It is that time of the year when our bank accounts seem heavier than usual owing to the owing to the annual bonus and for a change, we can revel in the surplus. However, this surplus comes with a higher urge to splurge and a tendency to give in to impulsive buys. While treating yourself to that longed-for vacation is okay and bonuses are also meant for seeking the small joys of life, it is important to understand how to moderate such spending and utilise your bonus in the best way. Bonus can be an important tool in wealth creation and here is how you can put that extra cash to optimum use:
A little extra cash in hand gives you the chance to eliminate debt. You can set aside a certain portion of your bonus to pay off your personal loans and credit card bills both of which come with the burden of high interest rates. Long term debts create mounting burdens of debt as the interest keeps building up on the principle amount over time. Clearing debts not only frees you from the stress of continuing debt repayments, but it also makes space for you to allocate a higher portion of your finances for saving or investing or any other goals you might have. Paying off debts is also a great way of enhancing your credit scores so that your chances of getting loans in future are not hampered by your credit scores.
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Most people make hurried decisions regarding investments in tax-saving instruments and without much research when they have to file their taxes. Also, may a times these decisions are based on what they hear from their friends and family. Investments in tax-saving products should be in accordance with an individual’s financial goals and financial abilities. Hence, the yearly bonus is apt for deciding and purchasing tax-saving plans with the extra cash. You can explore options that are eligible for deductions under Section 80C like ELSS, PPF or NPS and invest accordingly. These schemes aid in wealth creation in the long run and also save taxes.
The lump sum bonus can immensely help you in achieving your financial goals. SIPs (systematic investment plans) are best suited for the average investor with low-risk appetite. Over a long period of time, SIPs in equities yield good returns and they are also not prone to impacts due to market fluctuations. The bonus amount can be set aside and spilt into smaller monthly instalments for these SIPs so that you don’t have to pay additional money from your pocket. Mutual fund equity investments are also a great way of tackling inflation in the ling run. They also act as a cushion against market volatility and generate much higher returns than money simply lying in the bank.
Being prepared for unforeseen circumstances is an important part of financial planning. An emergency fund ensures you have enough to fulfil your basic expenses in case of unemployment or a dwindling income scenario and even during circumstances of prolonged illness. The purpose of the emergency fund is to cover your expenses for a few months without you having to spend from your savings or taking a loan. The extra money received through a bonus can be channelled for starting a contingency fund or for adding to your funds if you already have one for emergencies.
Many salaried individuals depend on their employers for health insurance. The amount needed for sufficient medical coverage of your family is not a static figure and keeps changing depending on various factors. Hence, the cover amount needs to be reviewed periodically to gauge whether your health insurance plan provides enough security. The bonus money is a great way for getting an enhanced cover or a top-up policy for your family in case you feel that the coverage provided by your employer is inadequate.
In a world where technology is changing lives by the minute, the importance of learning new skills and being up to date in terms of knowledge cannot be stressed enough. In order to stay relevant for employers, employees have to consistently remain abreast of the latest developments in their respective fields. The bonus is great way to go that extra mile and do a course or certification or take those classes about the new ‘in’ thing in your profession that you had put on hold due to the extra costs. Besides investments in financial instruments, skill developments also go a long way in fetching good returns in the long run.
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