Financial Adviser: 5 Ways to Make the Most Out of Your Christmas Bonus
Christmas bonus is a financial windfall that you don’t regularly receive as part of your monthly income.
Because this is a one-time financial windfall, there is a strong tendency to spend it impulsively, especially during a gift-giving holiday like the Christmas season.
Realizing the need to save your extra cash doesn’t mean that you can’t spend money for your family. You can always celebrate the holidays without depleting your savings.
It is always wise to build your savings and invest later to make sure that you have some financial resources that will take care of you in the future.
Earning financial rewards is a great opportunity to plan and put your personal finance in order.
Here are the five ways you can maximize your cash gifts and bonus this Christmas:
1| Invest by paying off your debt
If you have credit card debts that you have been paying for some time now, this is the best time to reduce or pay it completely.
Imagine the interest expense that you will save by paying your debt. If you are paying 3.25 percent interest rate per month on your credit card balances, this is the amount of investment returns that you will earn by paying off your debts.
When you decide to pay off your debts, make sure that you separate your good debt from the bad debt.
The debts that you need to prioritize to pay off are those that you borrowed to buy stuff for consumption.
For example, credit card expenses that you incurred for entertainment, groceries, eating out with friends or travel.
Spending for consumption that does not increase in value are called bad debts, therefore, must be avoided.
2| Invest for capital appreciation
One way to grow your savings is by investing in assets that will rise in value over time. Stocks, mutual funds or real estate are some of the assets that you can buy for capital appreciation.
You can keep your money in these assets not for short-term or speculative appreciation, but for long-term investment.
Investing in assets for capital growth is also a good way to hedge your savings against inflation.
For example, if you invest in real estate, the value of your property will increase through time because of inflation adjustment in prices.
The same situation can also happen when you in stocks. Listed companies need to increase their selling prices due to inflation and because of that, higher income leads to higher stock prices.
If you buy stocks now and hold it for long-term, chances are your stock investments will appreciate.
3| Invest for cash flow income
Another way to grow your savings is by investing in assets that pay regular cash flows.
Instead of keeping your money in a regular savings account that pay you less than one percent a year, you can invest in reputable companies that pay high dividend yields or interest rates.
For example, you can invest in dividend paying stocks like preferred shares or bonds that can pay you good return. Ideally, an annual return of six percent or more per year should be good.
You can also invest in REIT stocks that can pay you quarterly dividends plus potential long-term capital appreciation.
Of course, every return always comes with risk. Make sure that you choose the right investment that aligns with the risk that you are willing to take.
4| Invest for peace of mind
The purpose of creating an emergency fund is to provide a safety fund that can be used for personal financial crises such as hospitalization, car accidents or any major event that requires sudden cash outflow.
Ideally, an emergency fund must be at least six months of your monthly living expenses. If you have not saved enough yet, you can start to build at least three months’ worth of expenses first.
You can keep this in a separate bank account so that you will not be tempted to use it for your regular expenses.
If the amount of emergency fund is substantial, you can invest a portion of it temporarily in short-term, interest-bearing money market funds that you can liquidate immediately when you need it.
In this way, you don’t waste the opportunity to earn extra interest income while your money is parked for emergency purposes.
5| Invest in yourself and others
There is no better investment than investing in your personal growth.
Treat yourself this Christmas by buying books to learn new skills and improve your financial literacy. Every knowledge that you will learn by studying will become part of your life skills and give you returns that will multiply in the future.
Christmas is also the best time of the year to appreciate all the people that have been part of your success. Invest in relationships by showing your gratitude.
You don’t have to give expensive gifts but a simple token of appreciation that you did not forget them during this holiday season should be sufficient.
If you have run out of budget, you can also show your appreciation by investing your time; simply greet them with a personal message for the holidays.
Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected] or follow him on Twitter @henryong888