6 Money Ideas To Consider Before You Splurge Your Annual Bonus

By Adhil Shetty | April 13, 2017

6 Money Ideas To Consider Before You Splurge Your Annual Bonus

With April bringing in the new financial year, it is the time for employees everywhere to cheer the arrival of their annual bonuses. If you are a salaried employee, you’re probably expecting your annual performance bonus any time now, or you’ve already received it.

It’s also quite possible that you may be looking forward to spending it all on a holiday or use it to buy that car you’ve always wanted. While you are certainly free to spend your bonus any way you want to, you should use it prudently. With the start of a new financial year, this could be the right time to use your bonus to enhance your financial position.

Here are some thoughts to explore.

Create An Emergency Fund

Creating a contingency fund to meet the financial strain caused by an unfortunate and unexpected emergency like a job loss or an accident should be on top of your list of priorities. Experts say you should have at least six months’ worth of your current income in an emergency fund.

If you have already created an emergency fund, review it frequently and to match your most current income needs. If you don’t have an emergency fund, create one immediately.

Say Goodbye To Your Debts

Use your bonus to make principal repayments on existing liabilities. Loans typically allow you to pre-pay a lump sum towards your principal balance. Credit Card balances, too, should be paid off on priority since these are the most expensive forms of debt.

Partial or full prepayment reduces your outstanding liability and thus reduces the interest expenditure, which translates into a substantial amount of savings for you. Since the current interest rates on loans have reduced, prepay your loans and get rid of your debts.

However, when prepaying your loans, pay off the high interest ones (like your Credit Card) earlier followed by the ones with lower interest rates.

Invest In The NPS

If tax planning and creating a pension fund are your aims, you should look at the National Pension Scheme. Investments of up to Rs.50,000 are exempted from tax under Section 8CCD (1b).

This exemption is allowed over and above the existing Rs.1.5 lakh deduction available under Section 80C, taking the full exemption to Rs. 2 lakh. Your investments are put in equity or debt instruments (or a mix of both) in order to allow you to create a corpus for your retirement.

Review & Buy Insurance

Your bonus also gives you the chance to boost your insurance coverage. Life Insurance and Health Insurance policies are essential to every financial portfolio. If you already have them, review your coverage. Assess if the coverage is sufficient to cover your current health and lifestyle needs.

If not, buy additional plans to supplement your coverage. On the other hand if you haven’t included a Life or Health Insurance policy in your financial portfolio, it’s the right time to set that straight. Buy a Term Insurance Plan for your Life Insurance needs and a comprehensive Health Insurance plan covering yourself and your family members against any medical emergency.

Review Your Financial Portfolio

After fulfilling your insurance goals, pay heed to the other aspects of your financial portfolio as well. Make sure you have invested for your child’s future, your retirement and for creating assets for your family. Revisit your financial goals and make sufficient provisions for them.

Invest In Mutual Funds

Mutual Funds present some of the best investment options for any investment need or risk appetite. They yield attractive returns and also diversify risk across various asset classes. Systematic Investment Plans (SIPs) help small investors to invest affordable amounts every month and also help in rupee cost averaging yielding optimal returns.

Moreover, Mutual Funds also help in creating funds to meet various life goals. So, use your bonus to invest in a Mutual Fund scheme for attractive returns.

While you look forward to your annual bonus every year, you must also be smart about using it. Keep in mind the tips mentioned above to make the most of your bonus this year.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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