News of eligible Singapore Airlines staff receiving a profit-sharing bonus that’s 7.45 months of their salary for FY2025 have been making rounds in the past few weeks.
That highlights the “bonus culture” that can exist within industries in Singapore. After a fiscal year-end, many companies may decide to pay out a bonus to reward staff for their hard work.
However, receiving a bonus should also make us think twice about how we spend it because there are many behavioural pitfalls that can (and should) be avoided when we get our annual bonus. Recognising them, and thus avoiding that behaviour, is important for our financial health.
With that in mind, here are five ways you might fall into the bonus spending trap and some methods on how to avoid them.
Read Also: Civil Service Bonus: How Much Has The Government Paid In Bonuses Over The Past Decade?
#1 You Counted Your Bonus Before It Arrived
Assuming that you’re going to get “x” amount of months in a bonus is dangerous, especially if you get ahead of the curve and start spending on this assumption.
Wait until your bonus is officially announced so you understand what cash you’ll actually have. That way, when your bonus hits your bank account you can more suitably budget for the spending that you have in mind.
Instead of having preconceptions about the amount you can spend for your hypothetical bonus before it’s announced, it’s best to draw up a plan for your bonus based on percentages as this can allow you to still execute on your spending plan once your bonus has been determined.
#2 You See It As “Free Money”
One common mistake many individuals make when receiving their bonus is to see it as essentially “free money”. That can be a dangerous notion as it might encourage us to spend it without much serious thought.
The best way to counteract this is to reframe your bonus as a delayed reward for your efforts at work over the past year. By putting it into the bucket of money that you’ve already “earned”, you can better fit the bonus cash into your current monthly and annual expenditures.
#3 You Inflate Your Lifestyle Immediately
Just because you’re receiving what can be viewed as a large cash injection into your account, does not mean we should go out and spend extravgantly.
Inflating our lifestyle from year to year can already be detrimental enough to the wealth-building process but if we do it every time we get our annual bonus, it becomes even more of a problem. Of course, that’s not to say that we shouldn’t go out and buy something nice for ourselves (or loved ones) with a portion of our bonus.
But it’s important to set a budget for this type of spending and to make a conscious effort to spend intentionally and avoid turning it into a regular habit. For example, before making big impulsive purchases, try to deploy the “24-hour rule” where you pause for a day to reflect on whether the item you want to purchase is truly necessary.
#4 You Forgot About Your Bigger Goals
This goes back to being intentional about what you will do with your bonus once it arrives. By not forsaking your bigger financial goals, you can better allocate a specific amount of your bonus into longer-term channels, such as savings or investments.
Don’t forget that you still have bigger financial goals that you want to meet in future, such as a desired lifestyle in retirement and other life events that you may need to budget for – such as sending your kids to university.
In essence by turbocharging the “pay yourself first” concept of monthly saving, you can apply this to your bonus and really make progress on your financial goals by paying yourself first when it comes to your annual bonus.
#5 You Don’t Have A Plan
The last thing you want to do when you get a lot of cash in your account is to not have a plan at all. By not visualising how you would apportion your bonus to various types of spending, you put yourself at risk of spending the money on an inflated lifestyle or hedonistic “wants” rather than planning for the future.
To solve this, you can utilise the fairly simple “50/30/20” rule which refers to the percentages allocated to necessities, wants, and savings/investments, respectively.
If you want to make more of a custom plan, you could create a tailored bonus budget that addresses specific spending or savings goals as it relates to your annual bonus.
Read Also: 3 Easy Ways To Make Your Bonus Last
