Central government employees had their wish granted last week after a year-long wait - the Union Cabinet consented to the reformed allowance structure under Seventh Central Pay Commission. Awards under the pay panel have resulted in a hike in the salaries of Indian government staff. They now have some more to spend, or better, invest.
Recommendations by the 7th Pay Commission led to a 23.5 per cent increase in the salaries of the central government employees, in addition to the bump in allowance rates recently approved by the government. Even though rates for House Rent Allowance (HRA) were slashed, the increase in basic pay translated into central government employees taking home a bigger amount than they used to under this allowance.
Here's how they can plan their finances:
The central government employees and defence personnel whose salaries have seen a rise after the 7th pay Commission first need to take stock of their overall expenses. They can estimate the expenses and transfer the amount into a separate account. The amount or percentage to transfer in a separate account depends on what expenses you have. So, it is advisable to invest at least 30% on the income you earn. It's useless to keep all your money in a salary account. These accounts are generally offer very low or no interest rates.
Pay off debts or loans
Debt causes stress. With the rise in salaries, this is the best time to get rid of it. Clear the dues, simple. Start with home loans because home loan repayment offers tax benefits. Also, there are few types of high cost loan which can be paid off first. It is advisable to clear personal loans, which typically costs 12-16%. Similarly, credit card balances also attract 1.5-3% interest per month, better to pay them off as well. If possible, then one should also try to pay off car, housing loans to reduce the burden. Even if you have taken money from your friends and relatives, then try to pay them off as well. It will retain your trust and manage the relationship better.
Along with more money at their disposal, the central government staff also has some options to utilize their surplus income for financial benefits. With the equity market on a bull run recently, central government employees can look into this option for good returns for their investments. Riding on the bull run Indian benchmark saw in the earlier half of 2017, 14 stocks listed on BSE-500 have fetched over 100 per cent returns in a short period of time. With 191 per cent returns, Future Retail has been leading the rise, followed by Indiabulls and Avanti Feeds at 189 per cent and 183 per cent respectively. However, investing in the equity market also invites high risk on the capital. So consulting an expert is advisable before investing. Investing without weighing options carefully will do no good.
Mutual funds via SIP
Investing in mutual funds through Systematic Investment Plan (SIP) is another option central government employees can look into after 7th Pay Commission. SIPs are financial tools extended by mutual funds for investors to help them plan small investments every month over a period of time. It is wise to put money in small sums for long durations through SIPs to create a corpus keeping the long-term goals in mind.
Purchase durables and properties
Central government employees can also purchase electronics and cars which got cheaper with the advent of Goods and Services Tax (GST). Government employees can take advantage of the drop in prices of consumer goods or save money for a big purchases like houses or vehicles or more.
Save for rainy days
If nothing, the extra money could be kept aside or assistance in days to come. This will not bring in any returns, but will be a good way to save money for time after retirement or as a corpus for emergency situations in life.