Ajay and Vijay are two IT professionals working for the same firm. Having completed one year in office, they are excited about the performance bonus that they are going to receive. Both of them worked really hard throughout the year and it is time they reap the benefits of their hard work.
On one such anxious day, they were hanging out in their break out zone and discussing the very obvious topic – their upcoming bonuses!
Ajay: I just can’t wait for the year-end bonus. I have so many things planned once I receive it.
Vijay: Really? I have a couple of things in my list too. Seems like we share common interests. What is it that you have planned?
Ajay: I am going to buy a Macbook Air for myself. It has the most amazing features. I also planto get my brother the new Play Station he has been craving for.
Vijay: Oh okay, so you intend to spend your entire bonus on these luxury items. Hmm. I was, however, planning on something different.
Ajay: (seemingly confused) what else can you possibly plan?
Vijay: I want to use my bonus to plan my finances better. My topmost priorities are:
1) Repay debts where interest is high
I have a personal loan on which I am paying 14% interest. It is leading to high interest expense and zero tax advantage. I cannot enjoy luxuries till I have such a high interest liability due. So, I would like to repay that first.
2) Build an Emergency Fund
Normally, an emergency fund is not something that should be made after receiving the bonus but since I have not built one so far, I will do it with a part of my bonus which will ideally be 4-5 times my monthly expenses. I will park this amount in a short term debt fund.
3) Invest for long term goals
I will park a portion of my bonus in a liquid fund and start a monthly investment into an equity fund from there. This will help me create wealth over the long run ad simultaneously earn modest returns in the liquid fund.
4) Spend on what’s needed, not on what’s wanted
I want to have a clear distinction between our needs and our wants. While everyone likes to spend money based on their interest, I want to be careful about not splurging it all away on unnecessary items.
Ajay: You seem to be very adept at money management my friend. I think I am having a change of mind now. How do I plan my bonus allocation better?
Vijay: Consult an expert financial advisor about how should you best allocate your bonus. Everyone has different goals and preferences and a plan should be devised accordingly.
Ajay: Indeed. Thank you so much for delivering this mantra to me: spend wisely, save judiciously and invest smartly!!
How do we help?
At CAGRfunds, we help you devise a suitable investment plan for your bonus such that it contributes to your long term wealth creation.
If you have received your bonus and do not know how to make the best use of it, comment on this post or whatsapp us on +91 97693 56440. We shall be happy to help!