Ae we approach December, it is about time you receive your year-end bonus. While the bonus may come in handy for your year-end getaway or to throw a massive New Year party, we believed that there might be ways to put the money to better use.
We approach some of Singapore’s top finance bloggers on their input and advice on what can Singaporeans do with their year-end bonus.
What does Seedly’s Personal Finance Community say?
Before we open the floor to the finance bloggers, we asked the same question in our Personal Finance community and here are some of the best answers:
Investing in myself to upgrade and stay employable! Otherwise, I would drop some into either S-REITs or P2P lending. – Chen Zhirong
- Top up your SRS account to save on taxes, be able to invest, and have slightly more flexibility than CPF SA. – Dinesh Dayani
- I will invest all of it in the Straits Times Index ETF. – Alan Kor
Further reading: Singapore’s top financial bloggers and their year-end bonus advice
” Don’t leave sex for old age – life is not always about delayed gratification.”
I think adopting a balanced approach by splitting the bonus into two would be a good idea.
Use one half of the bonus to enjoy what you have always wanted to do. Guilt-free. It could be fulfilling one of the items on your bucket list or splurging on your family. Basically, something that could improve your quality of life. There’s a saying don’t leave sex for old age – life is not always about delayed gratification.
You should consider investing the other half of your bonus. It could be the good ol’ ETF that you have been investing in. Or even better, you have an investment idea you have a strong gut for but for whatever reason you did not pull the trigger. Do it. Either you make some money or you buy a lesson. It will make you richer or wiser, or even both.
” Before you go trigger happy and splurge it all on a branded bag or Rolex, think again.”
Yay, bonus time!
Now, before you go trigger happy and splurge it all on a branded bag or Rolex, think again. What if you could use that money to buy a worker who could grow your money into more instead? If I were you, I would take 25% to treat myself as a reward for working so hard, 50% into an index fund, and finally the last 25% to buy a blue-chip stock so you can get started on your stock investments journey.
Once you taste that feeling of accomplishment in being able to let your money work for you, you’ll never look back. Now, just think about all the possibilities if you invest 100% of your future bonuses? You’re welcome!
” Allocate your Bonus to Higher Priority Goals”
I often felt that I am in no position to tell you what you should do with your money.
You spend the past year slogging to get this reward, so I think you should decide what you want to do with it.
However, if you are looking for ways to allocate your bonus in a fundamentally sound manner, then perhaps I can share some stuff.
Certain Bonus versus True Performance Based Bonus
How you allocate your bonus depends on the certainty of the bonus.
For some people, their bonus is “part of the package”, either negotiated on an annual basis or due to the historical bonus nature of the company.
For my case, I have been in a “lifer” in the company. I started from being anxious how much bonus I will get initially, to the phase where I would work hard and anticipate how much that would boost my bonus to resigning that the bonus within the company is rather fixed.
So relatively speaking I have a higher certainty to my bonus than some others. I do not work in civil service but perhaps those that are in government-linked companies will agree with me. There are also the folks that work in banks or organizations where their bonus is rather fixed as well. The bonus is a very small portion of their compensation. That aids in the planning as well but in different ways.
With certainty, you can do longer-term planning.
With uncertainty, longer-term planning becomes difficult.
Rely Less on Your Bonus for Lump Sum Payments
Many people I know pay their insurance premiums in one lump sum and typically at the end of the year. So they rely on their bonus for this.
If you move to a company that has low or uncertain bonus then, how do you pay for your annual insurance premium?
Relying on your bonus to pay expenses that is mandatory is unsound.
What you should do is to break the lump sum premium to 12 months and deduct this monthly from your disposable income, save it so that at the end of the year you can pay it off.
The envelope budgeting system is meant for a situation like this.
For some, you have stayed in a company for some time, your bonus is more predictable, it is more appropriate to pay for lump sum expenses with your bonus.
Allocate your Bonus to Higher Priority Goals
I allocate my bonus in different ways based on my highest priority goals in the past 13 years of working.
The first phase started when I started working until 2011. I had an idea how much wealth I wish to accumulate by 35 years old.
As I did not know how much bonus I will get (since I was new to working), I put a fixed monthly amount and 100% of my bonus to wealth building.
The second phase started in 2011 and ended somewhere this year in 2017.
I realize that there are other areas of life that you need to fund. In terms of the absolute amount that I put away monthly to wealth building, I managed to see a sizable amount that I will conservatively put away annually. This is because the salary has grown over the years such that if I put away the cash flow monthly to wealth, I don’t need to rely on the year-end lump sum.
I took the foot off the pedal with regards to my bonus. I only allocate my AWS (or 13th-month bonus) and 1 month of my performance bonus to wealth building.
The bonuses go to other areas of life.
The third and last phase happen recently.
Life takes a turn, and I realize the life you want don’t cost that much. Since you do not know what to do with excess capital, you funnel 100% back to your wealth portfolio so that it can accumulate and general future potential wealth cash flow.
If your priorities are less costly and less money focus, you build up more security for the future for your family and yourself.
The key is to focus on your priorities and evaluate that in a portfolio of different priorities.
