It is that time of the year again – the festival season brings along the much-awaited and well-deserved Diwali Bonus.
While some of you may be aware of the bonus amount you are entitled to and can plan how to utilize it in advance, the amount is unknown for most others and thus feels like a “windfall gain”.
Let us look at some intelligent options through which you can derive the maximum value for the well-earned bonus amount and reward yourself for all the hard work you have put in during the year.
Here are some of the most useful ways to utilize your Diwali bonus this year-
Warren Buffett has always maintained that “Pay yourself first.”
While this looks easy, deciding on the investment avenue and how much to invest might still is the main task to focus on. If you have not invested before, invest this Diwali to give wealth creation a promising start. To simplify it, break your goals into short-term or long-term and then divide the amount invested. A good target amount should be 30-40% of your bonus.
Short-term goals may include a foreign vacation, a down payment for buying a house in 1-3 years, etc. Debt funds are best for short-duration investments as they offer high liquidity, are not exposed to market movements and give steady returns. Investing in debt funds for the short term will help you reach your target faster, as compared to a savings account.
You can invest in a diversified equity portfolio for long-term goals like retirement, children's education, etc. Equity mutual funds have the potential to fetch you good returns in the long run and are ideal wealth-creation instruments.
Also, if you haven’t made tax-saving investments for this year, you can invest in tax-saving ELSS mutual funds. This way, you would be able to reduce your tax outgo while simultaneously earning good returns.
Excellent utilization of your bonus is that it can accelerate your existing investments. So if you have ongoing SIP towards a long-term goal, you can increase the amount.
For example, say you have an ongoing SIP of 10K monthly. This will boost your investments, and you may be able to reach your goals faster.
A great way to utilize your bonus is to pay off high-cost loans on priority. Arrange your loans in order of the rate of interest they are attracting. For instance, credit card debt accrues a higher interest rate, and you can pay it off first.
Subsequently, you can move on to pay other loans with decreasing interest rates, partly or wholly, as the case may be. This would make your financial life a lot easier. It will enhance your creditworthiness, and you will be able to save and, in turn, invest more.
Most importantly, Invest in yourself – take a course in photography, wildlife, art, or theatre or upskill yourself from a professional perspective. While we get busy with routine life, our passion, hobbies or things we love take a back seat. Use a portion of this bonus to indulge yourself.
If you think the amount is small, create a ‘Happiness Account’ this year and start putting away some amount regularly. This will be a ‘Bonus on bonus’ for you. You would look at the bonus amount differently, which will pay rich dividends in the long run.
Rather than the amount, what matters is your planning and how you spend it – moderation is the key.
Also, having a plan in advance will ensure that the money does not stay idle in your bank account for too long, as it might not be utilized wisely.
Thus, creating a strategy ‘before’ this amount gets credited to your account would be best.
Choose wisely, invest intelligently and Happy Diwali!
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.