How to use increments and bonuses to boost finances wisely?

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A raise or a bonus is unquestionably uplifting. It remains to be seen whether it leads to employees boosting their performance. However, if handled properly, the extra money can significantly improve one’s personal finances.

According to financial advisers, one should carefully arrange one’s budget based on the increase earned. The most important thing to do after a wage raise is to make the correct decisions. Take care not to let your current sense of financial well-being cloud your judgement.

While receiving the increment letter is tremendously satisfying, the real increase in net compensation may surprise you. Many increments are front-loaded in such a way that taxes, provident funds, and annual bonuses receive a disproportionate percentage. Simply wait two months to see how your raise is being reflected. This will inform you exactly how much you can keep.

Emergency funds

If you don’t have a financial buffer in the shape of an emergency fund (at least six months’ worth of costs), try building one up with this additional money. The number of existing contingency funds that may need to be increased owing to increased obligations might be gradually increased.

Home loans

Those who do not have credit cards or personal loan payments but have a home loan may choose to increase their prepayments. However, because it is a low-cost loan with tax benefits, some people believe that aggressively repaying house loans is not worth it. Instead, they should be allowed to run their normal course.

However, for those who dislike obligations and want to eliminate all loans as soon as possible, the bonus and income increase can be considered. A portion of the bonus can be used to make lump-sum prepayments, while a portion of the monthly wage increase can be used to increase the monthly instalment.

Paying off high-interest loans

If you have any substantial and overdue credit cards or personal loans, use the bonus to pay them off. If it doesn’t help, use some of the wage increases to boost the prepayment. Credit cards carry nearly 40% interest, while personal loans can cost up to 15%. Both are financial weapons that must be eliminated as soon as possible.

Insurance portfolios

It’s time to get a large-term plan for individuals who are underinsured or don’t have any. If health insurance is insufficient, use the extra dollars to purchase enough health insurance coverage. Do not avoid or postpone making these two judgments.

Enhancing on-going investments

It is expected that investing through SIPs once a month for a long period of time will suffice. However, if you think about it, people’s income does not grow in this manner. People’s salaries rise over time.

It’s a good idea to boost your SIP amount by at least the pace of your income growth. Assume you begin with a Rs 10,000 monthly SIP.

Your income is now increasing by roughly 10% every year. You could also increase your SIP by 10% each year. That means your monthly SIP will be Rs 10,000 for the first year. It will be Rs 11,000 in a year’s time, and so on.

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