Got salary bonus in bank account? Use this extra cash to enrich yourself, here is how

What happens when you receive a message revealing a lump sum amount that has been credited in your salary bank account in the form of bonus. The joy is always enormous. In fact, it would send many of us rushing to prepare a list of things to purchase that we had been hankering after. However, be strong and refuse to succumb to temptation. So, do not fritter away your money on useless things. Idea is to save money and make t grow so that you can buy something bigger like a bike, a car or a house or even insurance, mutual fund scheme, open a PPF account, or even fixed deposits. Every penny you earn in this way should be spent wisely as, after all, it is only during this once a year moment.

Mostly, companies give bonues at intervals either quarterly, yearly or sometimes even during festivals like Diwali. However, most likely an employee comes across a situation where there are a bunch of options to untilize the bonus, but is confused about where to begin.  

Archit Gupta, Founder & CEO ClearTax says, " You get an SMS notification and voila the bonus you have been waiting for is credited in your bank account! Images of an SLR camera or a solitaire or a family vacation chase each other in your head. Or could it be the possibility to clearing some or all of your debts? Careful spending and smart saving based on your situation and investment goals is the route to gain the maximum out of your bonus."

Here are a few things to keep in mind while putting the extra cash to good use, as per ClearTax. 

1. Leash your recklessness

It is natural to go overboard when you suddenly find yourself richer than you usually are. In fact, nothing short of euphoric! A few thousands here and there and it won’t last if you do not plan and make wise decisions on what to do with it.

2. Remember, it’s your earnings not winnings

People often forget that bonus is part of their earnings even if it feels like a reward. This pushes them to just spend it away instead of hanging to it. Utilizing it to clear dues or parking it in an emergency liquid fund can make a big difference to your financial health. Because you earned that bonus.

3. Do not deprive yourself

A smart bonus planning is incomplete without keeping aside part of it for yourself. Shying away from spending on yourself at all can result in ‘frugal fatigue’ i.e. tired of being rupee-wise and doing the opposite. So go ahead and savor the windfall - spend up to, say, 10% to 20% of that bonus as you deem fit.

How to boost your financial goals with bonus

Your bonus can help you achieve your financial goals quicker. Choose scheme based on your risk tolerance, tax slab rate and time horizon. For instance, if you belong to the highest tax bracket, consider an ELSS plan (tax-saving mutual fund) – it brings down your tax outgo while building long-term wealth. If you do not have an emergency funds for rainy days or adequate insurance cover, let it begin with your bonus.

1. Long-term Goals (5 years or more)

ELSS allows you to redeem after 3 years unlike other tax-savers like PPF and FD. However, experts suggest you to stay invested for at least 5 years to reap maximum benefits. As you can see from the graph below, the returns almost double in this period. If you do not want to make a one-time lumpsum investment, split the amount into 4-6 instalments and invest through Systematic Investment Plan (SIP). It is ideal for retirement planning or if you are saving towards buying a home.

2. Medium-term Goals (3-5 years)

For instance, if you want to buy a car worth Rs. 6 lakhs in 3 years, you have to sock away over Rs. 8300 per month. If you plan 4 years in advance, the monthly SIP amount will only be Rs. 6250. Similarly, saving Rs. 5000 every month for 5 years will also result in the same investment amount. With the power of compounding on your side, you can easily reach the goal in 3-5 years. 

3. Short-term Goals (1-3 years)

There is a slew of liquid funds and debt funds promising returns as high as 8.2% - much better than keeping the money in savings account. Short-term goals can be coveted purchases like a solitaire or laptop or Iphone or even an anniversary gift among others.  

4. Ultra Short-term Goals (0-1 year)

Not many are aware of liquid funds that will fetch you much higher returns than that from savings account. A few have made returns as high as 7.94%. Example, parents can plan children’s terminal tuition fees this way. So why let money stay idle in your bank account? Another highlight is that there is no lock-in period and no exit load (i.e. fee for exiting the fund). 

5. Give a thought to that emergency fund

Emergencies are those unwanted unannounced guests who walk in without knocking. Recession, job loss, sudden medical contingency – they could be anything. Yet, emergency fund is something that mostly tend to take a backseat in face of other expenses. Using bonus for this purpose will reduce the strain on your salary. Ideally, this fund should be at least 3-6 months’ salary.