Diwali is almost here and some of you may be expecting to receive a festive bonus. It’s easy to give in to temptation and spend your bonus on fulfilling your wishes and dreams. Although travel plans may not be on cards due to the pandemic, buying an immersive home theatre or a car that you’ve been wishing for long may be alternatives you select to pamper yourself. Regardless, there are other better ways to put your bonus to use.
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If this intrigues you, below are 7 ways to use your bonus, which would go a long way in securing your finances.
1. Use the windfall to build an emergency fund
Life is uncertain and so are some expenses. But having an emergency fund in place helps you meet unprecedented expenses without:
- Using funds earmarked for other goals
- Dipping into savings/investments
- Availing finance
So park our bonus in a liquid and high-yielding option to earn decent returns and access the funds easily when in need. If you are not familiar about an emergency fund, read “The fundamentals of building a contingency fund“.
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2.Repay big and small debts with your bonus
With cost and standard of living and aspirations getting higher, savings and investments can fall short in meeting big-ticket expenses. That’s why availing debt—a loan or credit card—has become a part and parcel of life. A good way to close them is with your bonus. Tbh, this can relieve you from both financial and mental stress better than your vices do. A tip here is to start repaying loans with high interest-rate and then go on to close the low-costing ones.
3. Use the bonus to stack your retirement account/funds
The next best way to use your bonus is to beef up your retirement savings. This is a great way to secure your ripe years without having to depend on someone else for your financial needs. Depending on where and how much you invest, you can also enjoy certain tax benefits. Maybe consider Voluntary Provident Fund, Public Provident Fund or NPS.
4. Invest the bonus to meet your financial goals
Investing the bonus for your future is undoubtedly a smart way to use it. Read our article “The secret to growing your Diwali cash-gift” to learn why investments are vital to meet goals and create wealth. Goals are subject to individuals. But the common ones can be: buying a home, educating your children overseas, and taking a world-tour. The avenues to invest your bonus depends on 3 factors:
- Risk appetite
- Return expectations
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In addition to the above, when choosing an investment option to park your bonus, also consider the kind of tax benefits that it offers. However, remember that your primary aim is to earn returns, so saving tax shouldn’t be the only significant factor in consideration.
Talking of avenues to invest in, fixed and recurring deposits are good options for conservative investors whereas equity is great if you can stomach high risk. When investing in stocks, use Tickertape to filter them based on metrics that matter to you. But if you are looking to enjoy moderate returns in exchange for medium risk, hybrid avenues such as debt mutual funds can be a part of your portfolio. Gold ETFs also make good investments if you wish to invest in the yellow metal. For those who have a girl child, you can go for Sukanya Samriddhi Yojana (SSY) to secure her future. Finally, Senior Citizens Savings Schemes (SCSS) is excellent for your parents.
5.Buy or enhance insurance coverage with your bonus
Insurance is not an investment. There are hybrid products that offer both financial coverage and returns but they can be insufficient. That’s why it is important to have a standalone insurance policy so you can benefit from comprehensive monetary coverage. Depending on what you want to secure against unseen circumstances, you can buy life insurance, health insurance, home insurance, vehicle insurance, and travel insurance. If you already have a cover that is insufficient, check if you can enhance it.
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6.Use your bonus to save for home loan down payment
Buying a home is a massive decision because it involves high-ticket expenses. That is why you avail a loan to build or purchase it. However, lenders only offer a part of the property value as a loan. They expect you to pitch in at least 10% to 20% of the property value, which is called down payment. This can translate into a huge figure on its own. For instance, let us say that you want to buy a property whose value is Rs 50 lakh and the down payment is 20%. This means that you are required to pay Rs 10 lakh as the down payment to the financial institution to avail a loan of Rs 40 lakh. So why not use your Diwali bonus to save for down payment?
7.Invest in yourself (learn/upskill)
Finally, consider investing in yourself—learn a skill that enhances your employability. By doing this, you upskill yourself and increases the chances of landing a better and well-paying job. In addition to career-related skills, you can also spend your bonus to take up courses relating to effective communication, grooming, and others that aid personality development. There’s not much if you don’t have a good personality, isn’t it?
Although the above are excellent ways to use your bonus, it doesn’t mean you shouldn’t spend it on buying useful assets. Diwali brings along great offers and discounts. So, if buying something that’s on offer saves you significant money, then you can go for it.
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That’s all for now, we hope that this article has influenced you to make good decisions and implement them. If you know more ways to use Diwali bonus wisely, feel free to mention them in the comments 🙂
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