This article was first published by Seedly
It’s that time of the year, where you receive your well earned year end bonus. For many, this bonus is like a small windfall. Depending on the industry you work in, you may even receive a bonus of up to 6 months! What exactly should you do with this sum of unplanned money then? Sure, it’s a reward for all the hard work you have put in along the year, but does that mean you should splurge it all? Most definitely not.
As some of our fresh grads get their first bonus, we were curious and decided to ask some of Singapore’s top financial bloggers what they’d advise us to do with this amount.
SG Young Investment – Enjoy it, spend it, and save it.
Enjoy the first bonus – Yes saving up is important but so is rewarding ourselves since this is a first bonus. Setting aside 10-20% of the bonus to give ourselves a treat won’t hurt that much
Spend it on our loved ones – Having the first bonus is a great feeling. Sharing it with our loved ones is also a great feeling. Why not give our family or partner a treat or even a vacation to spend some quality time together?
Save a part of it – Bonus is an extra sum of money where after spending, there should still be left over for some savings. It could give our savings account a boost and help us reach our savings goals earlier. Consider saving at least 10-20% of the bonus and grow it through investing.
Cheerful Egg – 45/45/10 ratio
I would save 45% of it, invest 45% of it, and splurge the remaining 10% on something ridiculously unpractical and awesome
15 Hour Work Week – It shouldn’t be considered a bonus!
The 15HWW household feels these bonuses are actually part of the annual package to compensate us for the “blood, sweat and tears” in the office. The 13th month bonus should not even be considered a bonus. We are paid for the days/weeks we work. However, if you’re feeling miserable because all your colleagues are all out there splurging their bonuses, perhaps you could use the “additional 0.2-0.4 months” that was above the expectation to give yourself a small treat. That’s probably what I would do. =)
BudgetBabe – Put your money into a fund and watch it grow.
If you’ve just gotten your first year-end bonus, CONGRATULATIONS! If I were you, I would take 25% to buy myself a good meal, and then put the remaining 75% of my bonus into an index ETF fund. I’ll then sit back and road as I watch it grow over time into an even bigger amount to give me my future bonuses! 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!
Dollars & Sense – Purchase some equities to last you a longer time.
Instead of seeking immediate gratification by spending the money on some electronic gadgets, luxury items or an expensive holiday, why not consider “spending it” on something that doesn’t depreciate? These could include the purchase of some equities or bonds in the financial market. Or even saving it towards a big-ticket item such as a future home renovation. This way, your bonus will be able to last you a much longer time (hopefully a lifetime!)
That said, if you wish to give yourself a simple treat for the year-end, go ahead. But practise moderation, 10% of bonus to buy something you really like should suffice.
Retire By 50 – Invest 90% and spend 10%.
In my opinion, the year end bonus is a double-edged sword. Definitely a yay because you’re getting additional income on top of your monthly salary. A nay because this sum of money is taxable and could bump your total taxable income for the year up to another tax bracket and cause you to pay more taxes the following year.
Considering the year end bonus as additional income, I recommend adopting a 90/10 allocation rule.
90% of this income will either go into your Supplementary Retirement Scheme contribution for the year or your CPF Special Account under the CPF cash top up scheme. Both methods will provide you with dollar for dollar tax relief. You can choose to invest the money later on. In my case, I opt to use the OCBC Blue Chip Investment Plan to make monthly investment into Nikko AM Singapore STI ETF with the funds in my SRS account.
For the remaining 10%, you can choose to buy something you need but couldn’t afford this year. It could be that washing machine you’ve want to purchase to replace the cranky one back home. If you don’t have something you need, don’t force yourself to spend that money this month. For me, I have a discretionary saving goal/bucket (I do this with my OCBC 360 account) and I save the remaining 10% of the bonus in there. This is also where all my monthly surplus budgets and interests are saved and I can choose to use the money to fund my next travel adventure or discretionary purchase in future.
So….What Should YOU Do?
It’s entirely up to you and how much your bonus package is! But as you can see, the most common approach to dealing with your bonus is to save & invest it! The consensus is that you should put 20-50% into saving and another 20-50% into investing, then take the remaining and spend it on yourself. Now take the actions to maximise your bonus and enjoy the rest of the year before President Trump takes over!
Also, if you need help in managing your bonus regardless of how massive it is, do check out the Seedly app. We sync all your bank accounts so you can watch your finances conveniently and effortlessly.
“Seedly is a personal finance app that syncs with local banks and helps you manage your finances easily – Save time, Spend smarter.”
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