Diwali brings cheer and joy for all and for many it also brings in Diwali bonus. Research has shown that windfall gains and bonuses are more readily spent than other assets. This Diwali, here are three things one can do with that Diwali bonus and the thing that one should really consider doing.
1. Repay your outstanding loans
Having some kind of loan is pretty much a norm these days. Right from a home loan, car loan, maybe a personal loan, or some debt on credit cards. If one has multiple loans, consider paying off some loans with the bonus amount. Repayment hierarchy should be from the highest interest to the lowest interest. Credit card debt is usually the most expensive debt of around 40 percent per annum. This is followed by personal loan, and finally home loan.
Paying off these loans will reduce one’s interest burden, and eventually reduce the total debt. If not fully prepaid, at least a chunk can go towards part payment of such a debt.
2. Fixing or upgrading things
Another smart way of spending the bonus is getting all pending repair works done or upgrading them. For instance, a busted freezer door for the fridge, or some chipped furniture or a car scratch-dent paint job which is just being prolonged. One can always use the bonus money to get all these little things fixed around the house. If an item is beyond fixing, one can consider upgrading or replacing that item. After all Diwali is a time of mouth-watering discounts and exchange offers. Remember to check online, off-line and mobile app malls, to make the most of Diwali offers.
3. Buying gold
Buying gold is customary for many in Diwali. If one doesn’t want to repay a debt or fix items with the bonus amount, one can consider buying some gold, instead of wasting it on unwanted junk. There are a number of ways one can buy gold. In the form of jewellery, bar, coins, government bonds and gold MF and ETF. Divide the bonus into two parts; with one buy some physical token amount of gold as jewellery for personal consumption. Else it is simpler to buy gold MF or gold ETFs. Read more on this here.
One can use the 15 percent out of the bonus amount and splurge on a nice evening with family and friends, and invest in creating memories which will last a lifetime.
The even better path
The above three ways are smart ways to spend the Diwali bonus. But there’s really one thing that the bonus can make an effective contribution to that is most beneficial. One can divide the bonus amount into two parts of 15 percent and 85 percent each.
One can use the 15 percent out of the bonus amount and splurge on a nice evening with family and friends, and invest in creating memories which will last a lifetime. The second part can rest in Tax Saving Mutual funds (Equity Linked Savings Scheme) contributing towards tax planning for the year. The monthly budget might not leave one with much for tax planning to start from the beginning of the financial year in April.
Bonus amount is a good way to jump start the tax planning investments for the year if you haven’t already done so. ELSS funds are an efficient way to save taxes when compared to the other investment instruments available under Section 80C of the Income Tax Act.
So take the smart step this Diwali and celebrate with confidence.