“Bonus”. The term alone is enough to give one wings. How much you get is not as important as the idea of getting one. Everyone makes tremendous plans on how to spend it. The value of money is distinct for each individual. While some prefer to save this extra income for rainy days, some plan to invest it while others spend to one’s fancy. There is no established medium that proves to be the best use of bonus, but what is critical is to observe financial discipline.
With the festive spirit in air, a Diwali bonanza adds to the sparkle. You might be tempted to buy more gifts and take advantage of the festive offers. But hold your horses right there. The situation calls for you to keep your head out of the clouds and plan better.
Often people fail to curb their temptation to swipe their cards or seek additional loans as they give in to their wants. All because they have a “bonus” coming their way and sometimes people overspend or over leverage themselves. Once the festive season is behind us, they are stuck with more debt or end up cluttering their house due to impulsive buying. A prudent individual will introspect on whether there is a need for a certain product or is he simply being wasteful.
It would be unfair to ask someone to refrain from buying gifts for family and friends on Diwali. After all that is what the festival is all about. But one must divide the jackpot into different pools. Divide it into atleast three portions. They may not necessarily be equal but they there are two things that you must certainly use the money for:
It will not only mean that your credit score improves, but your relationship with your lenders will also become stronger and it will be easier to seek loans in future. Thereby you use this money to improve your creditworthiness.
Incase you have been diligently following your EMI timetable then you can use this money to create an emergency fund. This fund can come in handy when faced with an exigency. One important reason to make this fund it that you will not have to borrow at an extra cost when you are in a financial ditch. You could use a part of your bonus to pay for certain insurance policies as they, too, come in handy incase of financial emergencies.
You can further read about whether it is advisable to use this money to prepay outstanding debts, for that is another story.
Ideally a higher fraction of the bonus should be used to build this corpus. Let’s not forget every drop counts. Since there are not enough validated retirement schemes offered by the Indian government, it calls ever more strongly for individuals to plan for their grey hair days. Everyone would agree that it is better to save today and relax post retirement than seek loans and struggle under the burden of debt.
Whatever is left after cutting for these two important aspects, you can use to buy gifts for others or pamper yourself.
Don’t depend on using the contribution of one bonus alone. Make it a point to use your bonus every year to repay your outstanding liabilities and invest in validated asset classes for long term benefits. Spending is an easy task. Investing is a rather more difficult job. But where shopping can be therapeutic, one must draw a line on how much should you spend.
Make it a point to become wiser by indulging in better planning and using the money by investing appropriately for future. Remember, either pay off your loans or save this money so that you don’t have to go knocking at lender’s door every now and then.
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