Still sulking about that bad bonus? Come on, it is time you switched your
focus on what to do with the money than worry about the future of global
finances and your career prospects in the coming year. The trouble is that most
of us don't consider lump sum amounts we receive as bonus and arrears as part of our total income.
Typically, we use the money to fund the latest gizmo in vogue. "The bonus or increment can be used to add to an existing goal, plugging the leakages or shortfalls," says Harshvardhan Roongta, certified financial planner at Roongta Securities.
Here are a few tips you can consider to make the most of the extra money - no matter how miniscule - in your bank account at the beginning of the financial year, as that is when most salaried individuals earn their annual increments and bonus.
Clear your dues
It might be tempting to pre-pay your home loan to bring down the debt burden. However, a better option would be to target the most expensive loans first.
Credit card outstanding, personal loans or even car loans should be repaid as soon as possible. Unlike home loans, they do not offer any tax benefit. Also, they are more expensive. If you don't have any of these loans, you can certainly look at making part or full prepayment of your home loan.
Invest in PPF
Public Provident Fund (PPF), the most popular instrument for creating a retirement corpus as well as tax planning, offers twin tax benefits.
One, investments made in PPF are eligible for deduction under 80C.
Two, the maturity proceeds from PPF are also exempt from income tax. Many tax-payers invest in PPF only in January or March, just before the end of the financial year.
However, if they start investing right at the beginning of the financial year, they can get better returns. If you invest in March, your investment will fetch interest only for that month. Against this, your investment in April or May will earn interest through the year.
This apart, also ensure that you invest before the 5th of every month, as it happens to be the date taken into account for crediting interest. Starting early will also be lighter on your pocket - you can direct funds to your PPF account every month rather than investing a lump sum.
SIP in ELSS
Many tend to invest a lump sum in equity-linked savings schemes (ELSS) at the end of the financial year. However, starting early will help you to invest in a staggered manner through the systematic investment plan (SIP) route, which helps one to average out the purchase cost. It will also impart the much needed discipline to your investment plan.
Evaluate your insurance basket
"At the end of a financial year, people often do not have the time to evaluate their insurance needs and end up buying some policy in a hurry only to save tax. Such individuals would do well to start reviewing their portfolio right away to identify the undesirable policies. These policies can be weeded out and substituted with term policies," suggests Roongta.
Term insurance is the most recommended form of life insurance, as it offers a large protection cover at an economical cost. However, due to the push from agents and companies as well as an individual's own aversion to policies offering no returns, many end up with costly unit-linked insurance plans (Ulips) and traditional endowment plans.
Upgrading your child's school
With the advent of international and other high-end schools, kids' education is not a child's play any more. It never was, but given the pressure to ensure the best education for your child and rapid rise in fees at such schools, the task has become even more challenging.
And, this is where you can put your bonus to good use, if you have been planning to upgrade your child's school.
"Usually, it is observed that when individuals carry out their tax planning exercise at end of the financial year, they choose schemes as per their convenience and not after considering any financial goal," says Pankaj Mathpal, CFP and CEO, Optima Money Managers.
Taking such arbitrary decisions will not only affect your cash flow during the year, but also your overall financial planning process. Planning well in advance at the beginning of a financial year is the best method to circumvent such issues.
http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/how-to-make-the-most-of-your-bonus-money/articleshow/13072414.cms?curpg=2
Typically, we use the money to fund the latest gizmo in vogue. "The bonus or increment can be used to add to an existing goal, plugging the leakages or shortfalls," says Harshvardhan Roongta, certified financial planner at Roongta Securities.
Here are a few tips you can consider to make the most of the extra money - no matter how miniscule - in your bank account at the beginning of the financial year, as that is when most salaried individuals earn their annual increments and bonus.
Clear your dues
It might be tempting to pre-pay your home loan to bring down the debt burden. However, a better option would be to target the most expensive loans first.
Credit card outstanding, personal loans or even car loans should be repaid as soon as possible. Unlike home loans, they do not offer any tax benefit. Also, they are more expensive. If you don't have any of these loans, you can certainly look at making part or full prepayment of your home loan.
Invest in PPF
Public Provident Fund (PPF), the most popular instrument for creating a retirement corpus as well as tax planning, offers twin tax benefits.
One, investments made in PPF are eligible for deduction under 80C.
Two, the maturity proceeds from PPF are also exempt from income tax. Many tax-payers invest in PPF only in January or March, just before the end of the financial year.
However, if they start investing right at the beginning of the financial year, they can get better returns. If you invest in March, your investment will fetch interest only for that month. Against this, your investment in April or May will earn interest through the year.
This apart, also ensure that you invest before the 5th of every month, as it happens to be the date taken into account for crediting interest. Starting early will also be lighter on your pocket - you can direct funds to your PPF account every month rather than investing a lump sum.
SIP in ELSS
Many tend to invest a lump sum in equity-linked savings schemes (ELSS) at the end of the financial year. However, starting early will help you to invest in a staggered manner through the systematic investment plan (SIP) route, which helps one to average out the purchase cost. It will also impart the much needed discipline to your investment plan.
Evaluate your insurance basket
"At the end of a financial year, people often do not have the time to evaluate their insurance needs and end up buying some policy in a hurry only to save tax. Such individuals would do well to start reviewing their portfolio right away to identify the undesirable policies. These policies can be weeded out and substituted with term policies," suggests Roongta.
Term insurance is the most recommended form of life insurance, as it offers a large protection cover at an economical cost. However, due to the push from agents and companies as well as an individual's own aversion to policies offering no returns, many end up with costly unit-linked insurance plans (Ulips) and traditional endowment plans.
Upgrading your child's school
With the advent of international and other high-end schools, kids' education is not a child's play any more. It never was, but given the pressure to ensure the best education for your child and rapid rise in fees at such schools, the task has become even more challenging.
And, this is where you can put your bonus to good use, if you have been planning to upgrade your child's school.
"Usually, it is observed that when individuals carry out their tax planning exercise at end of the financial year, they choose schemes as per their convenience and not after considering any financial goal," says Pankaj Mathpal, CFP and CEO, Optima Money Managers.
Taking such arbitrary decisions will not only affect your cash flow during the year, but also your overall financial planning process. Planning well in advance at the beginning of a financial year is the best method to circumvent such issues.
http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/how-to-make-the-most-of-your-bonus-money/articleshow/13072414.cms?curpg=2
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