You may have received performance bonuses and been really tempted to buy that new smartphone. But a saner way is to look at your bonus as a fund for your financial wellness and a once-in-a-year opportunity to review your financial profile and fill gaps, if any.
Spend some, save some Yes, it is justified to allocate some part of your bonus towards your aspirational needs. There’s nothing wrong with splurging a percentage of the bonus amount, say 20 per cent.
You and your family can deploy the remaining 80 per cent in order of priority as follows.
Beef up contingency fund and insurance covers: Think of your wealth as a building. If it has to be strong, it has to be supported by a strong foundation.
The right insurance covers and contingency fund is that foundation. Plugging gaps, if any, is first priority. So, if the contingency fund needs to be beefed up in view of rising monthly expenses, use your bonus money to do so. Or increase your mediclaim or life insurance cover.
Close or pre-pay high-cost loans: Most families have car loan, personal loans and credit card dues. Use your bonus to close these loans or pre-pay as much as possible. Closure of these loans can relieve you from the stress of meeting monthly EMIs. It also reduces the amount you need to maintain in your contingency fund.
Invest in a balanced way for your financial goals: If you have bonus money left over after taking care of the first two priorities, consider investing in financial goals. Here, you should review both short term and long term financial needs and invest accordingly. The reason is that, if all the money is locked in long-term instruments, you may fall short when money is required for the short term. You may have to then go for high-cost loans.
For short-term goals, you can consider direct plans of short-term or ultra-short-term debt funds.
For long-term financial goals, a mix of PPF and direct plans of diversified equity mutual funds can be considered. The Sukanya Samriddhi Scheme is also a good option if you have daughters. A properly planned utilisation of bonus amount can balance out a family’s twin needs of aspirational spending and financial wellness.
The writer is a SEBI-registered Investment Adviser and member of The Financial Planner’s Guild India www.fpgindia.org
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