If you are feeling a fatter wallet this season, congratulations! It always feels good to secure bonuses after a year of hard work, but what are your first thoughts when you receive this huge pile of cash?
Your next big purchase? Another getaway?
While some might fall into the trap of lifestyle inflation (the increased spending that comes every time you get access to more money), you need to prevent that from happening to yourself and your hard-earned money.
If that sounds like you, here are 6 ways to help you manage your bonus wisely.
Be it your salary, bonuses or any other sources of income the rule of thumb is no spending until it actually hits your bank account! This way, you don’t fall victim to careless speculation and you know exactly how much accessible cash you have.
If you don’t pay off what you already owe, you will never accumulate what you make. Paying off your previous purchases leaves you with a clean slate to start afresh and make plans with your money that you can stick with. Plus, you know you’re going to use that credit card to spend some of your bonus, so bring that credit availability back up to its original height before you start making purchases again.
Some might call it an emergency fund, but freedom fund sounds more like something you want to run towards. This is the money you set aside in the unfortunate event that you lose your job or feel like you can’t stomach another WIP meeting with your boss. Figure out how much you need to happily survive a month, and multiply that by the number of months you will need before finding a new source of income. 6 to 12 months is a good guide.
There’s no better time to kick-start something for your future than when you have an influx of unexpected cash. Don’t make the mistake of planning too late! It’s always good to start early, even with small sums set aside. Imagine putting more money away when you receive your bonus – it adds up! Small amounts of money set aside over an extended period of time also means you’re more likely to stay the course, and might even have a shot at early retirement if you start today.
On a tight budget? Time to loosen those purse strings, but be very specific with where your additional funds will be going. For example, add an additional S$50 dinner out a week, or get that Pilates course you’ve been eyeing to get fitter. Cook with better ingredients, or bring more music into your life. Make sure it’s measured in a way that is easy to track so you don’t find yourself back on the penniless bandwagon before too long.
Here’s the one you’ve been waiting for – if your cash flow allows, go for a fancy dinner, a shopping spree, or set some money aside for that epic road trip you’ve been talking about- but that’s only after you’ve duly considered Points 1 to 4. Consider donating some money to a charitable cause. Not only will you be helping people in real need, you will also be feeding your soul.
As a general guide, the 50/30/20 rule is widely believed to work for most of us: Use 50 per cent to pay off your debt, save 30 per cent, and have fun with 20 per cent. This should vary depending on your specific financial situation (though we can tell you now that using half of your bonus for “fun” doesn’t end up being fun), so it’s always a good idea to speak to someone who does this for a living, just to be sure.
Our Financial Consultant will be in touch with you soon.
Here are some links you might find useful.
These insurance products are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 198002116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy's surrender value (if any) may be zero or less than the total premiums paid. Buying health insurance products that are unsuitable for you may affect your ability to finance your future healthcare needs. This advertisement is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract.
This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC web-sites (www.lia.org.sg or www.sdic.org.sg).
We recommend that you seek advice from a Manulife Financial Consultant or its Appointed Distributors before making a commitment to purchase a policy.
More Insights you might find interesting
Guide to retirement planning for young adults
The importance of a financial planner
5 tips you should know when planning for your retirement