When you checked your bank account and found some extra money with respect to the amount you get every month, you cheer and overwhelmed with joy. The bonus money has been credited to your account. It is the money for which you have worked so much in the evening even after office hours, put extra efforts, and missed the family reunion, events. You can use it for an exotic vacation or buy a gift for yourself. You may think to invest the bonus money also.
Then suddenly it comes to mind that should I spend or invest for the future. As you have worked so hard for the last year, it is reasonable enough that you can plan for a short vacation with your family. It will recharge and motivate you for the next year.
At the same time, you have to be disciplined enough with your investment and future goals. It is advisable to spend 20-30% of your bonus money for recreation purpose and rest amount you invest for your future.
The followings are the five smart ways by which you can invest bonus money.
Build an emergency fund
An emergency fund is a need for everyone at the time of joblessness or in the case of any accident or unexpected situation. In this kind of uncertain situation of the future world, you are always advised to have some liquid cash with you. Experts say at least six months expense is sufficient to meet the requirement of emergency or contingency fund.
You can maintain the liquidity by depositing the money in the savings bank account. But you may not be happy with the rate of return which a savings bank account can give you. You can save in another savings bank account which can give you more than 4% return. Some banks are giving more than 4% return over and above Rs 1 Lakh maintained in the savings account. Read How to get Highest Interest Rate in Savings Bank Account.
Recently DBS bank has started Digi Bank which can give you 7% interest rate on you savings bank balance of up to Rs 1 lakh. You can also explore the option of parking the money into a debt based liquid mutual fund for the better return.
Pay off credit card outstanding
Many of us have a long credit card due which is pending over the months. Sometimes we are lured by filthy marketing and end up buying something costly. After that, we could not pay the entire bill and high-interest rate makes it more badly after three-four months.
It is always advisable to buy something with a credit card when you have the same amount of money in your savings account. Paying off the credit card dues will also enable you to save some extra bucks for investing.
Write-off or reduce your outstanding home loan
You can think of reducing your existing burden of home loan. Home loan EMIs can be used to lower your income taxes with the help of interest and principal both components. Though pre-payment of home loan is not financially advantageous, it advisable to lower your stress by reducing the outstanding loan.
It is more of an emotional decision rather than a logical decision. If you are mentally strong and fine with your home loan, you can think other options for your investment of bonus money.
Invest in STP and then transfer to SIP
Everybody is aware of SIP or systematic investment plan. There is an option of systematic transfer plan or STP in which you can invest the lump sum. From this fund, the regular payout will go to another scheme of SIP for investment. It is an investment from a low-risk plan to a high-risk plan for better return.
STP funds are investing the money in the debt funds which are giving comparatively lower return than SIP. It is always better to invest in a disciplined way to stock market. While investing in STP, you have to remember about the short-term capital gain of debt funds.
If you have a large bonus money (Rs. 2-3 lakhs), it makes sense of putting it into an STP. Otherwise, you just use your savings account to park the money and do a SIP for regular investing to an equity mutual fund.
Add your retirement fund
Retirement is always should be a priority for young stars. That’s why you should start saving from your first income. Further to that, you should never miss an opportunity to increase your retirement portfolio.
Those, who want to retire early or want to become an entrepreneur has to use the bonus money very effectively. If you have to plan to retire very early i.e. within two to three years, invest the bonus money into a debt fund. You can do a short-term fixed deposit also. Some NBFCs may give you a better return than the fixed deposit of the banks. You can invest in equity for a longer term in case you have at least ten years to retire from the service.
Hope you are clear and will take the opportunity of investing the bonus money to be a step forward for better future.
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