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Financial Freedom

How to spend that annual bonus

Posted on:0434 PM IST, Dec 03, 2015; IBNLIVE.COM

If you are one of the lucky ones who have received an annual bonus, here are a bunch of Tips on how to spend that annual bonus.

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Tip #1

Plan and Spend 50% of it without guilt!

Many people have this dilemma. They have slogged hard all year to earn their bonus. They feel they are entitled to enjoy some benefits – splurge on that vacation, buy that fancy watch that you were eyeing etc. But at the same time they are anxious about their finances and that they are not saving enough. This makes it difficult for them to spend the bonus. If you have not budgeted the annual bonus in your Household expenses, it is truly extra money. You can afford to spend it. The trick is to plan your finances a bit and then spend it consciously with a budget in mind.

I recommend that you can afford to spend upto 50% of your bonus if you are living within your means i.e. living within your monthly income.

Tip #2

Repay some Debt

a) Pay credit card debt if you are “rolling over” some monthly bills. This is the most expensive form of debt and you will be better off paying it off in one-shot.
b) Repay some Home loan – Your home is probably your biggest asset. Having a home free of any loan is a huge psychological relief for most people. It sets you free! If you regularly pre-pay your home loan, without changing the EMI, you will repay that 15 year home loan in less time. You will save lakhs in interest cost. Is it not a big motivation?

You can ear-mark 20% or more of the Bonus towards this.

Tip #3

Invest towards your retirement and old age

90% of middle class Indians are short on their savings for Retirement. We hope to live a long and satisfying life. With rising costs and increasing medical care, we need to save for our pension, medical expenses and inflation. Put 10-15% of the Bonus in National Pension Scheme (NPS) or a private pension policy. NPS will give you added tax benefit too.

Tip #4

Invest in Equity market

Growth is a must in anyone’s portfolio. Invest upto 10-15% of your bonus in a well performing Equity Mutual Fund. Consider this as a long term investment. Do look at past performance and risk factors before investing this amount. Even if you are a first time investor in this category, do not worry. Keep your investment horizon 3-5 years and see your money grow.

Indian Stock markets are set to ride on the growth of the Indian Economy and a stable Government at the centre should help the economic growth over next 3 years and beyond.

Tip # 5

Donate to Charity

Being grateful is one of the keys to being happy and content. Do consider donating some of your “extra income” to a cause that is close to your heart. There are some very good NGOs and Institutions doing great work for the under-privileged. Support them and earn some needy person’s blessings. That is bigger and more satisfying than the money itself.

Congrats again on earning that bonus! Now go and put it to good use

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