It’s the time of the year we look forward to the most - it’s the moment when you receive your well-deserved bonus. In that instant, all the blood, sweat and tears that you’ve put into your work for the company seem worth it… almost.
After the initial euphoria wears off, you start thinking carefully about what to do with this newly acquired sum of money. Surely this is the chance to spend on that trip that you’ve been thinking about, or the new bag that you have been eyeing on for months. While we say yes you should treat yourself after working so hard, there’re also merits in thinking about how to derive more value from your bonuses in the long run.
We take a closer look at five ways you can put your bonus to good use.
Yes, investing. Remember the times when you were young, when your parents nudge you by topping up your account with a small bonus if you manage to hit your savings goal?
Well the “adult” equivalent are investments. By regularly putting a portion of your bonus (we recommend you apply this rule to your monthly salary too) into regular investment plans, you put yourself in an advantageous position to receive a huge bonus in the later stages of your life. A good habit to nurture is to invest at least 30% of your bonus.
One way you can do that is to sign up for a Systematic Investment Plan (SIP), which allows you to invest a fixed amount every month into Mutual Funds that invest in different assets, geographies, sectors or strategies.
Recommended: Set aside 30% of your bonus for investment.
Investing doesn’t just have to be limited to the financial markets. You can also set aside a portion of your bonus to learn new skills, ranging from digital to physical skill sets. The benefits of learning a new skill can far outweigh its short-term cost.
At least for a start, learning a new skill will increase your knowledge. It also enables you to take on a larger portfolio or scope at work, which could give you both a renewed sense of motivation and brownie points for promotion.
It may help you complete your usual work with much higher efficiency too, saving you time and expanding your bandwidth to achieve more within a single day. The time saved can be spent doing things you like, such as having more family time or more time to explore other interests.
Recommended: Set aside 10% of your bonus to invest in yourself
Bonuses are like mini windfalls, unpredictable and likely to depend on company performance. Thus, it is always wise to save some of these for rainy days.
It is recommended to set aside at least 3 to 6 months of your monthly expenses as liquid cash savings for contingencies. If you have dependents, you may need to set aside at least 6 months or more. Should you not have the required savings yet, start by setting a goal and saving towards it.
To deep dive further, saving for retirement is also important. Starting to save for retirement from young can go a long way, especially if you know how to take advantage of compound interest. By simply saving Rs.500 a month and growing your savings at 10% per year, you will be sitting on a retirement nest of Rs. 3,82,848 in 20 years.
Recommended: Set aside 30% of your bonus for that rainy day.
Debt is a loaded word and many of us try to avoid talking about it. But it does exist. While most people have some form of debt, unsecured loans (e.g. Outstanding credit card balances) are the ones you should try to clear first due to their interest nature. We suggest setting aside a portion of your bonus to do this, if there are outstanding payments to be made.
By using your year-end bonus to settle debts, you can save on interest payments in the long run. These savings can be translated into additional cash for you to spend, invest or save, be it now or in the future.
Recommended: Use 20% of your bonus or as required to clear your debts
Your bonus is a reminder and validation of how hard you have worked throughout the year. You absolutely should treat yourself to something nice – be it a good meal, a short vacation with family and friends, or a gift for your loved ones (or yourself!). Take this occasion to give yourself a pat on the back for a year of hard work as you get ready for another great year ahead.
Recommended: Take 10-15% of your bonus to treat yourself or your loved ones
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing.