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How to utilise your yearly bonus or increment

It is that time of the year when most companies would have paid out the yearly bonuses or pay raise. But given the economic ambiguity on account of the COVID-19 Pandemic, it is possible that many salaried professionals got a lower than estimated bonus or perhaps none at all. According to the Centre for Monitoring Indian Economy (CMIE) data several salaried employees are vulnerable to losing their jobs going forward. Therefore, if you have a job in hand, received annual increment and/or annual bonus, do not rush to spend it. Given the current uncertainty, use the bonus money as a cushion for your future.

Invest based on a detailed need-based analysis!

When you invest, discover the financial goals, and position your portfolio in line with those goals. Your asset allocation, i.e. how much to invest in each asset, should be based on your age, salary and overhead, assets and obligations, risk appetite, your investment goal, your financial objective, and the time to achieve the goal. Do not invest in an impromptu manner.

For example, if your risk appetite is high, the investment objective is capital appreciation, and the time to attain the goals is more than 18 months, you may consider investing in 18%+ ROI personal and business loans listed on P2P lending platform. On The Other Hand, if your risk profile is low, wish to earn stable returns by protecting capital, and if the time for the goal is 12 months or less, you may consider guaranteed tie-up loans listed on P2P lending platform.

While determining how much to invest for the goal, calculate the potential value of the goal after 2 aspects:

  • the cost associated to achieve the particular goal in today's terms,
  • the inflation rate, and
  • the time required to achieve the goal

Increase your investment and be disciplined!

To accomplish the anticipated financial goals, it is also critical to be disciplined and persistent with your investments. You can ensure this by investing via Auto Investment option. An Auto Investment option allows you to invest in predefined amounts, as per loan criteria's shortlisted on P2P lending platform.

Ideally, if you can transfer a predefined amount in your digital wallet on your payday and then spend what is left after saving and investing, it can go a long way in helping you accomplish your goals.

You can also step up your P2P lending to match your annual bonus. This will help you to deal with inflation better, add up to the power of compounding, and help achieve the proposed financial goals faster.

There are two ways to do this:

  1. A fixed rupee basis each year: If you have a monthly predefined contribution of Rs. 10,000, you can raise this amount every year by Rs. 1,500 or Rs. 3,000 as per your requirement; or
  2. A fixed percentage basis each year: By adding 10%-20% to your current monthly predefined contribution year-after-year.

Boost your emergency fund!

You can also utilize your bonus to plan for an exigency, by setting aside a sufficient emergency fund (also known contingency fund). Make sure that you are holding at least 6 to 12 months of regular monthly expenses (including regular EMI's) as your emergency fund in a separate Savings Bank Account. This fund should be exploited only if you face sudden expenses for which you have not allocated money for. If you already have some cash set aside, utilise the bonus amount you earned to bring it to the level required for your emergency/contingency fund.

Pay off or reduce your debt burden!

If you have outstanding loans, pay off or reduce your obligation burden with the bonus you received. Use the bonus earned to pay upfront your loans - either partly or in full. By doing this you will save on huge interest payment. Also, the money you conserve on loan repayments can be invested for your upcoming needs.

Handle your money sensibly so that it can help you achieve financial wellbeing and safeguard your financial freedom.


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