7 Ways to Smartly Invest Your Annual Bonus
Most of the companies announces bonus once in a year and if you are a hard worker than you might be lucky to see a fat bonus coming your way. But seeing a fat account balance should not stimulate you to rack up your credit card bill on the things which may or may not be of any use. Rather than spending on less usable thing you should prioritize the things according to your needs and requirements. You should not Count your chickens before they hatch because the bonus amount will be taxed like regular income and you have to pay a considerable amount of tax from your annual bonus.
The best possible ways to utilize your annual bonus may be:
1. Repay/Prepay High Cost Debt/Loans
First and the foremost thing is to pay off the debts or loans bearing high interest cost and does not offer any tax breaks. Some of the high costs bearing debts are credit card dues which charges interest ranging from 30% to 36% and personal loans which charges interest rates ranging from 18% to 24%.
Next, you can look at prepaying your car loan, education loan and lastly home loan. But do remember that prepaying loans may attract prepayment penal charges.
2. Review Life and Health Insurance Policy
In case you have no life or health insurance policy and are fully dependent your employer for group medical cover than you need to put all your financial expenditure on hold and get insured immediately.
A couple must have a medical insurance floater plan for atleast Rs.5 lakhs and should be enhance each year by atleast 10% as the medical cost is growing day-by-day. The amount should also increase with 1 lakh for each child. You should not include your senior citizen parent into this floater plan and should buy a separate health plan for them keeping in mind their medical requirements.
Life Insurance requires only for the earning member of the family and the amount of sum assured (SA) should not be less than 10 times of his/her annual income. For instance, in my case SA is Rs. 60 lakh crore as my annual income is Rs. 6 lakh. You can also assess your monthly expenditure including EMI and buy life insurance 15 times of it.
3. Create an Contingency or Emergency Fund
Emergency can strike anytime and if you are not prepared for it than it may create a long term dent in your financial life. It’s better to put aside some money earmarked for emergency such as fatal accident, job loss, severe illness etc.
Emergency fund shall not be less than 6 months of your expenses including your EMI and other expenses at regular intervals. You can track your monthly expenses through your credit cards and bank statement to get rough idea on your expenditure.
Emergency fund can be created by parking money in highly liquid assets such as savings account or liquid fund.
4. Rebalance your Retirement Portfolio
With the increasing inflation rate and volatile market, the plans you have included in your retirement portfolio may or may not give the desired returns. Also due to the development in science, longevity has increased and there are chances that you outlive your retirement corpus or your retirement corpus may not offer you the same living standard post-retirement. This makes necessary to rejig your retirement portfolio once in a year. The sooner you rebalance your portfolio, the efficiently you achieve your goal. You can cover-up the shortfall with the annual bonus you receive.
5. Secure your children future
Everyone wishes to do everything to brighten their children future. But with the advent of high-end schools, cost of education is sky-rocketing each day and your planning could fail in coping up with it. This is the time when you can very well utilize your bonus. You can upgrade your child’s school and invest remaining bonus into rejig your child education planning.
If your child is about to get into college than you can invest your bonus into liquid funds till the time of college admission and use the maturity amount to fulfill the admission cost. And if your child is on the verge of getting married than your bonus could be add-on source for his wedding budget.
6. Invest in Section 80C tax avenues
If you have any window left in your tax savings investments than allocate your bonus amount towards it such as SIP in ELSS, PPF, NPS, RGESS, SCSS, Sukanya Samriddhi Account, NSC etc.
Even if you have exhausted your 80C limit, investing in Sukanya Samriddhi Account and PPF are advisable because they may not give you immediate tax deduction but being EEE scheme, these investments will offer you tax benefit at the time of maturity. You can deploy these investments towards your child’s education or marriage planning.
7. Buy Productivity Tools or further course
The last but not the least, if you have planned everything correctly and there is no necessity to rejig anything than you can invest your bonus in yourself. You can either opt for improving your skills and enhancing your knowledge by undertaking some part-time courses or you can use your bonus to buy some productivity tools which improve your quality of work or make your life easier. This could include replacing your two wheeler with four wheeler, old mobile with latest mobile, desktop with laptop etc. but remember to utilize bonus money in buying productivity tools not to show-off.
Though your bonus amount may not be so fat to buy a bungalow but you can purchase atleast a plot of land with it. Another way to invest your bonus money into real estate is through Real Estate Investment Trust (REIT) where you can own a part of real estate property by investing minimum of Rs.1 lakh. REIT works like mutual fund where you invest money to own a part of real estate property as your share and reap the returns in form of rents and capital enhancement.
Love of Indian towards Gold is humongous and the best part is the Gold is the safest instrument which never lost its sheen. You can buy gold coins or jewelry with your surplus money which can be used at the time of marriage of your child.
Read: Gold Monetization Scheme
Unless you are building emergency fund, putting surplus money in savings account is worst option but if you are sketching a plan to utilize your bonus money than you may think of switching banks to fetch better interest rates.
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