The Ultimate Guide on What To Do With Your Year-End Bonus

Credit: http://www.flickr.com/photos/muppethouse/341714428/sizes/m/in/photostream/So last week, I had surgery to remove TWO of my wisdom teeth – one on each side. Now, if you’ve ever had your wisdom teeth extracted, you’ll know that the operation is relatively painless, but the aftermath hurts like a b****. Seriously. Try stuffing 2 golf balls in your mouth and you’ll get an idea of what it’s like. Owtch.

On the bright side, it left me with a surprisingly long SEVEN-DAY medical leave from work (Though I spent the first half of it writhing in pain). Pain or no pain, a weeklong break from work is awesome. I caught up on my sleep, reorganized my room, and watched like 20 episodes of Modern Family (which is awesome btw, go watch it).

How to Handle Unexpected (Nice) Surprises

A weeklong break from work is a nice surprise, and so is the other great institution of a regular job: the year-end bonus (or “13-month bonus” as it’s commonly known in Singapore).

It feels pretty damn awesome to receive a year-end bonus, even though it’s not really a true “bonus” per se. So what are you going to do with your year-end bonus this year? Here are 5 possible options:

1. Spend it – What most consumer sheep will do. “Ooh extra money! Time to buy an iPad/massage chair/goat NOMNOMNOMNOM” (coupled with crazed look in their eyes)

2. Save it – What most people will do with the remainder after they’ve purchased said iPad/massage chair/goat. Be sure to take your shopping home in a cab – the possibility of upcoming bus fare increases might leave you with a remainder of maybe $4.70.

3. Sock it into a tax-sheltered SRS account – What very few people will do but could save you hundreds of dollars in taxes next year, depending on your tax rate.

4. Invest it – What old uncles will do (also with crazed looks in their eyes)

5. All of the above – what I think you should do.

Credit: http://www.flickr.com/photos/nicubunuphotos/5296305774/sizes/m/in/photostream/This is what your bonus will look like if SMRT increases its bus fares

The All Of The Above Option

There’s really no reason why you should limit yourself to one or two choices with your year-end bonus. Instead, see your bonus as a way to give a boost to everything that will improve your life. Here’s how I’m allocating my year-end bonus this year:

1. Spend 10% of it on whatever I want – In true L’Oreal wisdom: “Because I’m worth it.”

2. Save 45% of it by adding it to the house downpayment fund

3. Sock 45% of it into my SRS account. Ta-dahhh: instant tax savings!

4. Invest the amount in the SRS account in a portfolio of sensible index ETFs

The great thing about this formula is that it lets me resist the temptation of overspending, meets my dual objectives of saving and investing, AND it saves me money on taxes next year to boot. Awesomesauce.

Do It Now

Most people get really ambitious when it comes to planning their time and money. We plan to use our time to get through our to-do lists, and we plan to save and invest our money.

But our plans inadvertently break down once time and money unexpectedly fall into our laps. Instead, we’ll spend our medical leave watching Modern Family, and squander our year-end bonuses on iPads which will probably become obsolete in 6-9 months.

Don’t make the same mistake as the other consumer sheep. Make a decision on the percentage of your bonus that you’re going to spend/save/invest. Then transfer the amounts to the relevant accounts immediately. If you’re reading this outside, set a reminder to do this once you get home. And if you’re home, do it now. If you put this off till later, you’ll run the risk of it disappearing mysteriously. Seriously. Do it now.

Are you done?

Okay, now you can go reward yourself with a couple of episodes of Modern Family. 😉

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