What to do with your bonus money?
Congrats for the something extra you got with your paycheck this year! A lot of contemplation goes about how one is putting his bonus money to good use. For starters, remember that idle cash never makes you money. Nor is a simple fixed deposit going to fetch you something significant.
Using your bonus to enhance personal experiences is one way of looking at it. But in actuality, it is more pragmatic to plan the expenditure of those surplus funds lying in your cue.
In the Indian scenario, investing in real estate is almost a prerequisite. There are multitudes of home loan options available in the market, but one still has to expend about 20% as part of the promoter contribution. Looking at the skyrocketing property prices in today’s time, the charges involved in investing in real estate are rather colossal. Accumulating your bonus money and adding them to your savings will assist you with acquiring that right property you are looking out for.
Understanding the volatility of the market, Systematic Investment Plans (SIPs) are the best investment option to mitigate risk and ensure significant returns. Starting an SIP in equities can promise great returns over a long period of time. Considering great return potential in the equity market coupled with high risk, it is quite apparent that an SIP cannot go wrong here.
Liquid Fund + SWP
Another good option is to first invest your bonus in a Liquid Fund or Ultra-Short Debt Fund. Then, start a Systematic Transfer Plan to a mix of Equity and Debt Funds that are suitable for your financial goals and portfolios. This way, you can earn higher returns from the Funds and also attain your goals. Whatever money is left in your Liquid Fund every month can also double as a ready-to-use Emergency Fund.
If loans are pending with impending EMIs, your bonus can help pay a significant portion off. A prepayment can reduce the loan tenure, and that does help evade the burden. If the interest rate on your debt is high, help lose that promptly. That said, it may be a good idea to not pay off your home loan. This is because the housing loan rates are cheaper than credit card and other loans. Plus, it comes with its own tax benefits.
Uncertainty cannot be calculated or predicted. The right amount of insurance cover will cater to your family needs in the event of an unforeseen factor. With the surplus funds in hand, it is a great idea to review your insurance cover and add further to it, if it is inadequate currently.
Enhance insurance cover: The right amount of insurance cover that will cater to the needs of your family in the time of need is a fluctuating figure depending on various uncontrollable external factors. The cover amount must be periodically reviewed to make it meaningful in terms of the security it accords. Whenever you get a bonus, it is best to review your family's insurance cover and buy more cover in case you feel the existing one is inadequate.
Refurbish Your Portfolio
With time, your objectives, earnings, and losses are bound to change. With respect to that, your investment portfolio does require periodic adjustment. The best way to rebalance a portfolio is to add more money into it and diversify it.
Splurging can never be a good idea. Understanding that this holds a significant sum of money, investing it short-term cannot bring in anything substantial. Your bonus is taxed just as much as your regular income. Hastiness would not pay off.