5 ways to use your Diwali bonus wisely
The Diwali bonus is usually expected during this time, with the spending coming ahead of the start of the festive season. Some of you may have already received your Diwali bonus while others are expecting it few days before Diwali.
While one might be tempted to blow it up immediately with a spree of shopping and dining out during the ongoing holiday season, it’s better to use the money wisely since you’re not getting an extra lump sum every month.
Although it’s called a “bonus,” it’s your hard-earned money that you’ve worked all year for. Therefore, alongside enjoying the festive season, it would be wise to use your Diwali bonus wisely.
Nobody’s stopping you from indulging in a bit of festive merriment, but finding a balance can make all the difference. Let’s find out how to use your bonus wisely.
Close your loans in advance
If you have ongoing debt, it is ideal to use the lump sum to pre-finance your loan(s). You need to target your unsecured loans like personal loans and credit card fees, if any, first, and then focus on secured loans like home loans to reduce the interest burden.
Rishad Manekia, Founder and Managing Director of Kairos Capital, a Mumbai-based financial planning firm registered with the Securities and Exchange Board of India (Sebi), said: “The RBI has increased interest rates significantly over the past few months, and as a result interest rates on loans have also risen. If you have any outstanding loans, especially expensive loans like personal loans, outstanding credit cards, etc., you can use the Diwali bonus to pay off all or part of these loans if possible.”
Make Full Payments
“If you need to buy or replace electronic devices/items at home, you should avoid falling into the ‘free EMI’ or ‘free EMI’ trap. Instead, you could use the bonus amount to fund the purchase immediately,” says Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm.
There may be multiple offerings on the market and you might be tempted to buy multiple items for multiple loans, but it makes sense to first assess your ability to repay and settle for what you can fully afford.
Start building an emergency fund
It becomes difficult for many people to set aside money from their monthly salary to build an emergency corps; Bonuses can be a way out for them. Ideally, one should have an emergency corpus of six months or a year of expenses.
“If you don’t have adequate emergency funds, or have drawn on some of your emergency funds during the year, you can park the lump sum in an appropriate debt asset as an emergency fund,” says Sen.
Set aside for short-term commitments
If you’re planning to buy an asset like a house or car, the lump sum reserve can help you put the down payment aside. You can also save for short-term goals like vacations or funding for a class. Short-term financial commitments such as investing in an apartment, repairing or renovating the house can also be considered.
Give your long-term goals a kicker
Bonuses can be a great way to increase your long-term savings for goals like raising children, retirement, and marriage. Your bonus could also fill the gaps in your long-term investments and help you save a surplus.