Ever wonder how employees spend their bonuses? You're not alone. In this article, we will share some ways that you can be sure to get the most bang for your bonus buck.
You've just been awarded a bonus, but it might feel like you're not doing anything with it. You end up staring at your pay stub every week and wondering what's wrong with you. How can you use bonus money effectively to boost your personal money management efficiency?
Well, there are several ways that you can channel that money into something productive. This post will help you do just that.
1. Pay Off Your Current Debts
Debts are the first thing sincere personal money managers need to pay off when they receive a bonus. Most of us have become accustomed to having some form of credit card payment plan, but it is important to be aware of them and pay them on time.
Depending on your job type, there may still be outstanding payments on your existing debt or even bills that have not yet been paid in full. When you owe cash, you are not actually investing, especially when interest rates are high.
Begin reducing debt in the order of rates of interest. The ones with really no tax advantages and high-interest rates are prioritized.
These might include unpaid credit card bills, vehicle loans, personal loans, and so forth. Verify for any pre-payment penalties. Last but not least are those that provide tax advantages, such as ongoing student loans and mortgage loans. You can manage your finances better this way.
2. Catch Additional Tax Breaks Through NPS Investment
Choose NPS or National Pension System option when filling out the investment declaration paperwork for your current financial year.
Over and beyond the INR 1.5 lakh investment threshold under Income Tax Section 80C, a limit of up to INR 50,000 deposited in NPS via the revised Section 80CCD (1b) of the Income Tax Act is eligible for extra tax benefit. At the maximum tax level of 30%, this might result in an INR 15,000 reduction on your upcoming tax statement.
This budget has further sweetened the bargain by reducing the withdrawal tax amounts. The programme requires the purchase of an annuity program worth 40% of the total corpus at maturity time. The remainder can be removed. Until the previous fiscal year, 60% was completely taxed at the slab level.
From this year onward, FM has made tax-free transfers of up to a limit of 40% of the capital. So, if an individual decides to take 60%, he will just have to face tax on the remaining 20%.
At the maximum tax level, an investment corpus of INR 1 crore will result in tax savings of INR 4.37 lakhs. Pension payments, on the other hand, are taxed - an important fact to note if you are managing your money.
3. Get More Exposure to Equity
If you are investing for the longer term (that is three years or more), getting a bonus can be a perfect time to buy some cheap equities at a good price. Nevertheless, because the stock market trend is not straight, it is always preferable to utilise the SIP path.
Storing the cash in your bank account, on the other hand, is not the greatest choice. Invest the bulk cash in any debt fund before transferring it to your preferred equity fund.
You might also use this corpus to fund a five to ten-year objective. You can then utilise the funds to make easy down payments on assets and lower your debt load. This is a common debt reduction and asset acquisition technique when you are managing your money.
4. Build a Corpus Towards a Home Purchase
Housing loans have gotten more affordable, and the market for real estate has been stagnant for over a year. Stocks have accumulated, and real estate developers are willing to bargain if you're a prospective buyer.
The extra Rs 50,000 tax discount on house loans proposed in this year's government budget for initial-time homebuyers is the frosting on the cake.
Therefore, if your home loan is under INR 35 lakh as well as the property is worth less than INR 50 lakh, you might earn an INR 2.5 lakhs of interest payment reduction. Because of these benefits, now is among the finest times to buy a home. Make use of the benefit to boost the number of your down payments. This has two effects:
- Firstly, if you require more than INR 35 lakhs as a loan, you are entitled to a tax advantage.
- Secondly, a lower loan equals a reduced EMI.
So, if your prospective purchase date is under a year away, you should put your bonus amount in a proper income fund. This can be the best way to manage money when building a corpus for home purchasing.
5. Build Your Emergency Fund
If you don't have one already, put the money away in a liquid investment option. Start withdrawing as liabilities or unanticipated costs emerge. This will eliminate the need for fire sales or bridging loans to compensate for liquidity shortfalls. A Good money management plan always has an emergency fund.
The Bottom Line
We frequently overlook the fact that investment products should not be the only assets that generate profits. Spend money on improving your talents and enrol in a program that will increase your income sources.
This will not only increase the incentive package for the following year, but it may also provide consistent returns. Lastly, it is acceptable if you cannot immediately think of any realistic options to spend or use your cash on.
One of the most effective ways to manage money better and get the most out of your bonus is to pay down your debt. This gives you the satisfaction of being rid of past debt, and it also gives you more flexibility in paying for present and future expenses (like school, cars, or houses).
As for what you should use the extra money for – that's up to your discretion. Put the funds in a proper liquid fund or use any of the other ways mentioned above.
Now that you know what it is and how it can help you, take this opportunity to set goals for your bonus. No one else is going to take advantage of it for you. Get started now and reap the rewards when your financial situation changes for the better.