#1 CLEAR THOSE DEBTS
Remember that your bonus (and its size) isn’t guaranteed – so instead of making grand plans for it, think of it as money that can help you clear existing debts. Channel your bonus towards creating an emergency savings plan. If you’ve got your savings under control, use the extra cash to clear outstanding loans, especially credit card loans. Unlike long-term loans for your home or car, these have a much higher interest rate and don’t offer any tax benefits.
#2 DON’T DIVIDE IT UP
Many organisations, especially private corporations, allow employees to get a percentage of their annual bonus each month, instead of all at once. It may seem like a good idea because you are less tempted to splurge when the bonus comes in. But if you forgo the lump sum, you won’t benefit from the additional CPF contribution your employer would make towards your bonus. Known as the Additional Wage Ceiling under the CPF programme, this applies to bonuses up to $25,000.
Savings accounts and fixed deposits pay 1 per cent or less in interest. In the long run, your savings won’t keep pace with inflation. If you don’t have loans to clear, invest at least 50 per cent of your bonus – but first make sure you have six months’ pay in savings stashed away. If you are investing long-term, put your money into blue-chip dividend-paying stocks, unit trusts or government bonds. These are less risky than individual stocks and commodities but give decent returns of about 5 per cent in the long run. Also, instead of putting all your money into one large investment, go for a mix – this way, you average out your risks over time.
#4 IMPROVE YOURSELF
Use 20 per cent of your bonus to learn or experience something new – even if it seems indulgent, like night classes for public speaking or a new hobby. Commit yourself to it and make a down payment so you’ll see it through – you’ll thank yourself when you realise how much you’ve learnt by the time your next bonus arrives.
Expert advice: Christopher Ng, author of Sowing the Seeds of Prosperity, and Andrea Kennedy, asset manager with MBMG International.
This story was first published in Her World Magazine December 2012.
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