Its that time of the year when you receive your annual bonus, also known as the Diwali bonus, and if you do not have any preplanned expenses at hand, it could be a great opportunity to put your added earnings to good use.
1. Emergency fund
It is time to refill that emergency fund that you have set aside for yourself and your family or create one if you don't have one already. The amount you put away as 'emergency fund' should ideally be able to over at least three months of your expenses.
Another important element is the liquidity. You can either store it away in a savings account or opt for liquid mutual funds that are risk-free, earn decent interest and are convenient to break in times of emergencies.
A fund like this is will keep you prepared to get you through unexpected financial needs like job loss, medical emergencies, or urgent home repairs rather than leaving you vulnerable.
2. Loan repayments
Any bulk receipts in the year can be used to lower the burden of your home/education/car loan by reducing your repayment tenure. Loan repayments should be your priority over making risky new investments. The Diwali bonus is one such opportunity to make your debt liabilities lighter.
Long term investment goals
It is always best to plan ahead your finances for bigger life priorities like child education and retirement. If you have small savings scheme investments like PPF or Sukanya Samridhi, you can make an annual payment towards them to the maximum extent you can or channel part payments towards different investment instruments like an FD, stocks, etc, based on your risk appetite.
If you are nearing retirement, it is best not to spend money on non-yielding things like appliance shopping and instead plan your future expenses using safe investment instruments.
However, do not forget to look at the tax benefits on them when you choose where to put your money. While an FD with an attractive interest rate for a period as less as 1 year will give you higher returns, TDS is imposed on any interest earned over Rs 10,000. PPF and other government-backed small savings schemes, on the other hand, have tax benefits on interest earned, deposits made and return received on maturity.
4. Holiday planning
If you wish you go on a vacation with the bonus you earned, that's good too. However, do not bet your money on equities for short term gains so as to fund a future vacation. You can rather put it in a liquid mutual fund that provide liquidity benefits and interest rates greater than most fixed deposits. You can also look at monthly installment holiday planning schemes promoted by top travel companies like Thomas Cook to fund trips to popular domestic and international destinations.
5. Manage your increase in salary
Along with a bonus, you may have also received a hike in your monthly pay. It is best if you first sort out your investments and set aside money for future needs and use the rest to indulge in festive spending. This is because, more or less, your needs with remain the same throughout the money.
Usually, our festive or regular shopping will fetch us only temporary satisfaction with no definite purpose.
You can also choose to treat yourself with a holiday, as mentioned before, by investing the extra money in a way that your vacation budget can be amplified.