What to do with your 'Bonus Money'?- Business News
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What to do with your 'Bonus Money'?

It is that time of the year, when we get annual bonus; puzzled on how to utilise the bonus money?  Find out with the following tips on how to use your bonus money.

  • June 20, 2016  
  • |  
  • UPDATED   12:52 IST

It is that time of the year, when we get annual bonus and most of us just splurge the money without saving and planning. People use bonus money for various purposes: annual vacation, buying a car, new gadget, furniture, shopping etc. For some it helps in tax planning and others to pay off loans or investments. So it depends on the individual need and the requirement.

However, bonus can be effectively used to manage ones financial well being. Following are few tips on how to adequately use your bonus money.

Try to estimate your expenses: Always try to 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.  Anil Rego, CEO, Right horizons says, "Don't keep the leftover bonus in the salary account. These accounts are generally offer very low or no interest rates. Keeping the money for more than a month is not a viable option''.  As you get bonus, try to make a target to save from bonus. "Typically anyone plans to use bonus for big expense but this time try to use for your big savings!!! The rule is you should rationally provide for expenses- and the balance should be put aside for savings." says Surya Bhatia, Certified Financial Planner.

Clear your debt and loan first: Debt is always a word which create stress for all of us. Are you the one who is overburdened with debts to clear, then you need to clear all your debts that charge you high interest and which does not offer tax benefits also. Home loan repayment offers tax benefits and you can clear it. "Clear your liabilities or manage them well. So if you plan to repay the housing loan also then the EMI which gets reduced should be put to good use i.e. start a SIP." opines Surya. There are few types of high cost loan which can be paid off first. Loans like outstanding personal loan balances, which typically costs 12-16% which are costly by means and so, use your bonus money first to pay maximum extent. 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 using bonus 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.

Emergency funds for rainy days: It is essential to keep some funds aside for unseen circumstances. No one can predict future and so emergencies can come up anytime. To deal with such emergency situations, one should keep emergency funds aside. "Emergency funds can be kept aside in liquid funds, which can be liquidated and used at short notice. They may also be kept in the bank in the form of FDs as they can be accessed whenever required." Says Suresh Sadagopan, Founder, Ladder7 Financial Advisories. Contingency fund is important. "If you are not keeping a portion aside from your regular income then keep some part of bonus for emergency." opines Surya Bhatia.

Make long term investment: Whatever you will invest today can give you good returns in your future. So, make your bonus money useful and invest for long term in SIP via mutual funds. "Bonus can be invested in mutual funds, stocks and any other market related investments. These investments typically earn higher return than other investments over long period of time. These instruments also attract higher risk on the capital." says Anil Rego. So, take expert advice and then invest. Suresh Sadagopan says "It is best to make small investments on a regular basis, through SIPs/ RDs etc.  This is the easy way to build a good corpus in the long-term for meeting long-term goals. Also, since one gets income on a monthly basis, it would be feasible to invest the surpluses available on a monthly basis too." But do remember not to waste your bonus money.


Save for retirement: Retirement savings can be done through EPF, PPF,  NPS etc. and these should not be used up in between.  So, bonus money is an excellent chance for working people to save for their retirement. Anil Rego says,"One can invest in NPS, VPF, post office savings schemes and PPF which provides higher rate of interest compared other traditional deposits like FDs. The rate of return typically is between 8-8.5%. However, all these are locked in for certain set of periods and hence liquidity may be a concern. Look at these investments generally for long term goals like retirement, house construction or children's higher education."

Review your life and health insurance cover: One should always try to review time to time their life insurance requirements. If need be, it has to be revised upwards. Increase your life cover as well as health cover if required. Most of us are very careless when it comes to investment and spend bonus money in useless things. Suresh Sadagopan says-"Health insurance is very essential for everyone. A good health insurance policy, which covers all situations and which has no sub-limits/ copy should be taken. One should go for a good base cover and also have a super top up cover over that. This ensures that one can get a good medical insurance cover at low overall costs."

Save money for big purchases: Everyone dream of buying a home, car, vacation and spend money for kids. "The money set aside for one goal should not be used up for another. For instance, if vacations are to be funded from bonuses, one should go for vacation only. One should not dip into children's education goal for vacation purposes.  That discipline has to be maintained." what opines Sadagopan.

Reward yourself: Pampering yourself with your bonus money is not a bad idea. You can save some amount of bonus money for yourself. Spending is not bad but don't over spend. "Ensure you have ticked all the boxes as far as your expenses are concerned including loans and try to maximize your saving." opines Sadagopan. You can also keep saving some part of the bonus for the purpose of household requirements/replacements. Keep some amount towards vacation for yourself and family. Also, you can keep some amount for gifts and specific events. Try to enrol yourself for fitness and health programs etc. After all, it's your hard work.