Diwali is one time of the year when your purse strings are looser than usual. It's one of the most festive periods of the year, and we spend it enjoying our favourite foods, celebrating the moment with family and friends, buying new clothes, gifting new gifts, and not letting budgetary constraints get in our way. It's also a time you receive a bonus income. It makes your Diwali brighter, and is often the reason for your carefree spending during Diwali. Beyond the holiday spending, there are several smart things you can do with this money. Let’s take a look at some options.
Start an SIP
Investment is one of the best things you can do with any surplus money that you have. And one of the best ways to invest it is through a mutual fund SIP. With your bonus money, which is essentially a lump sum amount, you can take two steps. One — invest 20 per cent of your bonus as a lump sum in a mutual fund of your choice. Let the rest remain in your savings account. You can use the 80 per cent to make monthly payments into an SIP into the same fund. The trickiest thing here is deciding which mutual fund to pick, because there are thousands of schemes in India. Therefore, you must decide what you want to achieve with the investment. Let’s say you don’t need the money immediately and it’s your purpose to let it grow over the next 5-10 years. Then, you should pick a highly-rated equity mutual fund with an impressive track record.
Get some coverage
With a little liquidity in hand, it’s always a good time to audit your insurance coverage. Is it adequate? Your life insurance coverage should be at least 10-20 times your current annual income. The health coverage for each of your family members should be at least Rs 5-Rs 10 lakh. If you are underinsured — or worse not insured at all — consider improving your coverage immediately. A term plan coverage of Rs 50 lakh for 30 years for a 30-year-old costs approximately Rs 4,200 per annum. For the same person, a health insurance cover of Rs 5 lakh will cost around Rs 5,200. In comparison to what you will receive in terms of coverage, the premium costs are pretty low.
Pay off your dues
The cost of modern living is perennially having to stretch our finances a little bit in order to fulfil our aspirations. Loans are one way to do this. Therefore, it’s common to be in some level of debt during your working life. And what better way than to deal with this problem by putting your bonus income to use. You can settle your credit card balances to avoid hefty interest charges. If you have a car or home loan, you can pre-pay on it to make major long-term savings on interest. This will help you accelerate out of debt, which is great for your financial health as well as your credit score.
Top up your savings
Everyone needs an emergency fund to fall back on during hard times. This money is meant to carry you through difficult situations such as a job loss, a health problem, accidents, repairs — or anything that requires urgent cash. You should have liquidity worth 6-12 months of your current income, ideally. It’s never easy to reach this level of comfortable liquidity. Therefore, when you have cash in hand through bonus income, you can divert it to your emergency fund. Use a fixed deposit or recurring deposit to create this fund. Liquid mutual funds would also do.
Have a little fun
All money talk and no play makes Jack a dull boy. Your money is meant for your enjoyment too. Therefore, ensure you also use some of your bonus to have fun, create memories, and buy things you desire. Remember that you don’t need to focus on any one of the above-mentioned ideas. You can allocate small chunks of your bonus towards all of these goals. That way, you build financial strength even as you find some cash to enjoy yourself.
