Pay hike or Bonus – how do I Plan?

Pay hike or Bonus - how do I Plan?

There are few days when one is eager to reach office in time. It’s the day of declaration of performance appraisal or bonus. Both mean increase in take home income that could be used for various things. One will find that in almost all cases the money to be used for, is decided quite in advance and mostly for some holidays or buying some new things. Very few follow the principle of using the increased income to reduce liability like loan or invest for long term benefits. A random survey would indicate that a very small number have a financial plan in place and allocate their money according to the plan.

Let me give you another perspective of looking at bonus. It’s in way deferred salary paid at the end of year so that one gives better work performance. The lump sum amount received in bonus can be used in two ways- to clear loans and thereby reduce EMI burden or invest in asset creation by parking the money in mutual funds or other investment options.

In case of pay hike, which is certain percentage increase in monthly salary, one of the most important aspect to remember is that, part of it will be offset by rise in monthly expenses on account of inflation, education expenses etc which are basic expenses. The net surplus after adjusting these expenses is the net increase in income. A part of these could be saved in form of SIP of mutual funds. One important aspect that needs to be remembered is balance between spending for today and investing for future. If the above principle is followed any income flow will be get used judiciously.

Mushtaq Kazi
Mushtaq is the co-founder of Moneyfrog.in. Mushtaq has had corporate stints with Kotak Securities & IIFL group. He holds an MBA degree from Pune University.
His interests include cooking & gardening. When he is not cooking or gardening, he is writing.

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