Yearly appraisals render the much-needed motivation to employees to work better and provide additional income to combat the high inflation rate. Nevertheless, apart from spending extra money after the salary hike, you can also consider saving and investing to facilitate provisions for contingencies in the future.
Many consider celebrating the occasion of receiving a hike. In addition to celebrating, you can also consider revising your investment portfolio. In addition to facilitating provisions for contingencies and facing a high inflation rate, it becomes important to also invest in one’s life goals.
Planning for the optimum usage of the additional cash flow does not just mean buying a financial product that will earn you high returns. Your investment choice needs to suit your overall investment goals.
Keeping additional money in your savings account and investing towards the end of a year means losing a year’s interest. Hence, it is recommended to systematically channel the additional income at the beginning of the year.
Ad-hoc investing will only complicate one’s finances. It is important to analyse your financial situation and then take the necessary steps. Whether to opt for an increase in debt repayments will depend on the kind of debt you hold and its cost.
You can also consider investing in Equity-linked savings schemes (ELSS) every month for saving tax and earning good returns. Under ELSS, an individual need not give a yearly commitment since the investment amount varies from one year to another. A three-year lock-in period will be applicable, and returns earned will be tax-free.
You can consider assigning the hiked salary to an investment goal to multiply wealth. It can be done either by decreasing your liability or by investing in financial instruments such as Exchange Traded Funds (ETFs), Stocks, or Public Provident Fund (PPF).
You need to understand that a hike comes with the burden of higher taxes. Hence, you need to plan your investments wisely in a tax-efficient manner. While a hike renders additional cash to you, some portion of it will be taken away in the form of taxes unless and until appropriate tax-saving options have been exercised.
Before investing in any financial product, you should not forget to consider the basics-inherent risk, tenure for which they want to invest, return expectation, compatibility with one’s financial plan and tax benefits.
For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in
Bhavana is a Senior Content Writer handling the GST vertical. She is committed, professional, and has a flair for writing. When away from work, she enjoys watching movies and playing with her son. One thing she can’t resist is SHOPPING! Her favourite quote is: “Luck is what happens when preparation meets opportunity”.
