After waiting for what seemed like forever, the culmination of a year’s worth of work is finally here—your bonus has arrived! You’re a month’s salary richer than normal. Now what?
Have you had visions of big screen TVs or that vacation in Europe you always wanted? Or is it all of the looming debt you’ve got? Before blowing your check on expensive items, consider spending it on these options that can drastically improve your financial situation.
Improve Your Investment Portfolio
Your bonus presents a unique opportunity to invest more. “But why should I invest my money if I can just buy stuff that I need now?” you may ask. Think of it this way, investing your bonus is like creating a secondary stream of income, which is something that you’ll need if you’re saving up for more long-term goals. Also, rebalancing your investment portfolio is best done whenever you get a large influx of cash. As the market value of each security within your portfolio earns a different return, you will need to rebalance or adjust it periodically.
That’s not to say that the only time to invest is when you get a large sum. If you’re just looking to get started, any small amount is better than nothing. Remember, it’s time in the market, not timing in the market.
If you’re new to investing, UITFs are a good way to start. By investing in UITFs, you get seasoned financial experts to manage the fund for you. This maximizes your chances of getting high returns on your investment. UITFs are also, by default, diversified, liquid and has a minimum required investment of PhP10,000 so the risk to investing is minimized. Click here to learn more about UITFs or here for a full list of investment options.
Pay Off Lingering Debt
If you’re strapped for cash, investing your windfall might not be the smartest move, especially if you have any lingering debt. Your bonus is also an opportunity for a hard reset on your debts. You can catch up on bills, pay off loans, or pay your credit card debt. Keep in mind that if you’re carrying an outstanding balance—and being charged interest every month—you’re effectively diminishing your net worth. Plus, your investment portfolio is not likely to grow at a pace that would offset these losses.
The faster you clear these outstanding balances, the sooner you can free up some positive cash flow to spend on your business, your portfolio, or maybe just to beef up your emergency funds.
There are also services that let you consolidate your credit card debts into one account so you can pay them off more easily. For example, the 0% Balance Transfer lets you transfer credit card balances with high interest into a credit card with a lower rate, which will help you save money and pay your debt faster. You can transfer balances from pretty much any credit card in the Philippines including your BDO credit card, BPI credit card, Citibank credit card, or Metrobank credit card.
Having a huge influx of cash is always a good time to buy property or to finance your home loan. Look at this as a win-win situation: you get to spend the money by putting it toward your home’s equity, but still get some ongoing benefit from that money in the form of interest savings.
It’s also important to get a home loan with payment terms that best fit your lifestyle. For example, a home loan that adjusts to your lifestyle instead of the other way around—you can pay more when you have extra or pay less when the budget’s a little tight.
Treat Yourself (Within the Limits)
Suddenly, you can now buy that new phone you always wanted. You can eat out at that fancy restaurant. You can even buy tickets for your next trip! If your bonus has a habit of vanishing quickly, you might have an impulse buying disorder. The most important step in spending your bonus wisely is to practice restraint.
Go ahead, treat yourself to some well-deserved pampering. But whatever you do, don’t make big ticket purchases that will take months to pay in installments. Keeping your lifestyle at the same level while getting the money to work for you will have a long-term impact far beyond the benefits of a big screen TV or a flashy new smart phone.
You can also try budgeting a portion of your bonus to treat yourself (within reason) then take the rest and put them to long-term use. If you do plan to go shopping, don’t forget to take advantage of discounts or promos offered by your credit card. Still don’t have a credit card?
Get a Better Savings Account Rate
Another option, of course, is to directly add the bonus to your savings—whether it’s for retirement or more short-term goals such as buying a house or a car, or even saving for college. Make sure that your account is offering a competitive yield and if not, consider applying for a new savings account. Having more cash also means that you can make larger deposits that might qualify you for higher rates.
Source: Security Bank