private companies may well receive several times that amount before long. Even though bonuses may be somewhat lower than last year amidst a slowing economy, a bonus would be a welcome windfall.

Civil servants will receive a half-month bonus at the end of the year, and many workers at private companies may well receive several times that amount before long. Even though bonuses may be somewhat lower than last year amidst a slowing economy, a bonus would be a welcome windfall.

It can be tempting to splurge and use the money to buy anything from clothes or handbags to vacations or fancy meals. After all, you’ve worked hard and deserve a reward.

PLANNING TO USE YOUR BONUS

Figuring out the best way to use your bonus can actually be quite tricky, though, whether it’s an expected thirteenth-month bonus or a less-certain performance bonus. On the one hand, putting some money aside for a rainy day or for your child’s university education might seem like the right thing to do. On the other, the bonus is a reward for hard work and it seems like it should be acceptable to enjoy the fruits of your labor by spending it.

“Before you succumb to temptation and spend all your bonus,” Mr Vasu Menon, Vice President and Senior Investment Strategist, Wealth Management Singapore, OCBC Bank, told TODAY, “remember that the year ahead is filled with unprecedented economic and political uncertainties, the Singapore economy could face significant headwinds and job security cannot be taken for granted. It’s best to be conservative and save a significant chunk of your bonus for potential thunderstorms ahead.”

DollarsAndSense.sg writer Timothy Ho concurred, suggesting that there is no reason to tap into a year-end bonus for ordinary expenses. “Too many times,” he wrote, “we are guilty of wanting our end-of-year holiday without making any effort to save it up. We want to take a $5,000, 3 weeks’ trip to Europe, but are not able to save an extra $400 each month during the year. So, we end up using our bonus to fund the remaining amount.”

INVESTING YOUR BONUS

Rather than spending your bonus, saving or investing it may a better way to use the money.

The first place to start, Aviva Singapore advises, is to reduce your vulnerabilities. If you owe money for loans or credit cards, “this is the time to pay it off. Full settlement of your loan or reducing the owed balance with a lump sum payment will ensure your debt doesn’t snowball because of the interest charged.”

Taking perhaps a more conservative approach, Mr Menon suggests placing it into a fixed deposit so you can fall back on the funds if something unexpected happens on the job front. Alternatively, he advised, “if there is a sharp market correction, invest some of the savings in markets.”

Another option, personal finance and Betterment writer MP Dunleavey suggested, is using your windfall to create “a gift that keeps on giving”. “You could spend it all,” she wrote, “but by investing your windfall in a well-diversified portfolio, you can create an additional source of cash flow that steadily adds to your quality of life, year after year - a happiness annuity. Studies show that steady cash flow increases often feel better than a lump sum that’s here today, spent on the Canary Islands tomorrow.

You can also use the bonus to invest in yourself. Indeed, one of the best investments you can make is to improve your skills and financial knowledge. Technology skills and other expertise can help you advance at work or plan for a new career, while financial education can prepare you to build your wealth. Spending part of your bonus on taking courses, online or in person, can pay tremendous dividends.

SPEND SOME AND BE HAPPIER

Investing or saving your bonus doesn’t mean that you shouldn’t spend anything on yourself. Giving yourself a reward is actually a good idea.

As investment firm Charles Schwab put it, “we may not recommend spending your entire bonus on fancy gadgets or luxury vacations, but that doesn’t mean you shouldn’t spend a little bit on celebrating. Don’t feel guilty about spending some of your bonus money on yourself — because you earned it.”

Take at least 10 per cent or perhaps even 25 per cent to enjoy a nice meal out, splurge on new clothes, or take a staycation close to home.

To make yourself even happier, you could also make a donation to charity. Research by Harvard associate professor Michael Norton and University of British Columbia professor Elizabeth Dunn showed that although people get no meaningful boost in happiness by spending money on things like new clothes or iPods, they do tend to feel better if they spend even a small portion of a windfall on others.

PLAN AHEAD

Whether you’re a civil servant who knows how much you’ll receive or a banker who’s not sure you’ll receive anything at all, it may seem easier to wait to for the bonus to arrive and plan later. Rather than delaying and then being tempted to spend all the money at once, though, it is far better to plan ahead and figure out what you’ll invest the money in if you receive a bonus — as well as what to do with the 10-20 per cent that you spend entirely for enjoyment.

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.