5 things NOT to do with your bonus

9 March 2021

With plenty of guides on what and how to spend your bonuses, we thought we would share instead, what not to do with it.

So, here’s what NOT to do with your hard-earned bonus!

1. Treat it as a windfall

Bonuses always feels like a windfall, even for the ones with a tight budget or a wholesome financial plan. This is especially so because we in most cases, do not know in advance how much bonus we will receive. But you know you earned that bonus with your efforts and it did not fall into your lap by chance.

Instead: As with your salary, your bonuses are taxable and undergo CPF deductions. View your bonus money as earned income and part of your salary. This will help you to view your bag of gold more objectively and help you to make better decisions with it.

2. Investing everything

While this does seem like a wise choice at first, the decision to do so has to take into consideration your financial goals and situation too. For example, it would not be prudent to invest to earn you 15% per annum if you have outstanding credit card debt that is costing you more 25% a year! To put that into perspective, you are better off paying down your debt of $1,000 instead of investing it to receive $1,150 in one year, only to see that your debt has grown to $1,250 over the same period.

Instead: Focus on your financial goals and make the effort to fund them. Paying down your debt and shoring up your emergency funds for rainy days is always a good choice. You can then invest the remaining towards your financial goals – such as buying a house, saving for that dream vacation, growing your pot for retirement or for that dream café you plan to open one day.

3. Thinking in absolute terms

While it is tempting to get the Playstation 5, or that new handbag or watch that you have been eyeing for months, it will be helpful to view it relative to the size of your bonus. If the purchase is going to take up more than 80% of your bonus money and you have more immediate use for the money, you may need to think twice before making the purchase.

Instead: Think in percentage terms. Your purchase could cost you 80% of your bonus or 15% of your annual income! Viewing them this way can heavily influence your decisions and allow you to make better choices.

4. Forgetting about others

Sharing brings tremendous joy and makes you feel good about yourself. Chances are, that we have benefitted from the people surrounding us – whether it is the mood-boosting smile of the cleaner at work every morning, or the constant encouragements from friends and family when you are having a bad day at work.

Instead: Use this chance to show appreciation to the people who have helped tide you through challenging times! Giving a small token of appreciation or bringing them out for a meal can go a long way in building healthier relationships at home or at work.

5. Spending ahead and without a plan

Spending ahead and in excess of what you eventually receive can leave you with feelings of regret. And no, we are not saying you should not spoil yourself. Having money set aside for splurging reduces money stress or frugal fatigue – being sick of pinching pennies – and will serve to motivate you. Positive reinforcement that you can enjoy your hard-earned money makes it possible to keep working hard and to stay the course towards your financial goals. That said, it pays to be mindful and take into consideration your financial goals and plans before dipping into indulgence.

Instead: Delay splurging your bonus money until you have come up with a wholesome plan you are happy with. Plan and allocate the use of your hard-earned bonus towards your long-term goals. Make conscious choices and maximise the amount of happiness per dollar spent and you will not be left wondering where your precious bonus went!

Whether it is to shore up your emergency or sinking funds, or to shelve your bonus money until you have an actual plan for it, instead of leaving the money in your bank, we have money market funds that offers better returns than the pittance the banks are paying you. Money market funds are relatively low risk and offers stable performance which can be a good option to  safeguard against inflation. They typically offer an annual return significantly higher than what you get from your savings account.  If you can stomach the volatility and risks, there are also higher yielding bond funds or Singapore Fixed Income funds that you can consider investing with as low as $1,000 at once or $100 monthly.

Just like your salary, a chunk of your bonus money will be contributed as part of your CPF savings. Depending on your risk tolerance and time horizon, it might make sense to invest your investible CPF-OA or CPF-SA monies. We have an array of CPF-eligible investments that you can invest into to outbid the 2.5% or 4% per annum in your CPF-OA and CPF-SA respectively. Whether you plan to invest your excess cash, CPF or SRS monies, there is a plethora of funds on dollarDEX to derive dividend income from, or to invest into specific regions like Asia or specific countries like Brazil, Russia, or even specific sectors like technology, renewable energy etc. They can all be easily filtered from the pool of more than 1,000 funds with our fund finder.

Before you decide on which platform or provider to invest your money with, it always pays to be aware of the fees involved. It is the simplest due diligence you can do before investing your hard-earned monies. If you had read our previous article on “How a 1% fee could cost Millennials $151,432 in retirement savings”, you will be aware of how fees can erode your investment returns.

At dollarDEX, we do not charge any fees for all of your investments. This means you do not have to worry about sales charges, switching fees, transaction fees, platform fees, subscription fees, access fees, or any other types of fees when investing with us. And this is regardless of cash, SRS, CPF-OA or CPF-SA investments. dollarDEX is 100% transparent about our fees and profits solely by sharing a portion of the annual management fees from our fund partners.

Before you go and claim your bonus pay check, remember to treat it as an earned income as opposed to an unexpected windfall. Go with a plan and have in mind how your bonus is to be split up and spent. Thoughtful spending, saving and investing of your hard-earned money can make a meaningful experience, create good spending habits and be an aide to financial freedom!