Investing your bonus wisely

 Use it to build your wealth rather than spending on something you don’t  need

 As the new year comes and you have collected your year-end bonuses, the poser is how to spend your hard-earned money. For those fortunate enough to receive a big payout at the end of the year, the money will, more often than not, be channelled towards purchasing items that we don’t quite need.While you have every right to enjoy yourself, it’s also important to keep your priorities in check, like using the cash in hand to build your wealth.

Before getting started

Before one can think about investing, there are two important issues to address first, says licensed financial planner Joyce Chuah.“Firstly, have you set aside emergency funds of six to nine months of living expenses, depending on your financial circumstances? The emergency funds should be liquid and in relatively safe instruments like Amanah Saham Bumiputra or fixed deposits.

“Secondly, do you have unpaid debts that carry a cost above what your current savings or investments are giving you?”

If neither of these have been met, the bonus should be channelled towards either storing up emergency funds or clearing those debts that cost you above what you can earn from your savings or investments, Chuah advises.

Settle those debts

According to certified financial planner Mary Beth Storjohann in her article “What to do with your year-end bonus” on her investment website, Workable Wealth, using your bonus to accelerate your debt repayment is a smart money move.

“If you want to make the most it, put your year-end bonus toward your debt with the highest interest rate.

“This method of debt repayment is called the “avalanche method,” and it’s financially effective because the higher the rate, the more money those balances cost you over time. Paying off those debts as soon as possible means you pay less in interest in the long run.”

Chuah also says one should consider reducing one’s housing loan to lower any monthly commitments.

Safe investments

MyFP Services Sdn Bhd managing director Robert Foo believes that investing in unit trust is a safe investing option.

“If you’ve never invested, then it’s good to start building a portfolio. The stock market is a risky place if you don’t know what you’re doing. Investing in unit trust would be better.”

Chuah shares this sentiment: “Those in the lower income group should consider unit trust portfolios as these are more affordable while giving them a better diversified portfolio versus carrying the risk of investing in one or two single stocks.”

Vary your investments

Still, one should consider diversifying into both low and high-risk investments.

“Consider investing in good fundamental stocks. With the current situation in the stock market, selections are aplenty,” says Chuah.

Other options include the Private Retirement Scheme, which allows an additional RM3,000 tax relief or topping up your insurance cover to provide living benefits, she adds.

“Most of us own policies that provide death benefits but have insufficient ones with living benefits, such as critical illness cover, disability benefits, or hospitalisation coverage.”

Foo believes that one should invest locally if the investment sum is between RM20,000 and RM50,000.”

“If you’re highly paid, say you get a bonus amount that ranges between RM150,000 and RM250,000, then it would be better to diversify offshore.”

Invest in yourself

Storjohann notes that financial professionals spend a lot of time talking about investing your money to work harder for you, but what about taking the time to invest in yourself to increase your productivity, happiness, or knowledge?

“Use your year-end bonus to invest in yourself by taking a class, continuing your education, or adding to your skill set.

“If you possess the drive to learn and improve, you may even be able to market your newly acquired knowledge or skill as a side hustle to earn more money and increase your returns on investments.”

Foo agrees that learning a new skill or starting up a business can help boost your future wealth.

“Depending on the amount you have available, go into a business that does not require much capital. Be part of something that you can commit to part time, if you already have a regular job.”

It’s okay to splurge

What’s the point of earning all that hard-earned money if you’re not going to enjoy yourself, right? Storjohann strongly believes that one can and should splurge a little.

“Money can allow you to build security and stability, but it can also buy some happiness when you put it to good use: spending on experiences and relationships (not stuff).

“Use your bonus to take you and a loved one or two on a fun trip you might otherwise skip. Go to an event that you’ve always wanted to attend. Spread out your splurge and plan for one fancy date night a month for the next three months.

Travel to visit a friend or family member you haven’t seen for some time.”

She adds that spending money isn’t necessarily a bad thing, and one doesn’t have to “squirrel away every last cent” of his or her bonus.

“But do practice mindful spending, and work to align it with what you really value. Don’t let someone else’s priorities dictate how you spend money – in other words, don’t buy something you don’t need simply because someone else told you it was important or you needed it.

“If you prioritise what’s important to you and spend your money on that, you can enjoy a smart splurge with your year-end bonus,” says Storjohann.  

SOURCE : THE STAR (3 JANUARY 2015)