Also known as how to keep your year-end windfall safe from a shopping spree, you won’t regret it.
It’s our favourite time of the year! No, not Christmas. We’re talking about bonus season. Most companies in Singapore dole out at least the 13th month payout at this time. Some lucky souls even get a performance bonus on top of that. All these add up to a healthy bounty, but don’t be tempted to spend it all! Check out our tips for investing your hardearned money wisely.
Idea #1 Settle Your Debts Or Make A Necessary Big-Ticket Buy
First things first: clear your credit card debt, so you don’t continue to incur interest expenses. And, if you have recurrent bills or are paying anything by instalment, consider paying up the full sum. This puts your bonus to good use, and you won’t have to sweat it out over the next few months or years. Besides saving on interest (if any), you may even get a discount.
For example, if your child attends Chinese enrichment lessons at Berries World, you get a $50 discount if you pay up for the whole year in one go. Also, when our pockets are deeper, we tend to splurge on little items without thinking about whether we seriously need them. Instead, reserve your bonus for necessary things, like getting a new family car because the one you’re currently using has been in and out of the workshop so many times, it’s become a liability. Or what about renovating that leaky toilet?
Idea #2 Put Your Bonus In A Fixed Deposit Account
Locking your bonus away in a fixed deposit account has two benefits. Firstly, you can’t touch it for a set period. Tenure starts from as short as one month, but we’d recommend you not touch your money for at least six to 12 months to enjoy a higher interest rate. Secondly, fixed deposit accounts pay you more interest than the paltry amount your regular savings account gives you, which can go as low as 0.05%. Depending on the amount of your deposit, annual interest rates can range from 0.08% at Citibank to 0.35% at CIMB. However, rates change all the time, so do a quick Google search to compare rates for the best deal.
Idea #3 Take Up A Term Insurance Plan
All major companies offer term insurance plans that allow you to save up over, say, 18 or 21 years, and collect a fat payout at the end. Some even allow you to collect a small cheque annually, or reinvest the dividends to let the interest compound. Arrange to pay your premium annually, and soon after collecting your bonus. Eight years ago, I signed up for NTUC Income’s Revosave plan. I opted to pay my premium in January, right after the year-end bonus was banked, so I wouldn’t be tempted to overspend during Chinese New Year.
As the plan came with guaranteed cash benefits, from the third year onwards, I received a guaranteed annual cash benefit equivalent to 5% of the sum assured. I redeposited the money with NTUC because it paid me an interest rate of 3.5%. That’s 10 times more than what fixed deposit accounts would have given me! Being a conservative investor, I prefer to buy such insurance plans with a capital guaranteed promise rather than shares or stocks. I may not make a lot, but at least I won’t lose anything.
Idea #4 Buy Gold
The beauty of investing in gold is, well, its beauty. If your husband complains that you’re buying pretty trinkets, you can always explain that everyone knows gold makes a solid investment, which always holds its worth – even though its value may fluctuate. Another way is to invest in gold bars or coins – from as little as 1g coins to 1kg bars.
Local company Pure Gold (www.puregold.com.sg) sells gold and silver in collectible coin designs, like its Panda coins and rose wedding collection, as well as iconic gold and silver bars. You can buy gold bars at regular goldsmith shops, too, and even score bargains at pawn shops, which tend to sell at less than the market rate. Also check out Mustafa. The price changes regularly and fast, but I was super chuffed when, while paying for my gold bar, the price jumped a little in the previous minute, giving me a (tiny) profit!
Idea #5 Top Up Your Medisave And Your Loved Ones' CPF Special or Retirement accounts
Invest your bonus in (future) healthcare needs, especially if you anticipate that you or your spouse/parents will need to tap into your Medisave account soon or regularly. There are actually many benefits to doing so. For starters, the Central Provident Fund (CPF) gives you 4% annual interest on your Medisave account – more than any Fixed Deposit account.
What’s more, if you are self-employed and do not pay CPF monthly, you have to make a voluntary cash contribution to your Medisave account as calculated by CPF, which will notify you of the amount due by mail. The good news is, any contribution will qualify you for a tax relief. And, if you have an especially big bonus, consider putting in more than you require as the extra can be used to offset the following year’s required cash contribution.
You can also do a voluntary cash top-up for the Special or Retirement accounts belonging to your parents, grandparents, non-working siblings and non-working spouse. To encourage more Singaporeans to save for the retirement of their dependants, you will receive up to a maximum of $7,000 in tax relief.
By squirrelling away your money in CPF accounts during good times, you will be assured that you will be able to use your Medisave to help pay for your next bill, or a medical crisis, instead of shelling out more hard cash. You’d also have contributed to your family's retirement needs, little by little, year after year.