This is again the time of the year, when you receive your increment and bonus from your employer. It may be a single digit increment and you are likely to end up with a double digit increment, if you had shifted jobs. It is extremely easy to give in to temptations and buy the latest gadgets or car.
Whatever might be your increment percentage or bonus amount, it is important to utilise it wisely. This can go a long way in achieving your life goals and being financially free.
If you don’t have an emergency fund, you can create one now as a backup plan for emergencies. These emergencies can be sudden house and car repairs, job loss etc. To create an emergency fund, you can open a new savings account. It is better to create a separate savings account as it will not be mixed with your normal day-to-day transactions. Plus, it comes with high liquidity, giving you the comfort to withdraw money whenever required. Savings account especially online savings account is easy to open and hardly takes a few minutes. Many banks have online savings account which is entirely online and no paper work is involved. Experts recommend at least three months of expenses in an emergency fund.
Open a fixed deposit:
You can easily open a fixed deposit with your bonus money. Fixed deposits are one of the safest ways to earn higher returns than savings account with no risk. With fixed deposits, your bonus will be locked for certain duration. You have the flexibility to choose fixed deposits maturing between 7 days to 10 years. If you don’t need money now, and it is likely that you will need money after say 3 years, you can open a fixed deposit for three years.
Gone are the days when you had fill up a form and provide a slip to the bank to open an FD. Banking has moved online and to apps. If you have your bank app, you can easily open an FD for the required time. You can also choose between cumulative and payout option where the interest received will reinvested or will be available in your savings account respectively.
If you haven’t started investing, take this opportunity to start investing. Investing is not just about investing in direct stocks. The easiest and safest way to start investing would be to invest in a diversified equity mutual fund. If you are confused about which funds to invest in, take the help of a financial advisor. Once you select few right funds for you, you can initially invest lump sum with your bonus amount and set up systematic investment plans(SIPs) in those funds. When you set up SIPs, a certain amount of money will be debited from your bank account every month and will be transferred to the mutual fund.
If you have running systematic investment plans (SIPs) in mutual funds, now will be a good time to step up your SIP amount. Increasing your SIP amount on a regular basis can help you to fulfil your goals faster. It is recommended that you increase your SIP amount by at least 10% every year. If there is a financial goal, that you would like to achieve faster, you can increase the SIP amount in the mutual fund tagged to that goal.
No one likes to have debt. It can be a big impediment in your journey towards financial freedom. Use your bonus to cut back on your debts. You can start with debt that does not come with tax benefits such as credit card dues and personal loans. Repaying these loans at the earliest will help you to make a higher sum of money available to you for investments which will help to fulfil your financial goals faster. Also, it will enhance your self-confidence. However, before looking at repaying these loans, it is better to check the pre-payment charges. Once you have repaid personal loans and credit card dues, you can pay to reduce the debt obligations of other loans such as home loan or vehicle loans. If reducing your debt is in your priority list, use your increment to increase your monthly instalments.
Using your bonus and increment amount in a proper manner can help you to have a better fulfilling financial life and sort your finances. Achieve your financial goals faster and reduce your debt with your yearly increment and bonus amount.
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