pratikbharti
Pratik Bharti
The last quarter of the calendar year is always the most exciting for employees. For one, it is the time when there are the most number of festive holidays and then, there is the eagerly awaited Diwali bonus.
Many, in fact, time this extra sum with expenditure that they want to incur. But hold on before you spend that money.
Look at the tax element on that extra lump sum first. Depending on the nature of your job, the employer may or may not deduct full tax at this point of time. If they haven't, first set aside the tax amount that you will have to pay. As this tax component, has to be paid sooner or later, you might as well provision for it when you get the money instead of struggling to generate it at the end of the year.
Then, look at your financial position. If you have set aside some funds for your emergency already, then you are in a happier position. If not, use this money to generate that contingency fund. While setting aside this amount, keep two criteria in mind.
First, it should be easily accessible at a very short notice that is, at most within a day's notice. Two, the money should not be invested where there is a possibility of losing the principal. For example, you may keep a part of this amount in a savings bank account and some part in a liquid fund or fixed deposits.
Once you have taken care of the tax and contingency, look at your existing debts. If you have been splurging during the year, then use this money to clear off your outstanding loans on credit cards and personal loans. This is because unlike home loans, these loans are more expensive and do not give any tax benefits. Also, disposing them immediately increases your ability to garner more loans, if you want to make some big purchase.
Next, look at your financial priorities. Create a list of short and long-term goals and allocate some part of this money, if there is a short fall anywhere. These goals could be:
Yes, this is also the time when you actually have some money to give to charity. Donating some part of this money to a charitable trust would be good.
Also, there are no reasons to go ahead and invest a huge sum in some instrument just because such a scheme is proposing to offer great returns. Don't fall into this trap if the investments are not part of your plan. If you have done your financial planning properly, there is no need to go ahead and inject more funds for the lure of great returns.
The biggest mistake that one can make is to behave like multi-millionaires by either gifting expensive presents or trying to solve other people's financial problems. Yes, you should treat yourself as well. After all, you have worked hard the entire year for this additional sum. But a little bit of caution always helps.
The writer is a certified financial planner.
Many, in fact, time this extra sum with expenditure that they want to incur. But hold on before you spend that money.
Look at the tax element on that extra lump sum first. Depending on the nature of your job, the employer may or may not deduct full tax at this point of time. If they haven't, first set aside the tax amount that you will have to pay. As this tax component, has to be paid sooner or later, you might as well provision for it when you get the money instead of struggling to generate it at the end of the year.
Then, look at your financial position. If you have set aside some funds for your emergency already, then you are in a happier position. If not, use this money to generate that contingency fund. While setting aside this amount, keep two criteria in mind.
First, it should be easily accessible at a very short notice that is, at most within a day's notice. Two, the money should not be invested where there is a possibility of losing the principal. For example, you may keep a part of this amount in a savings bank account and some part in a liquid fund or fixed deposits.
Once you have taken care of the tax and contingency, look at your existing debts. If you have been splurging during the year, then use this money to clear off your outstanding loans on credit cards and personal loans. This is because unlike home loans, these loans are more expensive and do not give any tax benefits. Also, disposing them immediately increases your ability to garner more loans, if you want to make some big purchase.
Next, look at your financial priorities. Create a list of short and long-term goals and allocate some part of this money, if there is a short fall anywhere. These goals could be:
- Building sufficient corpus for retirement
- Setting aside funds for child's education
- Part Pre-payment of housing loan
Yes, this is also the time when you actually have some money to give to charity. Donating some part of this money to a charitable trust would be good.
Also, there are no reasons to go ahead and invest a huge sum in some instrument just because such a scheme is proposing to offer great returns. Don't fall into this trap if the investments are not part of your plan. If you have done your financial planning properly, there is no need to go ahead and inject more funds for the lure of great returns.
The biggest mistake that one can make is to behave like multi-millionaires by either gifting expensive presents or trying to solve other people's financial problems. Yes, you should treat yourself as well. After all, you have worked hard the entire year for this additional sum. But a little bit of caution always helps.
The writer is a certified financial planner.