What To Do When You Have an Additional Rp 1 Million Every Month


What should you do when you get an additional one million rupiah per month? It could be a pay rise, side job commission, winning a lottery, or any other surprise bonus.

Here are some ideas for you:

1. Look again at your financial situation

Before you make any decision on the fate of that windfall, put it in a secure place, take a step back, and have an honest look at your finances.

Here are some questions to ask yourself:

  • Do you have any debt or loan, especially the consumptive kind –e.g. owing friends, credit cards, etc.?
  • How long will it take to repay?
  • Have you set up an emergency fund?
  • Do you already have medical coverage? Is the health insurance from your employer enough?
  • (Those with kids) have you planned for their college education?
  • Have you set aside funds for your own retirement?
  • Any plans to renovate your house?
  • An upcoming family vacation?
  • (For those who are single) Do you plan to be married in the near future? *cough cough*

2. Repay your debt

If you still have any outstanding debt, you have to resist the urge to reward yourself by spending that additional Rp 1 million on a vacation, a flashy new handbag or dining in a fancy restaurant.

Debt, especially consumptive, high-interest bearing debt like credit card balance, or unsecured loans is a burden that you need to get free of.

[Read: How to be Debt-Free in 90 Days]

3. Emergency Fund

Ambulance is needed for an emergency situation, and so does this fund.

Maybe you have been getting this advice frequently, but it is really important to have an emergency fund; so unfortunately, we will not get tired of nagging you about this. In fact, the lack of an emergency fund is often the reason why one falls in the debt in the first place.

Other uses for this fund is to help your loved ones or relatives when they have financial difficulties, your car breaks down, or suddenly your house needs repairs.

You should have at least three months worth of expenses covered in your emergency fund, and a maximum of six months. So, if your expenses amount to Rp 3 million per month, you should have at least Rp 9 million in emergency fund. That extra Rp 1 million per month will go a long way to getting you closer to that "safety net".

4. Health Insurance

Emergency fund is for emergency event, but your hospital and doctor’s bill should be covered by your insurance.

After you have cleared your debt and built up an emergency fund, the next step is to assess whether you have adequate insurance coverage.

If your employer provides insurance, but you are not sure you have enough, you could take a cash based reimbursement type of insurance. It is relatively cheap with substantial benefits. Cash reimbursement can function as your income replacement when spending your days in hospital.

You should allocate a maximum 10% of your monthly income, calculated before you get the additional funds. Thus, if you have Rp 5 million in monthly income and getting an additional Rp 1 million, allocate Rp 500.000 for health insurance, and another half for the next step.

5. Investments

When you have covered all the defense basics, it is now time to think about offense, i.e.making your money work for you through investments.

The first thing, however, is to decide the ultimate goal for each investment you are going to make.

Is it for yearly vacation? For a wedding?  Child’s school tuitionRetirement fund?

The reason for this is because every investment goal needs a different approach and strategy. For example, investments like mutual funds, stocks and shares and unit-linked products are ideal for goals that have long time horizons –eight years or more – but not recommended for goals that that have short time horizons, e.g. next year's vacation.

As an example, if you consistently set aside Rp 500.000 per month at an average of 14% annual return, you will get an estimated Rp 131 million in 10 years.

In the end, it is not about how much money you make, but how much you keep, and how you make it work for you.

Read also: How to Invest If You Earn Rp 5 Million

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