The time has come where your salary may look fatter thanks to the pay hikes or even a one time performance bonus. However, this year has been challenging for working professionals who have seen marginal hikes.
At such times, careful planning and frugal spending gains utmost importance. May be it time to postpone unnecessary purchases and take stock of your finances.
Financial Diagnosis:-
The ideal end use of any bonus could be savings or investments, but as a prerequisite you pay off high cost debt which eats into your potential future savings. Overdue credit card bills, personal loans are high cost debt.
"Any loan that costs above 14% should be paid off," says Karthik Jhaveri a certified financial planner and director, Transcend India. "It makes sense to pay off the high cost debt like credit card loans as it costs almost 30-40% per annum and not many investments earn this kind of return.
Si it does not make any financial sense to earmark this money for investments when you are revolving with expensive debt, "says Kartik Jhaveri. However, this logic doesn't apply for home loan as other tax benefits are attached to it.
Identify your goals:-
The idea is to see your money grow to meet the milestones you set for yourself at every stage of life
Example:- if u require fund in 3-6 months time you should look at liquid plus funds. "You can also park such savings in liquid or liquid plus funds, which give a post tax return of 7%, these instruments are ideal for short term requirements such as 6 months.
Debt instruments such as arbitrage funds are a good bet in medium term(3-4 years) you should look at safe instruments like debt. if you have smaller amounts like RS 50,000 or below, you could look at PPF that would add to your long-term savings.
Equity id the best bet for long term savings, this may be a good time to buy stocks given that equity market has been looking choppy, but the bigger question is whether u want to enter the route directly via stocks or look at mutual funds, which are bundled stocks.
Investing in direct stocks is good. You should look at splitting you money over 5-6 blue chip companies. If you don't have the expertise than the diversified equity fund will be a safe bet, " Suresh Sadagopan adds.
It's not all about curbing your urge to splurge. A romantic dinner with your spouse or even some beer at a sports bar with friends could be a good way to spend some part of your bonus. But ensure you save at least 60% of your bonus.
Source: Economic Times
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