Year-End Bonuses

Last week's Sunday Times, there was this article that feature how some Singaporeans are planning to spend their year-end bonuses. This comes from the back of the recent announcement on the amount of bonuses civil servants can expect to get. (For more information, check out the article here)

With this in mind, I would like to offer my own opinions of how you should spend your year-end bonuses as a reference. Please take this advice at your own risk. :)

1) Credit Card Debt

If you have outstanding credit card debt, it would be advisable to clear them first and as much as possible. The reason is because of the high interest rate charged, a whopping 24% per annum and do note that it is compounded daily which means the daily interest is 0.066%. (Refer to Section 3f) Let's do some calculation here. Assuming you owe $100 at the start of Jan 1, you would have owed a total of $113 at the end of Jun. Take note that this amount has not even take into account any charges and fees that the bank would put in depending on your payment behavior. So first and foremost, I would recommend that you pay down your credit card debt as soon as possible.

2) Credit Line

If you have outstanding credit line, this would be the next place you use your bonuses on. Credit line is similar to a credit card only thing is you are immediately charged interest when you draw money from it. So although the interest is low about 17% per annum, the compounding effect starts immediately. And again depending on your payment behavior, the existing interest rate can change and new charges added to it.

3) Renovation Loan, Mortgage or Term Loan

Next on the line is these three types of debt. For these types of loans, it can be tricky as they may have many terms and condition if you want to pay down the principal or terminate the loans early. My advice is to ask the respective product managers and inquire about these terms and condition before deciding where to use your bonuses to pay down the principal.

4) Financial Literacy

Before you start making investments after you have paid down any debt, it is strongly advisable that you invest a small sum of your bonuses on increasing your financial literacy level. Spend some money to attend seminars and buy books to read up on the current trends and types of investment. Have a better understanding of how it works, what are the cash inflows and outflows and also when these cashflows occur. Having a good understanding would help you to make a more informed decision on how to invest your year-end bonuses which you have used a year long period of sweat and quality time with your friends and family to exchange it.

5) Investments

After you are familiar with the respective investment products, it is time to 'dip your toes' a bit and 'dive in' when you are confident. Most importantly have fun during the process and also take note of your emotions when you are investing.