'Tis the season to spend your additional income wisely
SPENDING BONUS / SPENDING INCREMENT
“Interest on Debts grows without rain” – Pay off your Debt
First things fi rst. Foreclose your Loan and reduce your Debt. Doing so may attract some charges. However, if you do some math, it is still wiser than paying interest on your loan reviews, portfolio rebalancing, etc.
Tip: Classify your Debt into 'high-interest' and 'low-interest'. Pay off highinterest Debt first.
“Care shouldn’t start in the emergency room” – Strengthen your Emergency Fund
You need extra savings to ensure that uncertainties don’t disrupt your financial peace. Allocate some portion of your bonus to your Emergency Fund.
Tip: A quick and a safe way of strengthening such a Fund is investing in Liquid Mutual Funds.
“Death and Taxes are certain” – Invest to save Tax
While a bonus is an addition to your income, Taxes imply reduction. It is only wise to use your bonus for reducing your Taxable income.
Tip: You can invest in Equity Linked Savings Scheme (ELSS) and save Tax on investments up to Rs.1.5 lakh annually.
“The only thing better than investing is investing more” – Top-up your SIP
A top-up SIP allows you to increase your ongoing Systematic Investment Plan or SIP by a fixed amount and at fixed intervals. The higher the SIP amount, the faster you can reach your Goals.
Tip: If you expect an increment of 10% every year, top-up your SIP by 8-10% every year.
“The question isn’t at what age you want to retire; it’s at what income” – Start investing for retirement
You get a salary now, and thus, an increment. But you will not have a regular source of income once you retire. Thus, you must aim to save your current income for your future expenses.
Tip: Invest your additional income in solution-oriented Retirement Funds to save for your second innings in a systematic manner.
“A stitch in time saves nine” – Upgrade your insurance plans
You don’t realise the importance of insurance until you actually use it. Ensure you get additional coverage with your increased salary.
Tip: Ensure that the sum assured under your life insurance policy is at least 8-10 times your annual income.