It’s that time of the year again, where all the lights seem a little bit more brighter and the sun seems to be extra shinier and your wife’s cooking suddenly tastes that extra bit tastier (wait, what?)
It’s December, which in most countries, it’s holiday season. It’s the month of Christmas, the month of school holiday, and the most important one, the year-end sale extravaganza.
And to make everything extra sweeter, guess what, it’s bonus month as well. For most working Malaysians, their year end bonus should probably be on their way by this time of the year (if not already), which means more cash to spend.
“But stop right there!”
Instead of ravishing into all the shopping complexes out there in the Klang Valley to splash your cash, what if we tell you there are ways to make your hard-earned year end bonus lasts longer than just a few days in December?
Yes, you heard that right.
Instead of buying and spending more on items and food, why don’t you…
#1 – Settle Your Debts
The most responsible thing you can do with your extra cash is by using it to clear your non-healthy debts, especially any debts that possess an interest of 5% and above (credit cards, personal loans, education loans, etc.)
If you have monthly commitments with interests, that means, in absolute terms, you’re actually decreasing in your net wealth by allowing the interests to grow beyond the principal amount.
If you are able to clear that debt off with your year-end bonus (or in most cases, refinance it), although not seen in the short term, the impact of this action will ensure that from now on, your personal wealth will no longer be eaten by that pesky 5% interest from the debt you’re carrying.
#2 – Invest Your Bonus and Make It Work for You
If you feel that you’re not ready to part ways with your bonus by clearing off your debt, then the next best thing you can do is by investing it.
Ideally, you should always find an investment avenue that you are comfortable with the risks and satisfied with the potential return. But in this case, try to find avenues where you have the potential to gain a return above and beyond the annual/month interest rates of your debts.
Thus, over a period of time, you will see that the investment returns will eventually outpace your debt/s until they’re fully cleared. After that, it’s all returns.
#3 – Allocate for Rainy Days
We know it’s hard to imagine hardships especially during the season where you’re seeing people spending left, right and centre. But the truth is, none of those people will be there to help if (or when) mishaps befall you in the future.
Thus, it’s of the topmost level of wisdom to use your year end bonus and allocate some of that into your emergency funds.
If you already have an emergency fund set up, the next best thing is to put your year end bonus in a long term investment which you will use for retirement; either by voluntarily topping up your EPF accounts and capitalising on the potential dividends as well as tax relieves, or by contributing to your own private retirement funds.
The best option currently would be the Private Retirement Scheme (PRS) that the government is offering. Additionally (and this is a big fat addition) if you’re not yet 30 (and older than 20), it is still not to late to enjoy the RM1000 incentive the government is giving out if you deposit a minimum of RM1000 from 1st Jan 2017 until 31st Dec 2018 (lump sum or in bits). That’s a free RM1000 for your retirement purposes sponsored by the government with no strings attached.
For more information on the PRS Youth Incentive, click here.
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