When the COVID-19 pandemic struck in early 2020, it caught most people, let’s say all of us, unaware. No one knew how long it would last, and for sure, it lasted long enough and left trails of deaths and destruction. Businesses were crippled and those that managed to stand are still feeble. The pandemic taught or emphasised the importance of good financial management. So, if you are one of the lucky few to get some bonus at the close of the year, it is paramount to use it cautiously.
After going through the stressful pandemic period with so little, perhaps not having enough funds to meet all expenses at times, you might be wondering what the best way to handle this bonus is. In this post, we take a closer look at some of the best methods that you should consider to get the best out of the year-end bonus.
Clear Your Outstanding Debt
Do you have some high-interest debt, such as credit card bills? If the answer is "yes," consider using the bonus to clear them. Clearing off your debts is very important, especially when you are faced with uncertainty. For example, repaying the debts might be challenging if you lose income, which means they will continue racking more interest.
Even if you only manage to pay the minimum amount on your credit card, it only means that the principal will still remain. It is like getting yourself into a deep hole and trying to get out on your own. This can be close to impossibility. So is there a way out?
The best way out of this quagmire is to keep your debts out of control. Once you take a loan, make sure to prioritise repaying it. So, if the pandemic made you pack some unwanted debt on credit cards, one of the best ways of handling it is using the year-end bonus to knock it down. You get some breathing space, start building a positive history, and ultimately, steady the ship of your personal finance.
Remember to try and stay on top of your finances thereafter to ensure you do get entwined in a sea of debts again.
Use the Year-End Bonus to Grow Your Emergency Fund
If you do not have a debt hovering over your head, that is really awesome. So, what else can you do with the bonus? We have a suggestion: use it to grow your emergency fund.
Most Singaporeans used their emergency funds and exhausted them or shrank them to critical levels. For example, many are those who rushed to the emergency funds to acquire new laptops and install high-speed internet to be able to work from home. This might also have come with the need for new working stations (good chairs and tables) to avoid working from the sofa for long hours. We can say that the bonus was spent well, but it needs to be replenished in readiness for the next challenge.
Therefore, there is no better method of using the bonus than replenishing the account. If, by chance, you did not have an emergency kitty, this is the time to start it, and the year-end bonus can be the best start. Remember that this might be just a small percentage of what you might need. So, keep growing it progressively to ensure that it can handle up to 6-12 months of your expenses. If you can grow it even beyond this, this can be an excellent idea.
Buy Health Insurance Cover
If you take a closer look at the COVID-19 pandemic, it will be clear that the risks it posed are crippling. For example, it at times forced people to get admitted to ICU when battling the virus. Whether it is you or your loved ones, going through such an experience with financial limitations can be so challenging. Therefore, buying health insurance cover for your family with the year-end bonus can be an excellent idea.
When buying a health insurance cover, it is important to appreciate that the health risks are not limited to COVID-19 alone. For example, if your family member can suffer an accident that requires insurance cover. Therefore, you need to ensure that the medical insurance cover can meet most of the health risks that your family faces. When it comes to the health of your family members, do not spare any effort, and boosting their insurance cover can come in handy.
Use End-Year Bonus to Clear Your Bills
In the coming year, you expect to get some bills, right? Just like you receive regular bills every year, 2022 will be no different, and your bonus can come in handy to help clear them in advance. So, why even contemplate paying your bills beforehand? Here are some outstanding reasons:
Your bills will be cleared ahead so that you will not have anything to worry about every month
Cuts the likelihood of getting penalised for late payment
You increase your monthly cash flow
More money can be directed to your savings
When you are sure that all the bills for your household are taken care of, it will be easy to navigate through salary changes and career adjustments in 2022. The best bills to target are those that are racked up in a contract. Can you imagine a year without the baggage of bills landing on your table? That is what a bonus can do!
Buy and Stock Up Your Necessities
If you have a family and it uses a lot of accessories, why not consider easing up the pressure on your salary by paying them using an end-year bonus? Many families usually use a significant part of their income on items such as toiletries, groceries, and other household items. Indeed, you can take advantage of the end-of-year sales to stock up on most of these items because the cost is usually lower than the non-festive period.
When you buy in bulk, it gives you the opportunity to make savings in two ways. First, you enjoy discounts for buying in bulk and during the festive season. Second, you save on gas and parking charges that could have been used during regular trips to the supermarket. If you make a lot of savings, the rest could go into building your emergency kitty.
Use Year-End Bonus for Investment
If you have some money, the smart idea is crafting ways to make more. This means investing the money in areas where it will generate more income. Here, there are many options that you can pursue, but it is advisable to review each and compare their pros and cons. If you opt for a short-term type of investment, consider short-term insurance plans or fixed deposits that generate some returns on maturity. Bonds might also be a good option if you do not intend to go for a high-risk investment.
Another option is investing in the market. To increase the chances of getting more when targeting the market, consider working with robo-advisers. Good examples include StashAway. Remember to ensure that the selected market comes with a transparent fees structure and is flexible enough to make accessing your cash easy.
Repay Part of Your Mortgage
If you have concerns about the long-term mortgage, the year-end bonus can be an excellent way to clear some of it. The partial payment can help to clear the mortgage to help cut down the mortgage tenure or reduce the monthly payment. Note that some mortgages, such as those offered by HDB, have a minimum requirement for partial payment. At HBD, you can only make a partial payment of amounts no less than $5,000. So, if the bonus can reach the minimum, go ahead and direct the money there. However, you might need to top it up to hit the supported minimum.
As you can see, there are numerous good ways that you can use the end-year bonus prudently to make a huge impact in your life. So, compare the different options and get the best method. If you opt to combine the bonus with a loan to make a bigger investment, the loan application should be done through Lendela.
Lendela is the leading lender comparison site in Singapore and can help you to make loan applications easy and fast. So, no matter if you want to get a personal loan to cover an emergency cost, fund your home renovation or buy a car, Lendela is there for you. We come in handy to help you get the best possible loan and avoid loan sharks.