If you truly felt that you only live once and do not know how long you will stay on this Earth, spend all your bonus with your family, and cherish that experience.
But don’t come back crying to someone else when you realize that money could have been better spent for some future spending.
Many people have that regret not saving their bonus because they do not sit down and reflect well what are the goals now and future goals that need funding. This is both a competency issue but also that in life, you cannot plan for everything. You cannot anticipate how you feel and need in the future 100%.
When you save part of your bonus, without a goal, you are buying financial security.
” Successful investing is not about how quick and high you can get on your ROI, but is about the knowledge and skills of the market & companies with discipline and patience.”
Time flies and we are at the end of 3rd Qtr 2017 with Thanks Giving just around the corner and follow by Christmas celebration. I guess most of the investors including me are happy with their investment returns in 2017 as STI is up by 15.2% YTD and if you are the lucky ones who have invested in Banking and Electronic/ Chips Manufacturing stocks, your returns should be much higher than STI.
Well, most of the employee will also be receiving their Year End Bonus in Dec or early Jan ( if you are not in the industries which are still struggling with “downsizing or right-sizing”
I don’t have the chance to enjoy the “happiness & joys “ of getting a year-end bonus since 2014 after leaving the corporate world, but I’m really happy for those receiving it and hope you may spend it wisely. Ops… did I say “WISELY“?
You may find many good articles online about how to spend your Bonus “Wisely“ or at least in a “Smart” way:
- 8 Smart Uses for a Year-End Bonus from Forbes.com
- The 5 Best Ways to Spend Your Year-End Bonus in Singapore from SingSaver.com.sg
- The 11 smartest things to do with your end-of-year bonus from Business Insider
Depending on your goals and priority, you may just want to reduce your DEBT which is having higher interest rate e.g Credit Card Balance or Personal Loan etc… as the top priority, before talking about “Investing “. If you are in the late cycle of wealth accumulation, you may want to enhance your retirement planning by topping up your RA in CPF or buying good annuity plan from the market. CPF-Life payout may just enough for us to cover our basic expenses during retirement, a supplement income from annuities may form another type of predictable and consistent source of income after retirement.
Find out more details as below:
- 3 Best Retirement Plans in Singapore That Can Provide Guaranteed Income After You Retire from SGMoneyMatters.com
- Annuities as an Investment Option for Retirement Needs From Moneysense.gov.sg
Collect Moments Not Things
If you are getting a fat year-end bonus and have already set aside enough money for other expenses and saving, why not pamper yourself and make time for you and your loved one by planning a family outing (staycation ) or holidays.
As I blogged before, my lifestyle is simple and not chasing for any “luxury or branded items “. My wife and I enjoy going on holidays which is our biggest yearly expenses.
Last but not the least, you may want to buy a few good investment books to enhance your knowledge and skills of investing. Successful investing is not about how quick and high you can get on your ROI, but is about the knowledge and skills of the market & companies with discipline and patience.
Find My Book List here.
Although I will not receive any year-end bonus I’m really happy to see my in-coming 4th Qtr dividend, still counting the chickens before they hatch! Check it out on my blog where I will have my update soon. Cheers!
“two easy ways you can use your bonus, which would make you an instant winner.”
Most people want to buy something tangible with their year-end bonus. From a financial standpoint, there are two easy ways you can use your bonus, which would make you an instant winner.
Firstly, you should clear any high-interest loan that you may have. This includes credit card debt or personal loan that is continuously incurring interest. By doing so, you immediately save on the interest (and future interest) that you need to pay, had you not use your bonus to pay down the loan.
If you have no high-interest loan, consider doing a voluntary top-up to your CPF account. There are two benefits to doing so. Firstly, you earn a risk-free interest of 4% to 5% for the years ahead. Imagine if you are 25 and contribute $3,000 this year. This amount will become more than $9,700 by the time you are 55. In addition, you also reduce your income tax.
The best part of both the suggestions is that you end up getting more money than what your bonus actually was!
First of all, Congratulations to you if you are reading this article in anticipation of a year-end bonus.
To me, a bonus no matter how big or small is exactly what it is – a “bonus”.
Hence, the treatment for my bonus would be rather different from my regular monthly paycheck. I usually split my salary into something like this:
- 30% going to savings/investments
- 60% catered for the regular expenses (food, insurance, transport etc)
- Remaining 10%+ going to discretionary expenses (travelling, staycations etc)
As you can see, I have already set aside a comfortable portion of my savings/investments and I do not intend to add any more to that category. Instead, I will pen down the few ‘extra-ordinary’ things I would do with my bonus:
- Buying oversized Christmas gifts for my family and friends
- Going for overseas trip with my family
- Splurging on small comfort stuff such as massage, nice buffets and musicals.
- Donating to a good cause – you can build goodwill and also get a tax deduction for your donation!
- Investing in myself through online courses or reading books (it pays the best return!)
In short, I am going to go the unconventional route compared to other financial experts and encourage you to spend it all (wisely of cos!). And to my wife who is likely to see this article, you are entitled to my year-end bonus to spend on all of the above. Happy Wife, Happy Life!