Diwali or Deepavali is one of the most celebrated festivals in India. Some employers payout the bonus around the Diwali time to mark the celebration of the festival of lights. This year, October last week marked the Diwali celebrations while the bonus would most probably have been paid out with the November salary.
It is easy to get carried away by the lucrative offers and deals announced by various online and offline vendors, and you might end up blowing up your entire Diwali bonus on buying unnecessary things. Although you might not need certain things, you will still end up buying them due to their attractive prices in the name of ‘Diwali sale’.
This is the time where you have to be extremely cautious about your spending. The feeling of having extra cash on your side might get you spending recklessly which you will regret later. The hard-earned money should be utilised in a constructive manner which will serve a purpose later. Here’s how you can efficiently use your Diwali bonus:
Building an emergency fund:
The modern world is full of uncertainties, and you are never sure of what’s in store. The best way of tackling uncertainties is to be prepared, and this can be done only by having an emergency corpus at your disposal. Building a sufficient emergency fund will not happen over the fortnight; it takes months or sometimes years.
If a serious medical emergency lands you or any of your family members on a hospital bed, then it is sure to drain your bank account. If you don’t have enough money in hand, then you will have to depend on others or go for loans. The bank loans these days come at a higher cost. Considering that, it’s wise to be prepared in advance.
Another way of combating uncertainties is by availing suitable insurance policies with sufficient coverage. Every family should have a family floater insurance policy. Having health insurance might be expensive, but it’s worth it as it prevents medical emergencies from burning a hole in your pocket.
Another situation where you would need an emergency fund to fall back upon is when you lose your job all of a sudden or your business suffers losses. In this situation, you wouldn’t have a steady income, thus leaving you and your family in a spot of bother. If you have accumulated a significant sum as an emergency corpus, then it shouldn’t make you worried.
Also Read: How Diwali Gifts May or May Not Attract Income Tax?
Invest with a long-term horizon:
Traditionally, Diwali has been a season for investments. Dhanteras is marked by the households purchasing gold. Gold is a traditional investment option in India. However, that practice is slowly being unfollowed as people are being attracted to the lucrative festival sales, which is not a good sign.
You might have surplus money which may not be of any use today. But that doesn’t mean that you can blow the money up carelessly. There will surely be a day in the future when you will need the money which you blew up and would be pondering on how you would have benefitted had you saved that amount.
Therefore, to save yourself from being in a financial spot of bother, you need to make investments in the right options. While making investments, you should necessarily consider inflation. To beat inflation, all you need to do is invest with a long-term horizon. Invest your Diwali bonus in fixed deposit, mutual funds or PPF.
This may not seem lucrative now. But, ten years down the line, the power of compounding would accumulate a considerable sum which can be used for various purposes such as funding your children’s education, marriage, going on a dream vacation, or big-ticket expenses such as making a downpayment for a home or car loan.
For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in
Engineer by qualification, financial writer by choice. I am always open to learning new things.
