It’s the bonus season and your salary account may be credited with some extra money. You may choose to splurge the entire bonus amount, but instead of doing this, you should utilize this money wisely. In his blog, we will discuss some points which can help you make the utmost use of your bonus.
1. Reduce debt
You must always repay your loans when you get some extra money. Repaying loans helps you come out of financial stress and improve your credit score. Prioritize your loans on the basis of interest you are paying and pay off high interest loans first. Credit card interest is high, so paying off any credit card debt should be your first priority.
Your second priority should be personal loans, as banks charge interest rate between 12-22% a year. Before you prepay your loan, you should check if the lender charges a penalty, for prepayment of the loan.
2. Avail a health insurance plan
Medical expenses are increasing day by day, so you must avail health insurance plans for you and family. Many people avoid buying health insurance plans, thinking the premiums to be paid are high.
But, the hospitalization costs are more expensive than the premiums you pay for health insurance. If you do not avail health insurance, you will end up paying your savings for medical expenses.
Health insurance provided by your employer, does not give sufficient coverage for your family, so you must avail a family floater health insurance plan, which can cover the hospitalisation expenses of all family members.
Life is uncertain. An unexpected event may occur at any point in time, which might cause you a lot of financial trouble. So, you should have an emergency fund to cover basic living expenses, in case of some unforeseen event like a sudden job loss. According to the rule, if you are single, you should have at least three months of living expenses in an emergency fund. If you are married, your emergency fund should be for 6 months.
You can use the bonus to start an emergency fund. If you already have an emergency fund, you can add some extra amount to it.
Instead of splurging your bonus, you can invest it for the long term. There are a number of options, where you can invest your money for the long term. You can use your bonus money to purchase stocks of a good company or to make a lump-sum investment in mutual funds. If you do not want to take much risk on the investment, you can invest your bonus money in Public Provident Fund or National Savings Certificates. You can also invest in a Fixed Deposit.