The festival of lights is here, and along with the delight of Diwali celebrations, working professionals have another reason to celebrate. Yes! The Diwali bonus. Most of you spend the festival bonus on purchasing gifts for your loved ones or buying essentials for home. However, another way of utilizing the bonus amount in a financially-wise way is to invest it smartly or build an emergency fund.
There are many ways the Diwali bonus amount can be intelligently used to improve your financial position, and if you want to understand how that can be done, read ahead and become a pro at managing your finances this festive season.
- Repay Expensive Loans
Loans like credit card loans or personal loans, i.e. unsecured loans, carry higher rates of interest than secured loans and do not have any tax benefits. It is advisable to repay your expensive loans when you get a festival bonus, thus making your balance sheet look better. Even if it is not possible to totally repay the loan, a part repayment can be done with the aim of saving interest costs. Keep in mind any prepayment charges, if applied.
Prepayment of home loans is free of penalty charges. The festival bonus can be used to partially repay a home loan (if you have taken one), and thus reduce the loan tenure and the interest outflow. However, one should be careful to prepay to the limit one continues to get tax benefits.
It is also advisable to compare what you have the potential of earning (a) if you invest the bonus, and (b) if you repay the loans, and then make the decision.
- Invest keeping Your Retirement in Mind
Most of us neglect our retirement goals. Some companies form a mandatory Pension Fund or Provident Fund and contributions to these are deducted every month from an employee’s salary. This is done with the purpose of meeting the retirement needs of the employees. Most of you may have only these retirement savings plans, but not any further or detailed plans for retirement.
It is essential that you invest in retirement-friendly investments such as the National Pension Scheme or PPF (Public Provident Fund) in order to give your retirement corpus a boost. Those who are young and still have a long time before retirement can start consistent investments in diversified equity mutual funds. The Diwali bonus can be very useful if you really intend to start investments for your retirement.
- Start a Small-scaled Business
Many salaried individuals receive a month’s salary as a festival bonus, while others may receive a certain amount as a bonus, or a percentage of profit shared by businesses or the companies with which they work. If you are one of them and wish to be called your own boss- there is a way out. Even with a small amount of investment, you can start up your own business. It can be an online website providing services, lead generation support, a brick and mortar shop, or anything that demands low investment.
Also, the Diwali bonus can act as an impetus to your long-forgotten idea of “owning a business”. You can add the bonus amount to your existing monetary support and venture into a business of your choice. Research about business subsidy schemes and business loan offers to further realize your entrepreneur dream.
- Start Building Your Emergency Fund
It is recommended by financial experts to set aside a minimum of 6 months worth of expenditure in the form of an emergency fund. If you have not yet started an emergency fund, the festival bonus that you are about to receive should be used for this purpose. This fund should be able to see you through emergencies.
If you plan to use emergency funds in investments, then such investments should be made in instruments that are highly liquid as well as capable of giving returns, thus boosting cash flow in times of urgent monetary expenses.
- Plan for a Short-Term Financial Goal
Financial goals can be short-term or long-term. Short-term goals like buying a vehicle or repairing the house may be too tough on your pocket, and liquidating savings on short notice, could be unwise. The Diwali bonus can effectively meet these short-term and urgent goals, thus saving you from making withdrawals from your long-term investment or borrowing from the bank.
The best way to use your Diwali bonus is to maintain a fine balance between partly meeting the important financial goals and partly funding the big-ticket purchases. This will keep your finances sorted and leave you with enough cash to fund other purchases and needs.