Bonus season is nearby many multi-national companies in India have a culture of giving out Yearly bonus, year-end bonus, or performance bonus. It is more of a reward paid to the employees based on their performance. Typically, a bonus component is over and above the regular paycheck, which means that employees hardly treat the amount as their monthly salary. And ready to splurge, Calm Down!!!
To figure out what to do with your year-end bonus, “treat it as earned income, because it is. You worked for that bonus.” Let’s see how we can use bonus prudently.
1. Reward Yourself
After a year-long hard work its time to reward your self first. It’s important to treat yourself and your family. But before you start swiping your credit card, decide on the percentage that you will be allocating to “luxury expenditure” and stick to it. Anywhere between 10-15% is a good rule of thumb. Don’t overspend and succumb to temptation.
2. Repay your Loan
You can use your bonus to repay loans/ EMI. A prepayment can reduce your loan burden by reduced tenure or reduced EMI. Repay high-interest loan first. Make a point to repay the home loan at last, as the Home loan has own Tax benefit and its lowest of all loan.
3. Upgrade your Insurance
Uncertainty cannot be calculated or predicted. 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.
4. Set up an emergency fund
It is a wise decision to Plan for an emergency fund to support you during ” Rainy Days”. An emergency fund can also help to cover your family’s living expenses in the event that you lose your job.
5. Invest in your Goal
You can use your bonus to invest in children education Goal, Retirement goal, House up gradation goal, etc. Investing in your future goal will certainly help you to achieve your ambitions. You can start with SIP, or Lump sum investment, invest in PPF/NPS or open a Long term FD.
6. Invest in your self
Investing in your self is the best investment. Take skill enhancement or refresher course in your field. Enrol for higher studies to upgrade your work profile.
This can reward you with a higher position and you will never get obsolete. You can invest in your health by taking Yoga/ gym membership or start regular health drinks.
7. Giving back to society
Try donating a portion of your windfall to a cause you believe in. Besides helping others in need, you may find that it boosts your mood and overall life satisfaction. Do your research There are tax friendly donation schemes by the government!!
When deciding what to do with your year-end bonus, the best plan is to have a plan. Whether you treat yourself, contribute to long-term financial goals, help others—or all of the above—thoughtful spending (and saving) is the best way to spend your bonus.
