The month of
annual bonuses seems like paradise when we start planning in advance on how to
spend it. This excitement will get us into impulses of spending on things that
give momentary pleasure only. This leaves us regretting for our decisions later.
Wise money management and productively using annual bonuses will help us to take
care of not just present needs but also of future needs and contingencies.
My idea of
being a financially prudent and smart person would involve wise money management
of bonus according to the life’s priorities and expenses. It is true worldwide
that living in uncertain economic times after the global economic turndown, we
all need to learn powerful lessons on wise money management. Every individual
has his/her own peculiar set of priorities, but I believe that some suggestions
would be well appreciated by all.
Ways that have
helped in wise money management of annual bonuses include:
Ø Tax planning
has and will always play a role in saving taxes and making meaningful
investments for the future such as investing in mutual funds, fixed deposits and
insurance related investments to save taxes under Section 80C. However I would
suggest investing in mutual funds is best done through Systematic Investment
Plans (SIP) or Systematic Transfer Plans (STP) that is best accomplished with
opting for systematic transfer of funds kept in a savings bank account spread
over a year. This helps to take advantage of market fluctuations and get good
returns.
Ø I
am sure we all realize the great benefit of living a life free of debt,
than having to worry about expensive loans taken like credit card debts,
personal loans, and low priced loans like education loans, home loans and
vehicle loans. The priority should be on utilizing annual bonuses to first pay
off loans carrying a high rate of interest, with it giving the advantage of
saving on higher amount of money being paid towards interest on such loans.
Ø
Life has never been certain and it is futile to expect it to be certain at any
time, so wise money management needs to take care of unexpected and expected
contingencies
that could arise at any time.
Being financial smart requires every person to set aside at least 3 to 4 months
of one’s monthly income for contingencies like loss of job, illness, and
accidents that could leave you in a financial crunch for a few months. This is
best accomplished with setting aside some portion of the annual productivity
bonus towards the maintenance of a contingency fund in the form of liquid and
semi liquid funds like mutual funds and bank deposits.
Ø
“Live in the present” is what many psychologists would tell you, but I would say
it is best to take lessons from our past mistakes and set the stage to meet some
of our future expenses and financial goals.
The past is gone and would never come back again, but it is never too late to
start saving for future goals like retirement, higher education of children,
their marriage or maybe your goal to start a consultancy business based on your
experiences. This requires carefully planning the period that you would not need
the money and setting aside a portion of your annual productivity bonus in bonds
and mutual funds with the correct allocation between equity and debt to meet
your needs.
However I do
not mean to say that enjoying life or luxuries like a dream vacation, an LCD TV
or home theater should not be your cup of tea, because all of us earn and
perform well at work to live life and not just to exist as some suppose. Enjoy
your annual bonus king size with planning your financial priorities with the
advice of your financial planner.
The
author is
Ramalingam
K,
an MBA (Finance) and Certified Financial Planner.
He is the Founder and Director of
Holistic Investment Planners (www.holisticinvestment.in)
a firm that offers Financial Planning and Wealth Management. He can be reached
at
ramalingam@holisticinvestment.in.
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