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People work hard throughout the year in their jobs and most of their salary is spent on managing their regular expenses. They eagerly wait for the bonus, to have the additional money they can utilize for their personal needs or for investments. The wait for the bonus starts a few months before the due month and people often start planning what they would do with the money. It adds to the feel-good factor and the preferences of people may vary according to their interests. Some may like to just splurge the money while others like to spend it carefully. There are smart ways on how a person can spend their bonus money-
1) Build an emergency fund-
If you have not started building an emergency fund it is the right time to do so. It is a fund you can fall back on during an unexpected crisis. It will not give you high returns but stays liquid and you are able to avail the money at the quickest. The fund can be used during the period of job loss or a medical emergency.
2) Clear the expensive loans
Credit cards prove to be expensive when you are not able to pay the outstanding amount in full. The APR comes to around 30-40% on most of the credit cards issued by banks. The personal loans taken aren’t cheap either and the rate of interest varies from 10%-24%. It is better to clear these expensive loans.
One can even pay for the home loan from the bonus every year. This way you can repay the home loan much earlier than the due date. This would save you a lot of money in interest. The money saved can be utilized for investment instruments that give good returns or it can be used for long-term goals like a child’s education or retirement.
3) Invest in Yourself-
You may have been in the job for a number of years or as a newcomer you have recently joined a job. There are a number of areas where you may require enhancing your skills. The bonus money would come in handy to join new courses and enhance your skill levels so that you can progress and survive in the chosen field.
4) Check and review your life and health insurance policies-
There is ever-increasing inflation that has now engulfed the whole world after the pandemic and it is better to check the health and life insurance portfolio. Most of the people in India are underinsured and in fact, a very small percentage of the population is insured. This is the right time to relook at the insurance coverage and increase it if required.
5) Investment schemes-
Public Provident Fund-
The public provident fund is a long-term saving-cum-investment product and has a maturity period of 15 years. A person can invest a minimum of Rs. 500 and a maximum of Rs. 1, 50,000 in a financial year. The government of India guarantees the investment in the fund which is tax-exempt under section 80C of the income tax act and the returns from the PPF is also not taxable.
National Savings Certificate-
National Savings Certificate is an Indian government saving bond that a person can open in any post office. The minimum investment limit is Rs. 1000 and there is no maximum upper limit but investments of up to a limit of Rs 1.5 lakhs only will earn a tax break under section 80C of the income tax act. It has a lock-in period of 5 years.
If you don’t have too much debt then you can take care of the investments and try to create wealth. You can invest the bonus in a debt fund and do a systematic transfer plan (STP) every month that would transfer the money systematically into an equity fund thus taking care of the volatility in the equity market. Investing in debt funds and transferring to equity mutual funds will give better returns than the savings account.
Invest in equities-
Investing in equities depends a lot on the market conditions but when you invest in good companies for the long term you will always tend to make good money. If you are new to the field you can copy the portfolio of good fund managers or go for mutual funds or the PMS.
Invest in Sukanya Smridhee-
Sukanya Samriddhi scheme is a government of India scheme targeted at the parents of a girl child. You can invest in this scheme to better the future of your daughter. A minimum contribution of Rs 250 is mandatory every year and the maximum investment allowed every year is Rs 1.5 lakh. The scheme comes under the EEE which means that the principal invested, interest accumulated and the final payout are all tax-free.
6) Allocate part of the money for retirement –
Everyone has to retire from work one day and it is always better and safe to start saving for retirement at a young age. This will help to compound the money and you will not have to depend on your children. This would result in a financially independent retired life. The bonus could be used to invest in the National pension system account.
You have worked throughout the year and have gotten the bonus. Your family too has been eagerly waiting for the bonus. You have to also keep their wishes in mind and can plan for a small vacation or make a purchase you have been putting off. The remaining money can be invested. This will keep everyone happy.
Individuals receive bonuses after waiting for a year and this opportunity can be used for individual needs as well as to shore up their finances. If the money is spent or invested wisely it would make people financially strong thereby making it easier to reach their financial goals in life.