Nov 10, 2012, 11.10 AM IST | Source: Moneycontrol.com

How to utilize Diwali Bonus in a prudent way

Festival of Diwali is a joyous moment for all of us especially for employees as they receive Diwali bonus from their organization. This additional money received is like a cheery on tip of a cake. However, many a times, this bonus is spent on impulsive buying. Jitendra Solanki shares few tips with on how to utilize Diwali bonus prudently.

Festival of Diwali is a joyous moment for all of us. It gives an opportunity to meet our fellow family members and friends to celebrate. It is also a good moment for the employees as they receive Diwali bonus from their organization.This additional money received is like a cheery on tip of a cake or an ice-cream which enhances the looks and taste sweeter. You really enjoy it!!!

However, many a times, this bonus is spent on impulsive buying. We tend to put all our liabilities and needs aside to ensure the enjoyment of the festival is at peak. Its only when the amount is good enough to save also, the investment comes into our planning. But there also lot of confusion prevails with so many options.

Here are few ideas to spend the bonus amount received during Diwali wisely:

1. Pay off Loans: Most middle class families have either home loan, car loan or personal loans to realize their dreams. But any loan is a liability and while managing your finances, it should be the first priority. People who bought loans on floating rates few years back are facing difficulties due to rise in interest rates. A lump-sum receive through bonus provides a good opportunity to reduce your liabilities. We also have a perception that continuing with liabilities and investing this sum for higher returns will do good but do not realize that you repay from your future income which may be costly. If it's a personal or credit card loan, then no investment strategy is successful. On other hand, even if you earn 12-13% return and your loan (home or car) is at 11-14%, repaying will help in reducing your liabilities to save more. Hence, if you have loan, look at ways to reduce it. How much you should repay is a decision which is to be made after analyzing your finances.

2. Emergency Fund Creation: The basics of any financial planning lies in preparing ahead for contingencies. But when we are living with liabilities, emergency funds creation is difficult. Ideally, 4-6 months expenses, including loan EMIs should be lying in the most liquid instruments so that you can utilize it if any emergency arises. A Diwali bonus can be a good source for creating this fund if you have been unable to do so.

3. Tax Saving: It will be only a month or so when most employees will have to provide proof of tax savings to their employer. And those last minute decisions for investments leads to dip into your savings you have earmarked for other goals. If you are not able to do so then tax cut from your salary in these months almost disturb your monthly household expenses. A Diwali bonus can also be used for making tax saving investment to ensure you receive a better post tax income in coming months and keep your finances in manageable limits.

5. Invest for Long Term- If you have not planned long term investments, then bonus money can be a wiser option to do it. Identify your long term life goals like children's planning, retirement or buying a house. Invest in the appropriate asset class which will help you in accumulation of the required corpus. You can either invest in lump-sum or can also plan to invest in periodic interval as per your goal.

4. Diwali Purchase: A Diwali bonus is a Diwali bonus. You cannot be convinced if you do not purchase anything during this festive season. But understand a difference between your wants and needs before you go out for shopping. Do not get lured only because there are discount offers available. Make your shopping list. Ensure you spend only on essential gifts or purchase items which you need the most. For e.g. if you have bought a new house then items like fridge, TV, washing machine  etc. are a necessity and buying during Diwali  will be  beneficial as you will get discounted price. But do evaluate offers among various dealers and avail the best.

Whichever option you choose, your Diwali bonus should help you in managing your financing more efficiently. Whether you reduce liability or invest for goals, the utilization should be planned.  If required, talk to your planner for an advice.

But yes!!! Do give a treat to your family....Happy Diwali!!!!

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