From gains to wealth

September 3, 2016 . Aparna Hari

7th Pay Commission ArrearsThe recent announcement of the 7th Pay commission brought smiles to many Central Government employees as their pensions and salaries were bumped up considerably. Congratulations if you are one among the happy recipients of this windfall gain!

While the urge to celebrate this hike is bound to be high, it is wise to think about how to make the best use of this excess cash in hand to not just enjoy the benefits today, but to continue to reap them in the years to come. Here are some ways in which you can put your surplus cash to good use. Even if you are not part of this particular hike, below are some points to consider whenever you get a bonus or have some extra money sitting around.

1. Debt free, stress free: Getting yourself free of any high interest loans or debts you may have should be your first concern. Some of the common high interest debts are credit card bills and personal loans. Credit cards carry interest rates of 2-3 per cent per month! So you can imagine the cash you could free up by paying off the dues. With high-interest loans, you end up repaying much, much higher than what you had spent or borrowed in the first place. So first things first, repay these loans or at least reduce your debt in them, using some part of your new found bonus.

2. Spend some, save some: You finally have some cash in hand to buy that flat screen TV you always wanted, or give your wardrobe a makeover, which is great! What’s life if you don’t indulge in yourself once in a while? You can definitely use this money to move some things from your wish list to your shopping cart. But just be careful about how much of it you want to blow away. Temptation is a wily friend and can lure you into using up all your money in a jiffy. Before you know it, that new smart phone you bought has lost its charm and the money you spent on it is long gone. So, our suggestion to you is, do give yourself a little treat with this money, but don’t go overboard in how much you want shop for. Practically consider the things that add value to your life and make a stern budget for yourself on how much you want to spend on shopping – and stick to it. Consciously set aside at least 50 per cent of your money for savings. That way, even when the shine on your shopping fades away, you know that you have some money working for you on the side.

3. Live happy, always: Life after retirement is like the final leg of a relay race; how well you perform in it depends on how much speed has been gathered by the earlier runners till then. They say habits die hard. Guess what, a great lifestyle is worse than a habit. Once you are accustomed to a certain way of living, it is almost impossible to change it. When your salary gets a boost, your lifestyle also gets a boost, and thus your retirement requirement goes up, too. You want to maintain a happy lifestyle forever, don’t you? Costs of living are bound to rise by at least 4 per cent every year.  So as your income rises, your savings towards retirement should also rise.

If you do not have a retirement plan in place already, you can start one now with a part of your windfall gain that gives you good returns with a healthy risk ratio. This is far easier than it sounds – just create an account with FundsIndia today in a few simple steps. Honestly, that’s half the bridge crossed as our financial advisors will then guide you in setting up your ideal retirement portfolio. In a matter of few minutes, your future will be secured, ensuring that you can live happy not just today, but always.

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4. Sow today, reap tomorrow: Invest, invest and invest again! What good is the money you’ve set aside if all it does is gather dust in a savings account? If you are saving for a goal like giving your child a good education, or buying a house or a dream car, or even if you just want to get richer, it is important to make sure your money is not sitting idle. Fixed deposits or post office savings are some of the options commonly considered for savings, especially when you come into a bonus. However, deposit rates have dropped over the past year. And what’s worse, the interest gained on these instruments is taxable at your tax slab rate, thereby further reducing your gain. 

On the other hand, debt mutual funds offer a much more suitable investment option. Since they invest in higher-returning debt instruments such as commercial paper and corporate bonds, they can generate FD-plus returns. And if you hold it for three years at least, your gains on these funds are taxed at a flat 20 per cent with indexation. Your taxes thus become lower and your returns that much the higher. But why stop at only debt funds? If you have a longer-term horizon, (which you can, since you’ve done all your spending and don’t need this money), equity is the best asset class to generate the best returns. Equity mutual funds do all the market tracking and juggling stocks for you, so you can sit back and reap the gains. The best part? Gains on holding for more than one year are completely tax-free! All your money is yours.

Selecting the funds that suit your needs best is also easy at FundsIndia. We have a team of expert financial analysts and advisors who constantly study the market and offer the best investment recommendations for growing your money. Depending on your age and risk appetite, we recommend a portfolio which is a right mix of debt funds and equity funds. Our friendly investment platform gives you access to Money Mitr, our robo-advisory programme that ‘automagically’ recommends the best mutual fund portfolios, exclusively customised for you – ensuring you get closer to your goals every day. So, don’t just save, be a smart investor with FundsIndia and make your money work for you.

So, there you go! Four simple things to keep in mind while you enjoy your hard earned money wisely. Be smart about your money for a wealthier tomorrow.

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