6 ideas to put your 2021 Diwali bonus to good use

Prudent management of money is the key to financial well-being. Irresponsible use of money – be it a bonus or normal income – makes it difficult to yield desired results.

Diwali brings cheer to our lives every year, and Diwali bonuses and incentives sweeten the celebrations. While a bonus or an incentive is always welcome and makes every celebration grander, it is equally crucial to ensure that this supplement adds to one’s wealth. Diwali bonus, if invested prudently, can give a much-welcome fillip to your financial goals.

Here are 6 ways you can put your Diwali bonus to work so that it brings you more happiness in the long run.

1. Reduce Your Financial Liabilities

If you have an existing loan – be it a home, vehicle, or personal loan, outstanding credit card dues, or an interest-free credit from friends or relatives – you may want to consider using the bonus to clear off your debts and reduce your monetary liabilities. This helps in relieving your financial stress by either reducing the interest and EMI amount or shortening the payment tenure. The money thus saved can be utilised for creating other assets or fulfilling other requirements.

2. Average Out Your Long-term Investments

If you have investments in mutual funds or stocks, you may find it worthwhile to purchase additional units of mutual funds or shares using the bonus payment. Such lump-sum investment decisions will lead to the accumulation of more units and your cost of investments will average out. This will aid wealth creation in the long run.

3. Invest In Dematerialised Gold

If your existing portfolio doesn’t have an allocation for the precious yellow metal, you can use your bonus income to invest in gold, preferably in the demat form. Given that the economic uncertainty from the last couple of years is still stabilising, this may be an opportune time to invest in Gold ETFs and Sovereign Gold Bonds (SGBs). You can consider allocating up to 5-10% given the current positive prospects of gold in the next few years. Investing in gold instruments that track gold prices may not only add value while offering diversification to your portfolio, it will also offer you a hedge against inflation.

4. Boost Your Emergency Fund

An emergency fund comes in handy in times of financial distress arising out of job loss, medical emergencies, or some other crisis. Ideally, you should have an emergency corpus equivalent to at least 6-8 times your monthly income. For instance, if your net salary is Rs 50,000 per month, you should have at least Rs 3 lakh as your readily available emergency fund. In case your corpus is short of the desired size, it is advisable to divert the bonus income to add up to your emergency fund. You may invest your emergency funds in liquid schemes offered by mutual funds or fixed or recurring deposits for easy liquidity.

5. Increase Your Insurance Cover

One’s family’s well-being is always a priority. A good term insurance covers your family’s needs in your absence while an adequate health cover helps you deal with high medical costs. You can use your windfall to enhance your insurance cover. After assessing your family insurance needs, you can decide on your cover amount. If you have dependents but don’t have term insurance yet, consider buying one this Diwali using your bonus income. It is advisable to opt for a sum assured of at least ten times of your current annual income. For instance, if your annual income is Rs 10 lakh, the term insurance cover should not be less than Rs 1 crore.

6. Spend On Essentials

There could be several essential expenses you might want to undertake to improve your quality of life. This could be as diverse as learning a new skill or language that can enhance your career prospects, a home upgradation or renovation, or acquiring or upgrading essential appliances or accessories such as a washing machine, refrigerator, two-wheeler, or laptop, among others. Figure out the most crucial ones and use your bonus income to fulfil the requirement.

Prudent management of money is the key to financial well-being. Irresponsible use of money – be it a bonus or normal income – makes it difficult to yield desired results. A little less impulsive buying and more planned spending and investing can make a whole lot of difference to your financial health. So this Diwali, do take steps to grow your wealth wisely.

(The author is CEO, BankBazaar.com)