Congratulations on your appraisal! Your efforts this year have finally borne fruit. This salary hike will uplift your lifestyle and help you achieve all your personal and financial goals. However, with this increase in income, it is time to review your finances and plan your future accordingly to make the best of your appraisal.
An immediate feeling of well-being is experienced when we receive an increment. But it is important to make the right monetary decisions on the received hike. Spending it away on luxuries will do very little to increase your standard of living and moreover, be an unwise decision if your goal is to grow your corpus for financial safety and security. Making the right decisions is key, especially with the fast-approaching recession and the turbulent prices of everyday necessities. This task may seem intimidating, but don’t you worry! We have some great tips that will help you utilise your appraisal wisely!
Now that you have an excess income you can allot a little more towards repaying your debts. Becoming debt-free as soon as possible is always a promising idea, for it opens doors to more credit and lowers the burden on your finances. For this purpose, it is advisable to contribute about 50% of your appraisal towards repaying your loans. Ask your lender to increase the EMI, which will help you pay off your debt faster. When selecting which debt should be prioritised, it is advisable to go for high-interest loans like credit card loans and personal loans.
Use new money to make more money! The remaining 50% of your salary hike can be diverted towards savings and investments. It is essential not to spend all your extra money recklessly, but to keep investing it in order to secure your future. You can put your money in any investment plan or savings option. Try widening your investment portfolio by getting the best of the world of finance! Multiply your money with multiple plans like mutual funds, bonds, fixed deposits, equity shares and insurance policies, among others. Investing in high-return financial instruments like mutual funds can help multiply your money fast by utilising the growing market’s potential. Small-cap, mid-cap, large-cap, and various other fund plans provide opportunities for you to grow your investment portfolio large enough to benefit in the long run. If early retirement is your goal or you wish to save up for some huge expenses to come, mutual funds can be a great option to uptick your funds!
Your retirement might be ages away, but the planning starts now! It is crucial to ensure that your savings are enough to support your current standard of living by accounting for rate hikes and inflation. Decades from now, the economy will not be the same, so, growing your finances with the progressing world is a prerequisite. For a secure worry-free retirement, it is essential to keep improving your plan time and again. Investing in long-term plans along with Employee Provident Fund (EPF) and Public Provident Fund (PPF) can take you a long way. Increasing your contribution to these will make sure a bigger retirement corpus. Similarly, it’s time you increase your term cover, like your provident fund contribution to get better returns at the end of term.
If you do not have an insurance plan, especially medical insurance, it is important for you to get one, since a medical emergency is the easiest way to land up in a pile of debt. This is where insurance can save you! Increasing the cover amount of existent plans is an excellent move! With your increment, you can pay the higher premium while enjoying the benefits of better and larger insurance coverage. Investing in your well-being and striving a step ahead of possible mishaps is one of the best ways to utilise your salary hike.
With added insurance premiums, investments and debt repayments, you need to be careful about how you budget. You can make sure you have a detailed plan of your expenses and income. A systematic plan can go a long way in helping you keep a check on your finances and the various expenses you incur. Proper budgeting will get you a clearer picture of your monetary status to plan your future investments and financial goals. This appraisal, make sure all your finances are in order and that you are in control of every expense made.
Managing the additional income is a trouble you take on with a smile on your face. With these simple ideas we are sure you can make the most of your appraisal.
You have earned this hike with your hard work and perseverance. While enjoying a better standard of living is okay, it is also important to be mindful of the difference between spending and splurging. Ascertain that the money you allow yourself to spend on luxury and wants is limited and does not hamper your carefully planned budget. Meanwhile, being too stringent about your expenses is a no-go! You should give yourself the leeway to spend your money liberally and not just keep saving due to the fear of the future.
The only con of a salary hike is probably the increase in taxes. You need to recalculate the tax you are liable to pay on your new income. Moreover, if your tax bracket has changed with the recent increase in your salary, be prepared for a drastic rise in your tax rates. An easy way to deal with these is to make investments in tax-saving instruments like ELSS mutual funds or probably life insurance. Utilising the provisions for tax deduction under Sections 80C, 80D, and so on of the Income Tax Act 1961, can help you make the most of your increased income and save on taxes.
In a rush to invest your additional income don’t forget to maintain an emergency fund. This fund should be able to ideally cover about 6-months’ worth of your expenses while accounting for possible inflation. It is possible to forget this essential cash reserve in our haste to save on taxes and invest. You can contribute to your emergency fund to ensure that you have easy access to a lump sum when required.
It is wise to be mindful of the dos and don’ts and plan your finances accordingly. Your efforts will always be rewarded, whether it be work or investments. Make sure to have a financial plan that suits your requirements and utilise your salary hike to achieve your long-term goals faster. An effortless way to save is by getting a fixed deposit, which locks away your money for a definite period and provides fixed returns. Moreover, market fluctuations do not affect FDs, helping your funds grow gradually and stably. These can help serve as a great reserve for your additional capital, growing it slowly and keeping it easily accessible in case of an emergency.
We hope you can use the above tips to make effective use of your appraisal. If you would like to invest in a mutual fund or smartly save your money with an FD, then there is no better time than now. Visit Bajaj Markets website or app and find the right market investment/saving plan from the diverse options we have to offer.