Maximizing Your Bonus: A Smart Approach to Growing Wealth in Your 20s

When your bonus lands in your account, consider your options carefully. Each choice has its own advantages and potential drawbacks:

1. Spending: Short-Term Gratification

Using your bonus for leisure, travel, or luxury items can be rewarding, offering instant gratification and motivation. However, relying solely on spending may not be the most strategic approach to financial growth. While treating yourself is important, it’s best to do so within a reasonable limit. Consider setting aside 10–20% of your bonus for discretionary spending and using the rest for savings and investments.

2. Saving: A Safety Net for the Future

Saving a portion of your bonus ensures that you have a financial buffer for emergencies, large purchases, or future investments. A well-padded savings account provides peace of mind and preparedness for unforeseen circumstances, such as medical expenses or job transitions.

Types of Savings Accounts to Consider:

• High-Interest Savings Accounts: Banks like DBS, OCBC, and UOB offer competitive interest rates on savings accounts that help your money grow.
• Fixed Deposits: A good option if you want to lock in a portion of your bonus for a fixed period while earning a higher interest rate.
• Emergency Funds: Ideally, you should aim to have at least 3–6 months’ worth of living expenses saved up in case of unexpected situations.

3. Investing: Growing Wealth Over Time

Investing your bonus allows it to grow through compounding returns. Though investments come with risks, they offer the potential for higher returns over time, contributing to your long-term financial goals.

Investment Options for Young Adults:

• Stocks & ETFs: Investing in well-established companies or exchange-traded funds (ETFs) can provide long-term capital appreciation.
• Robo-Advisors: Platforms like Syfe, Endowus, and StashAway offer automated investment solutions tailored to your risk profile.
• Unit Trusts & Mutual Funds: These professionally managed funds allow you to diversify your portfolio.
• Singapore Savings Bonds (SSBs): A low-risk investment backed by the government, offering steady returns with liquidity.

Allocating Your Bonus Wisely

A balanced approach is key. The 50-30-20 rule suggests allocating:

• 50% for essentials (such as bills, rent, and insurance premiums)
• 30% for discretionary spending (such as dining out, shopping, and entertainment)
• 20% (or more) for savings and investments

However, if your financial responsibilities are minimal, you may choose to increase the portion allocated to savings and investments. This can accelerate your journey toward financial freedom.

Leveraging Financial Tools for Growth

1. Insurance Savings Plans: Security with Growth Potential

Savings plans that provide capital security and steady returns can be ideal for those seeking low-risk financial growth. In Singapore, insurers like Great Eastern, Prudential, and AIA offer plans that guarantee capital protection while providing cash payouts over time.

Recommended Plans:

• Great Eastern’s Flexi Cashback Plan: Provides guaranteed cash benefits with flexible payout options.
• Prudential’s PRUWealth Plan: Offers long-term wealth accumulation with guaranteed cash payouts.
• AIA’s Smart Wealth Builder: Focuses on capital appreciation while ensuring insurance coverage.

2. Investment-Linked Plans (ILPs): A Combination of Growth and Protection

ILPs offer both investment opportunities and insurance protection. These plans from insurers like NTUC Income, AXA, and Manulife allow for flexibility in managing funds while ensuring financial security. Some ILPs also provide the option to withdraw funds during major life events without penalties.

Benefits of ILPs:

• Flexibility in choosing funds based on risk appetite
• Ability to increase or reduce investment amounts over time
• Life insurance protection as an added benefit

3. Retirement Planning: Securing Your Future Early

Your 20s may seem early to think about retirement, but starting now can make a huge difference. CPF top-ups, Supplementary Retirement Schemes (SRS), and annuity plans are great options for securing your financial future.

Recommended Retirement Plans:

• NTUC Income Gro Retire Flex: Offers regular retirement payouts with guaranteed returns.
• Manulife RetireReady Plus II: Customizable retirement income with flexible payout options.
• CPF Retirement Sum Topping-Up Scheme: Provides attractive interest rates to help you grow your retirement savings.

Using a Savings Calculator to Plan Effectively

Online savings calculators can help estimate potential growth, aiding in decision-making. These tools allow you to project how your investments and savings will grow over time, helping you stay on track toward achieving your financial goals.

How to Use a Savings Calculator:

• Input your initial savings amount and expected contributions.
• Set a time frame and expected return rate.
• Adjust different scenarios to find the best strategy for your needs.

Many financial institutions in Singapore, including DBS, OCBC, and UOB, provide free online savings calculators to help you visualize your financial growth.