Budgeting | Personal Finance | Article
The Six Better Ways to Spend Your Bonus
by Bakhtiar HB | 15 Dec 2020 | 5 mins read
As the end of the year nears, one of the most anticipated times of the year for salaried workers comes around – the end-of-year bonus!
Working long hours for many days, weeks and months can be mentally draining, so spending some of that money on yourself is a good reward for all that hard work.
But those treats should only comprise a small percentage of that windfall payment. There are some things you need to take into consideration before spending all of that bonus money.
Here are the six smartest things you can do with your year-end bonus.
1. Pay Off Your Debt
Clearing debt is the best investment you can make. If you have any high-interest debt hanging over your head, bonus money is one of the best ways to take a big chunk out of that balance. Credit card debt is likely to cost you the most in terms of interest paid. In Brunei, AMBD caps credit card interest rates at 1.5% per month, which means you’re paying an annualised percentage rate (APR) of 18% on all the debt accrued.Remember that credit card interest is compounding, so clearing your balance, or a large chunk of it, is a great investment.If you are paying off your credit card at an APR of 18%, it makes more sense to clear that debt first before investing money elsewhere, because it is highly unlikely that any financial institution is going to offer you an 18% return on investment.
2. Top Up Your Emergency Fund
In a previous article, we spoke about the benefits of having an emergency fund that can last you up to six months. Use your annual bonus to start an emergency fund, or to top it up, so you have greater financial security.
This fund could help with unexpected emergencies such as illness, job loss, car repairs or you know, a global pandemic.
Although a new mobile phone or a down-payment on a new car is tempting, you should first reevaluate your ability to stay afloat in case of emergencies and top up that emergency fund as needed.
3. Buy Some Form of Personal Insurance
I can’t count the number of times personal insurance has come in handy.
Once during a holiday in Australia, travel insurance meant my father-in-law did not have to foot the bill for a leg injury which cost more than $5,000 in medical expenses.
My wife once sprained her ankle while we were overseas and accident insurance saved us from a $700 hospital fee.
Different forms of insurance are available to suit different needs and lifestyles. It is highly recommended to get a yearly accident plan that can help protect you financially against injury or any accidents.
Accident insurance should only cost you a few hundred dollars per year but it definitely provides you with peace of mind.
4. Invest in a Retirement Plan
While you may have a TAP and SCP plan running from your employer, you need to think about some alternative investments that could benefit you in the long run.
One option is investing in an exchange-traded fund (ETF). An ETF is a basket of assets in a particular class — such as stocks, commodities and bonds — that trade on an exchange. They’re popular because an ETF holds multiple assets, as opposed to just one stock, therefore diversifying your risk.
Investing a portion of your bonus annually could be a game-changer for your retirement fund. Baiduri Capital allows you to access some global ETFs with a minimum deposit of BND$1,000.
5. Invest in Yourself
Has there always been a skill you wanted to learn? Or is there a career path you would like to pursue that requires an extra qualification?
While investing in a job-related skill could improve your earning potential in the future, it doesn’t have to be all boring.
Spending money to learn a new hobby such as playing the guitar could be a great source of personal fulfillment. Or perhaps take up a class in a foreign language — a great way to market yourself to employers abroad.
Investing in yourself is one of the best things you can do as the returns are infinite!
6. Start a Holiday Fund
During a global pandemic, holidays may seem like a distant memory. But with a vaccine in sight, you can start saving for your next one.
Although we are all unable to travel right now, you can start a holiday fund with your bonus and then add money to it every month.
Avoid paying for your holiday expenses on credit, as credit card interest rates can be extortionate and hang over you for many months, even years.
If you have always dreamed of going to New York, Bali or Sydney, start saving as soon as possible so that you can really enjoy your time there.
The Bottom Line
An annual bonus is a wonderful reward, and you should use some of that money to treat yourself.
But making unwise financial decisions with your biggest windfall can negatively affect your financial outlook.
Think about how that lump sum could improve your financial outlook for the future, so you can live the next 11 months stress-free!