It is the end of the year, and with the spectacular turn-around in the world economy, many companies are paying bumper year-end bonuses to their employees.
However, before you rush out to spend your money, it is important to keep the following few points in mind.
Distinguish between good and bad debts. Many financial advisor will tell you to that debt is bad and that you should use the extra cash to pay-off your outstanding debts. While I agree with them, I however feel that this is only half true as not all debts are bad. In fact, in the current low interest rates environment, creative use of debt can ironically get you out of debt faster. Let me illustrate. In Singapore, the current interest rate for home loans averages around 1% per annum. Money in our Central Provident Fund (CPF) Ordinary Account currently draws at least 2.5%. Thus, by not paying off my housing loan and keeping the money in my CPF’s ordindary account, you will be in fact earning 1.5% per annum.
Distinguish Between Wants and Needs. With your wallet flush with cash and the prospects of more pay increases on the horizon, you no longer need to think twice about buying things when out shopping. Without this check and balance, the possibility of impulse buys is high and we all know that the majority of impulse buys end up as “junk.” Hence, while we no longer need to buy only our needs, we must be careful not to buy all our wants.
Reward Yourself. If, you have distinguished between needs and wants and have decide to reward yourself, go ahead. There is no need to feel guilty about the occassional indulgence. The key-point is that you must reward yourself for your hardwork. At the sub-conscious, this is a good pat on the back and it will likely motivate you to work harder in the future.
Spend wisely. Last but not least, spend wisely. If you look around your house, chances are you will countless junk laying around. That beautiful lamp or $200 branded coffee mug is now practically worthless as no one is likely to pay you anything for it. The value of something is therefore only what someone else is willing to pay for it. Thus, if you must spend, spend your hard-earned money on something that will appreciate or hold its value.