You will be able to decide in advance how a bonus or windfall is split between buffer, debt, goals and spending.
Wei Ling expects a bonus most Decembers. This year she decided in March, months before it arrived, exactly where it would go. Most people never make that decision, and many cannot say what they did with last year's bonus.
A windfall is money that arrives outside your normal monthly pay. It could be a year-end bonus or annual wage supplement, a performance bonus, a rental deposit refund, an insurance payout for a claim, a cash gift, or money from selling something you no longer use.
A bonus usually goes like this. It sits in the account for a few weeks and then it is gone. It goes on a new phone, a holiday booking, a few nice dinners or a sale. None of those purchases is a bad decision by itself. The problem is that nobody decided what the money was for. A sum that could have cleared a debt or filled half a buffer ended up somewhere nobody chose.
Windfalls vanish because nobody decided their purpose before they arrived. With no plan, the money gets spent one purchase at a time while you enjoy the feeling of having extra. Each purchase seems affordable because the balance is high. By the time the balance is back to normal, the windfall has gone in many small decisions, and you would not have made those decisions all at once.
Lesson 1.1 explained that bonuses are not promised the way salary is, which is why they stay out of your monthly budget. For the same reason, they need a rule of their own.
The fix is to decide the split before the windfall arrives, while the decision is still calm and abstract. Your rule divides any windfall into percentage shares. Usually most goes to your buffer or to debt, some goes to your next goal, and a smaller share is yours to enjoy. If you still have expensive debt, the buffer-or-debt share goes to the debt first, because that is where the money saves the most.
Reimbursements are not extra money, so keep them out of the split. They are a refill. If an insurer pays back a medical bill you already paid from your buffer, that money goes straight back to the buffer.
Sending a whole one-off windfall to the buffer or to debt is fine. As a standing rule, though, sending everything there tends to fail. It feels like a penalty for earning a bonus, so you are tempted to break it next time. Keeping a share to spend makes the rule easier to follow next time and gives you something to look forward to. Spending that share can also feel better when you know the rest of the money is working. How big the spending share should be is your choice. With high-interest debt, a smaller share makes sense. Once your buffer is full, a larger share is reasonable.
A rule kept only in your head bends easily. Write it down in your budget spreadsheet or in a phone note, with the percentages and a review date.
All of Wei Ling's figures are examples. In March she writes her rule: 60% to her buffer, or to expensive debt while she has any, 20% to her next goal, a trip to Japan, and 20% to spend however she likes. She had already cleared her card in month 8, so she no longer needs the debt share.
In December her bonus lands: S$3,000 after CPF. Following her rule, she sends S$1,800 to her buffer and S$600 to her Japan fund, and keeps S$600 to spend. She doesn't have to think about it in December because she decided in March. If her card had still carried a balance, the 60% would have gone to the card first.
She spends her S$600 on a weekend in Malacca with friends and a pair of shoes she had been waiting to buy. She enjoys both more because she knows the rest of the bonus is sitting in her buffer and her Japan fund.
Act within a week of the money arriving. Ideally, move the money to your buffer, debt and goal accounts on the day it lands, and by the following weekend at the latest. Leave only the spending share in your everyday account. Every day the full sum sits there, it looks a little more like spending money.
Review the rule once a year, or when your situation changes, and adjust the shares as you clear debt and your buffer fills. Wei Ling plans to review hers next March. By then her card will have been cleared for months and her buffer will be close to three months of essential costs, so she might move more of the next windfall to her goals.
Think about the last windfall you received and where it went. Then decide what you would want the next one to do.
Write your windfall rule: the percentage that goes to buffer, debt, goals and spending, and the date you will review it.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).