A Big Bonus: How to Make it Worth?
At the beginning of the year, one thing that all salaried persons have awaited for is nothing but a “bonus”. However, don’t spend it all on shopping or a trip as this sum of money can generate more benefits if you know how to manage it. In this article, let’s dive into 5 techniques of how to manage your bonus in order to make it worth.
- Debt management
Some of you may use the bonus to pay down debt on your list. However, don’t forget to employ debt management approaches by setting aside some parts of your debt to spend on other life targets. Anyway, if the money you’ve allocated is not enough to cover your debt, it’s fine. Let’s first prioritize debt payments as follows:
1. Focus on the debt payments that are subject to high-interest rates, such as credit card and cash card debts.
2. Focus on house, condominium, or car loans in order to reduce the principal and future interests, as well as decreasing the time-bound.
What’s important is that you should never create a large debt if not necessary. Regularly search for refinancing information and check your credit card invoices. Moreover, do have a separate bank account for debt repayments.
- Financial contingency
When the uncertainty becomes higher, ‘being jobless’ is possible anytime. Planning for a financial contingency is highly important. The main objective of this sum of money is to spend on necessities during the time when you’re looking for a new job, or suddenly unemployed. The situation of job security varies depending on what you do. Therefore, contingency plans can be different as follows:
• For those of you who work in a position that gets less chance of being unemployed, such as civil servants and state enterprise employees, your financial contingency should be 3 times your monthly expense.
• For those of you who need to rely on types and trends of the business, such as employees of private companies, your financial contingency should be 6 times your monthly expense.
• For those of you who are self-employed with uncertain incomes, such as freelancers, your financial contingency should be 12 times your monthly expense.
After all, this incidental expense should be invested in a low-risk and high-secure assets, such as savings account or money market fund.
- Don’t forget about the personal income tax
Don’t ever forget that your bonus is also part of your ‘income’ and likewise is subject to tax calculations. Firstly, you need to check whether your “net income” is higher than the amount exempted from income tax. If it is higher, you need to recheck if your employer or HR has already done the tax deduction from your income. If not, you should set aside some parts of your bonus for the tax.
- Allocation for investment plans (short-term, long-term, target, risk)
Another important thing you should do with your long-awaited bonus is to allocate it for investment plans. Definitely, this may be more difficult from other things, but this sum of money will surely generate a great deal of benefits, as well as security, in the future. It can potentially be a source of capital for business development or something that makes your travel dream comes true. However, before making up your mind, you should set a timeframe that aligns with the target and risks. In this regard, it can be divided into 3 stages as follows:
• A short-term target, which can be completed within 1 year. As the timeframe is quite short, you should go for something subject to low risk and focus on retaining the principal, such as bonds, debenture, or fixed income fund.
• Medium-term target, which needs to be completed within 3-7 years. This is a life development, a way to build your future. As a result, you should go for an investment that is subject to medium risks, such as mixed funds.
• Long-term targets, which can be completed in 5 years or more. This is comparable to the finish line of your journey. You should go for an investment with high risks in order to multiply the chance for higher returns, such as shares and equity funds.
If you still feel uncomfortable with this, you may decide to instead invest your money on your hobby which does not require a huge sum of money, such as an online shop, or an online photo selling shop.
- Reward yourself
We all do need a reward after successfully achieving a goal. For salaried persons who have been working hard throughout the year, rewarding yourself is the best thing you should do. Apart from relieving your stress, it can be also a driver that more easily push you towards a larger target in the future. You may reward yourself with a dream project, such as house renovation, or luxury gadgets, or a travel vacay to fuel your heart and power your life.
A bonus is a sum of money we have been long waiting and something we receive it with pride. If we know how to manage a big bonus, considering debt management, financial contingency, tax concerns, investment, or self-reward, it will be worth your wait and can be regarded as a starting point to achieve sustainable financial discipline.
All in all, you are highly recommended to first understand the nature of products (funds), conditions, returns, and risks, before deciding to invest. The investor is required to study the details of mutual funds, especially in the part of investment policies, risks, and performance of the fund, which are accessible from a variety of sources. In this regard, you can also request further information from the corresponding staff before making the decision.