My idea of being a financially prudent and smart person would involve wise money management of bonus according to one’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.
Methods that have helped in wise money management of annual bonuses include...
1. 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. Investing in a ULIPs on a monthly mode will help you to take advantage of market fluctuations and get good returns.
2. 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.
3. 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
4. Live in the present’ is what many psychologists would tell you, but I would say 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 your own enterprise 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 ULIPs, tax free bonds and ELSS 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 advisor.
To find out what your investment today will be worth tomorrow, use our power of compounding calculator.
You also need a life insurance plan to secure your life goals from any unexpected contingencies. To do so, invest in a term insurance plan today.
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