There are various ways through which bonus money can be put to good use, thus easing the burden of expenses.
1. Building emergency Funds: A huge chunk of earnings have been credited and now it’s time to keep it aside. Maybe not the entire amount, but at least 50-75 % of the earnings. Emergencies always come unannounced. Unless there is some loan prepayment or credit card balance to be paid, it is always better that a huge chunk of amount is let out of sight untouched. Unforeseen conditions like loss of job, immediate medical treatment, etc. can demand the need of this amount.
2. Paying off Debt: Debt can include prepayment of home loan, car loan or credit card balance. Burden of Loan is always felt on finances even if EMI (Easy Monthly Instalment) is amount is low. With prepayment, the tenure of loan or principle amount can be reduced. However, it has to be noted that if the interest rate on home loan is around 8-9% then the EMI can be continued and the bonus amount can be invested in the financial market. However, if the outstanding is on credit card, education loan or car loan, etc. then these should be paid of first because of having a higher rate of interest. These options do not even provide any tax-benefit.
3. Travelling or Buying necessary items – Most of the times people waits for the bonus to buy home furniture or any other big purchases. People also plan for annual vacation with family and use bonus amount for the same. These are big expenses one should always plan in advance. This way monthly budget is also not disturbed and goal is also achieved. So once bonus is credited then either one can buy the required product, save it to do shopping later or can use it for annual vacation.
4. Contribution to retirement savings: Retirement is the time where there is a risk of getting one’s health deteriorated, there are unannounced medical conditions and at this point of time one can only turn to savings or insurance plan, as one would not have any income generating activity. After retirement, one may also have goals of leisure or travelling. It has to be well planned in advance. This can only be done while one is working. One way of saving up for retirement is to contribute towards Provident fund out of bonus and another one is to invest into good mutual fund schemes for long term. Either way bonus will be invested for long term and will help in wealth creation.
5. Plan for Long – Term goals: There are goals which can be attained after 15 years or 10 years. If one has earned today and does not know as to what to do with this amount, it is better to take help of an investment adviser and invest it for the long term goals. This will ensure you are one step closer towards achieving the goal.
Last but not the least, after one’s finances have been zipped up, at least 20-25% of the amount can be used for relaxation time and in treating yourself with a short holiday or shopping. So these are some of the ways bonus can be used smartly. Have you received your bonus? How do you plan to spend it? Do share you views with us.