It is that time of the year again – the festival season is here bringing 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 hence can plan how to utilize it in advance, for most others, the amount is unknown and thus feels like a “ windfall gain”
Let us look at some smart options through which you can derive the maximum value for the well-earned bonus amount, at the same time reward yourself for all the hard work that you have put in during the 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 an auspicious start. To make it simple, break your goals into short term or long term and then divide the amount to be invested. A good target amount should be 30-40% of your bonus amount.
The short term goals may include a foreign vacation, down payment for buying a house in 1-3 years, etc. Debt funds are best for such short duration investments as they offer high liquidity, are not exposed to market movements and give steady returns. Needless to say, investing in debt funds for the short term will help you reach your target faster, as compared to a savings account.
For long term goals like your retirement, children’s education etc, you can invest in a diversified equity portfolio. Equity mutual funds have the potential to fetch you good returns in the long run and are ideal wealth creation instruments.
Also, in case you haven’t made tax-saving investments for FY 2019-20 yet, you can invest in tax saving ELSS mutual funds. This way you would be able to reduce your tax outgo while simultaneously earn good returns.
A great 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 top up the amount . Say you have an ongoing SIP of 10K a month towards This will give a boost to your investments and you may be able to reach your goals faster.
A great way to utilise 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 rate, partly or fully, as the case may be. This would make your financial life a lot easier. It will enhance your credit worthiness and you would be able to save and in turn, invest more.
Most importantly, Invest in yourself – take a course in photography, wildlife, art, theatre or in upskilling yourself from a professional perspective. While we get busy with the routine life, our passion, hobbies or things we love, take a back seat. Use a portion of this bonus in indulging yourself.
If you think that the amount is small, create a ‘Happiness Account’ this year and start putting away some amount regularly. This will be ‘Bonus on bonus’ for you. You would start looking at the bonus amount differently and definitely this 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 then it might not be utilized wisely.
Thus it becomes imperative that you create a strategy ‘before’ this amount gets credited to your account.
Choose wisely, invest intelligently and Happy Diwali!
Disclaimer: The views expressed in this post are that of the author and not those of Groww