7 Smart Ways to Spend Your Year-End Bonus

25 Nov 2018 | Back to Blog

‘Tis the season of good cheer, and potentially a financial windfall if you’re on the receiving end of an employee bonus. It might be tempting to splurge on yourself, or shop until you drop so you can play Santa to your loved ones, but, making smart money moves instead could equal a much bigger treat later.

Instead of considering your bonus as additional cash to treat yourself to something normally outside your budget, think of it as a chance to make a big step towards your goals, to build something, or to make your future self very happy. Make a plan for the money before it appears in your account. As a general rule of thumb, you should commit about 80% to financial goals, using it to pay off debts, increase investments or top up your retirement funds. The other 20% can be ‘fun money’ as a reward for the hard work you’ve put in through the year, and the smart choices you’ve made with the rest of your cash.

Here are seven ways you can make your bonus pay off later:

1. Settle lingering credit card balances and other debts – Loans can be a drain on your resources, particularly when they come with high interest debt. The sooner you pay them off is the sooner you can save money in interest and begin building your own wealth, so try to pay off some of your outstanding loans. Just be sure to pay down on principal instead of interest. Credit card debt is usually the highest interest rate – pay this down first, then reduce the number of cards you use. Generally, when it comes to credit cards, keep the number of cards you have to a minimum and be selective about which ones you use – cards with loyalty programmes can pay big dividends from usage; just be careful not to let your spending get out of hand to the point where the benefits are outweighed by high interest.

2. Build up your emergency fund – Life comes with too many unexpected expenses to be without an emergency fund. If you’re not ready to withstand a sudden health emergency or job loss, use your bonus to kick-start that crucial six months of living expenses in an emergency fund account.

3. Get more out of your retirement programme – If you are a part of a pension scheme or have a retirement plan of your own, your bonus could give your nest egg a boost, if you don’t have an existing retirement account, your bonus could be a great way to start one.

4. Invest in the assets – Instead of regarding your bonus as extra money that falls outside traditional income, think of it as you would your paycheque. Invest a portion of it now, for great dividends in the future. Make a lump-sum investment in a unit trust where you can invest in a diversified portfolio of securities that match your goals.

5. Invest in yourself – Maximise the leverage you get from your bonus by expanding your skill set or developing a side business to supplement your 9-to-5 gig. Maybe you could do a course to enhance your skills so you can garner a promotion down the line. You could also get raw material, or upgrade old equipment in order to pursue your hobby, so can monetize it.

6. Gifting growth to others – There’s no better feeling than giving, however, rather than gifting consumables or something frivolous, why not give an investment gift certificate? It’s a gift that keeps on giving. Start your child’s investment portfolio, give a gift to a new graduate, or newlywed couple, or give a head-start to a friend who needs some encouragement to start investing. Help them get started with their portfolio by scheduling an appointment with an advisor, then even going with them.

7. Have some fun – You’ve been working hard all year, and your bonus is your reward. While you should only use a small portion of your bonus on discretionary short-term purchases, still think of ways to maximise your enjoyment. Think about what makes you happiest. Whether it’s a spa day or a weekend getaway with your family, memorable experiences are worthwhile. If it’s those high-heels you’ve been eyeing for months, once it will put a spring in your step and falls with the 20% outlined above, go for it!