How to Utilize your Bonus the Right Way
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It's that time of the year again when you look forward to receiving bonus and increments. Now, you may feel entitled to splurging and at the same time, faced by the dilemma - "is it prudent enough to splurge all or is it an opportunity to save more?'
The good news is: you are not the only one facing this dilemma.
Considering that you have already been investing in a disciplined manner, we believe that your bonus can be put into too much better use than just investing the lump sum.
We would recommend you split your bonus into different buckets:
Bucket 1 (30%) Invest in happiness:
Going on your much-awaited vacation with your family. The chances of you going abroad may be slim with this budget, but you can probably have a comfortable trip across India. While this is not exactly what you wanted, this may help you rejuvenate yourself. It is only fair to reward yourself, take a break and get back stronger.
Bucket 2 (15%) Upskill Yourself
Spend this bucket on learning a new skill or getting the much-needed certification for the big leap. This money should go towards new learning and development relevant to your personal and professional space.
Bucket 3 (10%) Grow your Relationships
Utilize this bucket to catch up with old friends and to expand your network. Attend professional as well as social events. Try and network well. In real life, most of your network will contribute to your net-worth later.
Bucket 4 (45%) Invest Towards Financial Security
After you have done your party and vacation, it's time to put the rest of the bonus to good use. The worst thing you can do is leave it idle in your bank account. INR 1 lakh left in the savings account costs you INR 500 in lost interest every month. That's a family dining-out opportunity lost, every month!
If you think you need the bonus money within the next three-five years - say you are planning down-payment for a house - then you can put the money away in income funds. These are debt funds and carry no stock market risk. At present, they earn ~8% a year.
If you don't have any immediate plans for the money, it's even better. You can invest the money in equity mutual funds. Over the long term, these are by far the best products. Historically, equity markets have returned ~15% year-on-year. The risk is minimal if you stay invested longer than 7 years.
We believe that a healthy lifestyle is all about the right balance. Also, you must appreciate the fact that if you would not have had an active SIP, you would have to invest a larger chunk of the bonus to make up for the opportunity and earnings lost.
The percentages are purely indicative. There's no blanket rule; you know what you need more. Tweak the percentages, but try and have all the buckets in place.