5 Tips to make your year-end bonus go the extra mile

It’s an exciting time for the working adults in Singapore as companies start to declare year end bonuses. We hate to be that person, but take a pause. Before you check-out your online shopping cart or jump on the next earliest flight, can your bonus be stretched further to achieve more?

Probably one of the most debated sayings of all time, “money can’t buy happiness” isn’t black or white. We can argue that money buys short-term gratification, but it is also not wrong to say that managed right, money can also buy us a lasting peace of mind. Both are important – in the right balance.

How can you balance your immediate needs and that of the future? We share 5 tips on how you can make the most out of your hard-earned bonus, and be rewarded for it when you need it to.

Why would we spend all our bonuses to feel satisfied?

There's nothing wrong with wanting to reward yourself after an entire year of hard work, but let’s try to understand why we tend to spend them, rather than to save them.

You might have heard of the concept of instant versus delayed gratification.

When you receive a bonus, your brain's reward centre lights up and a desire for instant gratification emerges. Known as 'temporal discounting', this psychological phenomenon can lead to impulsive spending decisions.

Understandably so, one might feel an overwhelming urge to treat yourself to luxury items or experiences. One would also overvalue immediate pleasure and underestimate long-term financial benefits, leading to overconfidence in spending decisions. Alternatively, you could experience guilt or anxiety about how to use the money wisely.

Ultimately, the key is to cultivate a mindset that values both immediate and delayed rewards, recognising when it is appropriate to treat ourselves, and when to make short-term sacrifices for greater long-term gains.

And, in the case of year-end bonuses, by investing the bonus received can lead to greater long-term financial rewards. Developing a plan for how to allocate the bonus, with clear goals and strategies, can help you resist the temptation to splurge excessively.

5 Ways to get a bonus dollar go the farthest

Strengthen safety net

When you receive your bonus, resist the urge to splurge. Instead, consider allocating a significant portion towards establishing a solid financial foundation. Prioritise paying off high-interest debt, such as credit card balances, to save on interest costs.

Next, bolster your rainy day fund, or emergency fund, to cover 3-6 months of expenses, providing a safety net for unexpected financial challenges.

Bring your bonus into broader financial goals

Instead of viewing your bonus as a windfall, consider it a stepping stone towards your broader financial objectives. It can bring you closer to your set goals, such as investing for retirement or saving for a home purchase.

Bonuses often trigger the urge for instant gratification, leading to impulsive buys and subsequent buyer's remorse. 

To avoid this, create a spending – or more like an allocation plan before your bonus arrives. Consider something that works for you, such as adapting template rules like the 50/30/20 rule: 50% for financial security, 30% for investments, and 20% for personal enjoyment. This approach allows you to address multiple financial priorities while still rewarding yourself for your hard work.

Reduce taxes and multiply your bonus

Bonuses are subject to income tax – consider allocating a part of your bonus in tax-advantaged accounts like your CPF or SRS (Supplementary Retirement Scheme), or even your loved ones’, to reduce your payable tax. Cash top-ups to CPF under the Matched Retirement Sum Scheme (MRSS) also attract dollar-for-dollar matching grants up to $2000 – you may essentially be doubling your bonus!

Investing your bonus can provide a substantial boost to your wealth over time, thanks to compound interest from reinvested returns and potential market growth. This approach aligns with a wealth mindset that focuses on long-term financial growth, rather than short-term gratification.

Explore diversified and low-cost investments that align with your risk tolerance and investment goals for potentially higher returns. The next question is then, should you invest lump-sum or dollar-cost average? 

Here’s the math, but if you’re short on time, the TLDR is that lump-sum mathematically generates higher returns, although it requires one to time the market accurately – something that even experts can’t get right all the time.

Leverage employer-matched contributions

On top of the cash bonus you receive, if your employer offers a Direct Stock Purchase Plan or Restricted Stock Unit plan, take full advantage of it, should your financial conditions allow. This approach not only could translate to additional funds in the future, and also provides potential immediate tax benefits.

Last item: Developing healthy money habits year-round

You might have received a notification now or will do soon for the 13th month, or the year-end bonus.

The last item on the check list before deciding on buying the luxury item that you long for, also consider the following to ensure financial stability.

Cultivate positive financial behaviours that persist throughout the year, not just during bonus season. This includes introspecting your own negative beliefs about money, investing in financial education to boost your confidence, and surrounding yourself with supportive communities.

What you can also do is consider setting aside a small portion for immediate enjoyment whilst allocating the majority towards your long-term financial goals. 

Allowing yourself a modest indulgence can satisfy the craving for instant gratification while preserving the majority of the year-end bonus for long-term financial growth.

Your discretionary bonus boosters

Managing your bonus wisely can have a significant impact on your long-term financial health. 

The key lies in balancing immediate needs with long-term goals, and making informed decisions that align with your overall financial plan. You can transform your bonus into a powerful tool for wealth accumulation – start investing with Endowus today.

Learn more:

• Should you lump-sum invest or dollar-cost average?
• The power of compounding
• The science behind why we are bad at saving for retirement