What to do with your bonus?


what should you do with your appraisal

Every Employee wait there Bonus with curiosity Did you just get a Bonus? Congratulations!

For most of us, the money comes in and then just as quickly its gone leaving us to wonder what happened to it.

Follow the 80/20 rule for best use of Bonus amount

Keep the 20% of your bonus for planned vacation or big-ticket purchase that was pending for a long time. However, avoid a few things:

  • Blowing all the money at once on big-ticket purchases
  • Not setting aside money
  • Spending extra on everything you used to do

What to do with a bonus?

While the suitability of these options depends on your time horizon, risk appetite and tax bracket, here are four best options for you:

  1. Repay high-cost loans– Loan is a word that might just be synonymous with stress. This is why we advise you to increase the monthly EMIs on the loans that have a higher interest rate. For instance, clearing personal loans over a car loan or a home loan over your credit card limit would be a good choice.
  1. Investment in mutual funds– Well you’ve got money. Let’s talk about your investment appetite and see what investment options you can explore. Based upon your risk appetite and investment horizon, here’s what you can do:

 

1-3 years Short-term debt funds, fixed deposits or arbitrage funds
3-5 years (Low risk) If income is not taxable, investing in government-backed National Savings Certificate (NSC), Fixed deposit is a viable option

For people having taxable income and who have not exhausted their 80C limit of Rs 1.5 Lakhs, they should consider investing in tax saving instruments such as NSCs, Sukanya Samriddhi Yojana, Public Provident Fund, and Employee Provident Fund etc.

For people who have exhausted their 80C limit, investment in short-term debt funds, arbitrage funds is suggested keeping in mind low-risk appetite.

3-5 years (moderate risk) If income is not taxable, investing NSCs, debt-oriented hybrid funds is a good option as it brings in higher returns with moderate risk

If income is taxable and people have not exhausted their 80C limits, investing in Equity Linked Savings Scheme is a good option given the kind of returns generated.

For people whose 80C limit is exhausted, investment in any equity-oriented mutual fund, hybrid debt fund is good.

> 5 years Individuals looking for high returns with high risk should invest in mutual funds which are professionally managed and have a higher allocation to small and mid-cap stocks

For moderate risk – investment in the large cap based equity mutual fund or balanced mutual fund is a favourable option

For the safety of capital- investment in NSC, PPF, National Pension Scheme is a good option

Check out this complete guide to investing in mutual funds for beginners in India to get started.

  1. Invest in an emergency fund – An emergency fund is a must for everyone as future is unpredictable. Any unforeseen situation may arise tomorrow whereby requirement of funds might be there thus it is a good idea to start parking money, generally equivalent to your three month’s expenses, as an emergency fund.
  2. Invest in yourself – This is the best investment you can make. There a lot of stuff that you can do for personal growth including subscribing for personal development lessons or doing professional courses.

This money should be ideally parked in instruments that are very liquid and the investment is readily available. 
And since it’s the start of the new financial year, you can easily start right now without it being an extra burden on your pocket.

While these are just a few of the many steps you can do with your bonus/ appraisal; but always remember, the extra money you’ll be earning now should first be used to make yourself more financially secure and independent. And, once you’re on your way there, your lifestyle will automatically start improving!


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Written by

Vedant Kaushik