As April unfolds, marking the beginning of a new financial year, employees across country eagerly anticipate their promotions along with year-end bonuses for their hard work and dedication throughout the year. Thus, the time is apt to reflect on your achievements and plan for the future. In this article, we will explore strategic approaches for maximizing the impact of your year-end bonus. From shoring up your financial stability to aligning your bonus with specific financial goals, we will delve into how to navigate this juncture with intentionality and foresight.
Here are some ways using which you can maximize the impact of your bonus:
– Use Bonus for achieving your Financial Goals:
Before deciding to spend all your year-end bonus on consumption, take a moment to reflect on your financial goals. Whether it is purchasing your dream home, buying your dream car, securing you child’s education, or any other goal you may have, take time and understand your priorities. Allocating a portion of your bonus towards these goals can fast-track the achievement of your financial goals.
Let us understand it better with the help of a few examples:
Mr. Arun has a monthly salary of ₹1,00,000. He has a ₹1 crore goal for his children’s education. He has an SIP of ₹25,000 for the same. Assuming a 13% rate of return on his investments, it would take him 13 years to reach the ₹1 crore goal. In this scenario, if Mr. Arun had also invested and allocated his annual bonus for the goal every year, let us say ₹1,00,000, then the same goal can be achieved in a little over 11 year’s time. Thus, Mr. Arun could have achieved his goal at a faster rate giving him stability and peace of mind in the later years.
If Mr. Arun had a goal of buying a car costing ₹17 lacs after 5 years, he would require an SIP of ₹20,000 every month. If he decides to also invest the bonus amount received every year for this goal, then he can accumulate ₹17 lacs before the end of 4th year itself and buy the car a year early.
Thus, once you have identified your financial goals, you can allocate your year-end bonus strategically to align with these objectives. You can also divide your bonus into different buckets, with each portion designated for a specific goal.
– Use Bonus for repayment of high interest debt:
Using your bonus money for repayment of higher interest rate debt can be a good option. If you have availed any personal loans or there are any credit card dues, then you can make lump-sum payments towards your debts, focusing on those with the highest interest rates first. Paying of such debt will not only improve your credit scores but also free up your future income from debt repayment.
– Use Bonus for building up your Emergency Fund:
When you have an emergency fund to provide a safety net for unforeseen circumstances, you naturally feel confident to face any challenge in life. You can use the bonus to create your own emergency fund. You can try to cover at least 6 months worth of living expenses in your Emergency Fund.
– Use Bonus for Long term wealth creation:
In case there is no specific goal towards which you can allocate your bonus to, you can invest the sum over a longer time horizon for wealth creation.
Let us continue with the example of Mr. Arun who received an annual bonus of ₹1,00,000.
As we can see that, in both the scenarios, there is substantial benefit of investing the amount for a longer duration.
For person who is up to age of 35, can invest his/her bonus every year from now for 25 years, and can generate a corpus of ₹1.75 crores by the end of 25 years. This means a person can cover a part of his/her retirement funds, simply by investing the bonus amount every year. Even for someone who is able to invest his/her bonus just this year, also can accumulate a good amount of funds by the end of 25th year.
We at RichVik Wealth, also have a structured product – ‘Bonus Bonanza’ whereby we recommend the individual to invest their yearly salary bonus directly into best investment avenues. We believe that this extra income if invested diligently every year for a time horizon of 20-25 years can result in a substantial corpus which can be a sizeable fund and help the person take important financial decisions later in life including a retirement fund as well.
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Conclusion:
As you receive your year-end bonus, seize the opportunity to integrate goal-based financial planning into your decision-making process. By aligning your bonus with specific financial objectives, you can make meaningful progress towards achieving your goals and securing your financial future. Whether it is debt repayment, emergency fund savings, or long-term investments, approach this season with intentionality and purpose. By leveraging your bonus strategically, you can pave the way for a brighter financial future and set yourself up for success in the new financial year and beyond.
To understand more on the topic as well as to start investments please feel free to contact us:
Phone: +91-9324609115
E-mail: team@richvikwealth.in