Everyone’s counting down to 2015. In just a couple more days and we are headed towards a new year. And everyone is looking forward towards AWS or Year-End Bonus. It’s time to maximise your hard-earned bonus. We at Empire Global had a good year and would like to dish our some sound financial advise for our readers.
What is Annual Wage Supplement (AWS): Demystifying AWS
Definition of AWS:The Annual Wage Supplement (AWS) is commonly known as the 13th month payment. It is a single annual payment to employees that supplements the total amount of annual wage earned by them.
Common Idea// Misconception: It’s compulsory for employers to award employees AWS.
The Truth:An annual bonus is an optional, one-time payment given at the end of the year. It is usually paid to motivate employees who have performed well. It can also be drafted in employee’s contract.
Read more on Annual Wage Bonus from the MOM
What to do with your Bonus
Worst thing to do? Rack up credit card debt in advance of your bonus and expect things to pay off eventually. That’s a big No-No! Use your bonus to treat your family members extravagantly.
Avoid making sudden big ticket purchases. Splurge spending and not checking out the best deals.
Best thing to do? Pay off high interest credit card debts and loans first. Clear as much liabilities as much as possible before the interest piles up. Clear all the bills! That’s your number one priority.
This is the best time to improve your credit score if you previously had some bad records. Having a clean sheet, void of debts would be most advisable. It helps in terms of future loan application especially for houses (it’s really tough to get a new BTO HDB flat).
Make that money work harder for you. You can channel some of that money into your CPF account and make your CPF work harder.
Don’t Forget Taxes
An old saying is to sound your chickens before they hatch. Even if you know your bonus amount, don’t assume its something extra. It is still taxable under Singapore’s IRAS. Save some of the bonus for the year’s taxes (set aside 10-40%) based on your income bracket. Those annual pesky taxes will make your bonus smaller. Which is why you should not be blowing off the extra cash that easily.
If your taxes are on the higher end, donate some of your bonus and receive a 250% tax rebate (http://www.iras.gov.sg/irashome/page04.aspx?id=1274)! Most people would not think about donating. Perhaps it’s time for you to donate some for a good cause plus you can some tax savings. Of course you need to check whether the charity is a registered IPC (Institutions of a Public Character).
Check out the charities on https://www.charities.gov.sg/
Fund Financial Goals
Plan your finances for the year ahead with this added bonus. Add some of that bonus money to your emergency savings. You can use that bonus to pay a small lump sum towards your housing loan. Any bit helps in the long run as the amount of compounded interest is equivalent to getting another house from HDB!
Put that entire bonus amount in a retirement fund. If you’re really ambitious and wish to retire early, a compounding interest with regular lump sums added can go a really long way.
Save for the Fun Things Your Like
We all love to treat ourselves to something nice. Firstly add a portion of that bonus to your piggy bank. As long you are financially stable, have some of the savings stashed up somewhere, well spend it! Not all of it of course. We suggest a good 20% will do.
Look out for really good deals for the items on your watch list. It’s the year-end and companies are going all-out to give you the best sales ever. Doing online shopping? Look our for coupon codes first before hitting the checkout button.
Rakuten(popular e-commerce in Singapore) for example has a great social following and regularly holds great sales. So check out companies Facebook pages, websites and surf around (sometimes bloggers are sponsored to give out coupon codes). All these can amount to great savings, not to forget, use the correct credit card for your purchase.
Summary: Spend or Save?
Everyone of us have had small windfalls or bonuses in our course of work. More often than not, that bonus money can be spent very quickly. Bonuses by nature are infrequent and is something we aren’t used to.
So treat that bonus as something separate to your regular income. Ideally, stash that bonus into your savings. This way, it allows you to keep your lifestyle and spending the same.
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