How should I spend my bonus?
Investment 1-0-1: Tips to get you started
Hurray, quite some CHF have been deposited on your account? That’s awesome - but it is also quite daunting to suddenly have a bunch of money, but not having planned anything with it. 🤔
Let’s look at this very strategically. As a financial investment assistant, we are professionals at this. 😉No matter if it’s a bonus, a really generous Christmas gift or the money on your savings account you suddenly thought of:
It’s important to get your extra cash out of your savings account.
I get it though.
It’s lovely to open your online banking app and look at a high number – it gives safety, right? Well, apart from this fuzzy and warm feeling, the benefit of keeping money on a 0-interest account might not be that useful. Random (and not “strategically planned”) spendings, bank fees, and inflation will sooner or later chew away your bonus.
And yes, you should get something nice for yourself – because it’s your money and you’ve earned it. But you might also want to make sure this extra money is set up to grow in the future. So, let’s make a plan for that second part together.
Emergency buffer & planned spendings
First, let’s deal with the necessities.
How much money do you need to have on your account on all times?
This cash goes towards any unplanned spendings and emergencies. The sinking yacht because of all the champagne you stashed there. Sudden urge to flee abroad for a holiday. Or something more realistic like a car repair or a prolonged sick leave. 😐
The amount of cash in your emergency buffer depends on your situation – expenses, dependants, work. At Selma we usually recommend keeping an amount of cash on the side that would cover your expenses for around 3–6 months.
Then, there are all the “hard decisions”.
Planned spending means that you have decided to use a certain bigger amount of money within the next 1 – 3 years on something specific. You have a goal or a plan in mind, and you are actively saving towards it. This could for instance be a downpayment for an apartment, a renovation, a reserve for starting a family, holding extra money at hand for studies and other things alike.
You are the planner kind of person?
If so, decide whether you’d like to take this planned spendings out of your new bonus payment or if saving up monthly is a better strategy for you. Moving money to savings accounts is usually quite handy. I personally like Revolut’s vault feature – I’m currently using it to save up for a trip to Alaska. 😊
Use your bonus for Säule 3a
Säule 3a 2019 maximum amounts
6’826 CHF 👉 if you are employed
34’128 CHF 👉if you are self-employed
Now that our basic needs are met, we get to the truly grown-up stuff – taxes and pension funds. Yes. Part-ey! 🕺🏻
As a Swiss resident, you are likely familiar with the “Säule 1/2/3” retirement savings. The voluntary pension fund Säule 3a is a great way to save up money for retirement, because all the money you pay into this fund will be deducted from your taxable income.
Try and pay in the maximum amount until the end of the year to get the most of the tax benefit.
Again, you have two options for your bonus (and other savings). Either deposit the whole amount at once and get it out of your mind or set up a monthly investing plan.
Make long-term investments
We talked about it in the beginning: moving your bonus out of your regular bank account makes sense.
Once your cash buffer, planned spendings and pension fund are in place, consider long-term investing.
Aah yes, investing. This is what most people deem as “a very cool idea”, and then instantly switch attention to Reddit or Netflix. 😅
Even when you have the means to invest, and when your trusted FFFs or Google suggest it, there can still be hurdles preventing you from starting. It’s not just that investing, as a task, can feel intimidating. Even the idea of long-term is hard. Nothing ever feels urgent about investing, right? Some of us have troubles organising dropping by at the post office, the gym and meeting friends tomorrow. And with long-term we are talking about the future in 5, 10 or 15 years from now.
Again, I feel you.
That’s why we wrote a story about the positive effect of time and the magic of compound interest some time ago. Check it out – it might give you a new perspective on time and investing. 🔮
So… should I invest my bonus?
The answer is yes, if:
you wish to have more money in the future (assuming all goes well)
you are ready to take a healthy amount of risk
you don't need this cash in the next years
… and you can afford to lose it (in the worst case scenario)
Note that although I’m mentioning risk, I’m not talking about gambling. Investing in some hot stuff like Bitcoins and AI startups is fun, but that’s something else.
I’m referring to the kind of passive investing that (banker lingo ahead) “spreads your risk globally”. This means that you would get shares in all kinds of products from around the world. This type of diversification (another fancy word for having lot’s of different stuff) evens the ups and downs in the markets.
As to where and how to invest:
A related self-plug. With Selma, you will get a personal mix of investment products that fits your financial situation. Once you invest, Selma would manage it for you – for years to come. Chat with Selma, the personal investment assistant bot, to see how your investments would look.
Another option is to handle investing on your own.
Both are valid choices, depending on how much time and motivation you have about investing yourself. 🤓
Splurge, a bit
Last but not least: don’t forget to buy yourself something nice. 😍
The general consensus of investment advisors is that you should spend 15-20% of your money on yourself; hobbies, entertainment, a massage, etc. This goes for both, monthly savings and the unexpected bigger chunk of cash such as a bonus or the very-likely lottery win.
Step 1: Double-check if you need the money first (see above 😅).
Step 2: Spend it!
Our society is quite focused on optimising and improving and, since recently, also very much on minimalism (hello, Marie Kondo). It's harder and harder to muster up the confidence to say “I earned this, I am buying myself this beautiful blouse, it makes me feel great!” I recommend: Do it. 😎
Of course, investing a bonus “in yourself” could also mean taking a weekend off, renting a beautiful cottage on a mountain with the best sunrise view and just enjoy the calm nature environment and destress. Or learning a new skill? Maybe there is no time for starting a MBA right now, but there might be a few nights for some afterwork Skillshare or Udemy classes? Happy choosing! 😊
P.S.: Have you mastered a plan or came up with a success recipe for structuring your financial life? Share it in comments, we’re collecting opinions and tips for future posts! 💵