If you’re fortunate enough to be in a high paying job that pays out lucrative bonuses every year, you should count your lucky stars and capitalise on your good fortune.
The mistake most highly-paid executives make when they get their bonuses is to splurge it on ephemeral luxury goods or lavish parties. While it is good to reward ourselves for our hard work from time to time with a nice suit, handbag or a tie, we shouldn’t overdo it. If we spend our bonuses right, we can save ourselves a lot of trouble later on in life.
Benefits Of Spending Your Bonus Wisely
- Build Your Portfolio At A Faster Rate
If you spend your bonuses on the right investments instead of temporary, materialistic things to satisfy your own ego or try to impress others, you will be able to build out your investment portfolio at a much faster rate.
By spending your bonuses on the right things, we mean putting them into wisely made investments to build out a diversified investment portfolio of your own so your money could go to work for you.
Read Also: What Is A Diversified Investment Portfolio?
- Achieving Financial Freedom Early
With your larger starting capital and savvy investment decisions, you would be able to achieve financial freedom much earlier than your peers. This frees you up to pursue other things instead of having to be enslaved to your job just so you could fulfil your financial commitments.
Read Also: How And When Should I Start Investing?
- Paying Off Your Debts
If you have a house or a car loan, it would also be wise to pay them off as soon as possible with your bonuses so you will not have to pay the extra interests you would otherwise incur over the years.
Just to put things into perspective, by taking out a 30 year RM500,000 loan to finance a RM550,000 property, you would end up paying close to RM1,500,000 to the bank over the course of 30 years!
If you were to pay off your loan as soon as possible, you would be able to reduce the interest you would otherwise pay over the years significantly.
But of course, if you come across good investment opportunities that would help you generate a return rate that is significantly more than what you would have to pay the bank in interest annually, then you should use your bonus for the investment instead, because you would be leveraging your resources to achieve more by doing so.
- Constructive Rewards
While you shouldn’t spend excessively on luxury goods, going on a well-deserved holiday or buying yourself a tailor-made suit can be worth more than saving your bonuses for investments if they make you a much happier and productive person.
As long as the rewards are constructive and not excessive, they are worth the money.
Bad Ways Of Spending Your Bonuses
However, if you were to spend your bonuses on ephemeral things that brings you no true value, then you would simply be wasting your bonuses away.
- Splurge On Excessive Luxuries
Sometimes, our friends might pressure us into splurging on excessive luxuries that we do not really need. We understand that the peer pressure to conform and not be left out can be overwhelming. However, for the sake of our future, we should try our best to develop the courage to say no to such temptations.
- Acquire New Liabilities
If you have friends who love buying new fancy cars when they get their bonuses, just bear in mind that you are actually acquiring a new liability that starts depreciating the instant you drive them out of the showroom.
Unless you are already incredibly wealthy, otherwise, you will just be throwing your money away on temporary pleasures that might not be necessary.
- Keeping Them In The Bank
Besides splurging on excessive luxuries that do not bring any real value to your life, the worst thing you could do with your bonuses is to keep them in a normal savings account in a bank.
Put your money to work!
If you put your bonuses in the bank, you are actually getting poorer by the day because the inflation rate is much higher than that the bank is paying you in interest.
The Choice Is Yours
Having said all that, how you would like to spend your bonuses is ultimately your choice. We are just trying to spell out the pros and cons of spending them in different ways and hope to help you make a better financial decision.
DollarsandSense is a website that aims to help people make better financial decisions, one interesting bite-sized article at a time. Like us on Facebook to stay in touch with our latest article.
DollarsAndSense Malaysia is a website that aims to help people make better financial decisions, one interesting, bite-sized article at a time. Like us on Facebook to stay in touch with our latest articles.