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It’s that time of the year when most companies give out annual increments and bonuses to their employees. “Most big sectors such as telecom finalise their increments on 30 June. The projection for this year is 9.4% for existing employees. Our expectation is it will remain in single digit for two reasons—lower inflation and slower growth rate for companies. Also, the pay for middle-level management has improved significantly in India,” said Anandorup Ghose, partner, talent and rewards, Aon India. If you have switched jobs, it is likely that your raise would be in double digits, according to Michael Page data. Whether it is a double digit or a single digit raise, you should think of what to do with the money. Here is a look at who can splurge and who shouldn’t:
Improve your lifestyle
With increase in income, the most common question is whether you should save or spend more? “Are you likely to achieve your goals with comfort and retire financially independent, even without the increment? If yes, then you can use the additional money to improve your lifestyle or fund the occasional splurge, or even buy the latest television or smartphone. You can also create a holiday fund with the extra money using SIPs (systematic investment plans),” said Shyam Sunder, managing director, PeakAlpha Investment Services Pvt. Ltd. Once you have enough money built up, you can buy those tickets for your holiday.
“If you are investing from your salary to meet important goals, the bonus and increments can be used for lifestyle upgrade and vacation,” said Melvin Joseph, founder, FinVin Financial Planners.
Bump up your savings
If you struggle to meet your goals, you can use this time to rework your money life. “Earmark the monthly raise to fill the existing gap [the amount needed to fulfil a goal]. Avoid creating new goals. Target at least an annual increase of 10% in your investing capacity. That way with the increments, you will increase your net worth,” said Deepali Sen, a certified financial planner and founder of Srujan Financial Advisers LLP. You can start looking at investing every month. “However, if you find your future goals daunting, then the extra money should be put away carefully, and invested in line with your asset allocation. The increment is ideally suited for a new or additional SIP as it arrives every month. Using the SIP approach, you can invest in equity markets with confidence, removing volatility and harnessing wealth creation potential of equities. You can also use the accumulated wealth to handle your liabilities,” said Sunder.
Try to reduce your debts
If you have a personal loan or car loan, it is a good time to pay it off. “Repay high-interest loans such as personal or credit card loans first. Use this opportunity to run a financial plan, if you haven’t done it before,” said Mrin Agarwal, a financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra.
How to work on it? “If you have loans, it would be a good idea to utilise half the raise to increase the EMI (equated monthly instalment) and the other half for investments. The former will let you escape the circle of debt at the earliest and the latter will help you reach your existing goals sooner,” said Sen
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