How to spend your Diwali bonus to improve your future?:Don’t spend entire money on shopping, says financial expert

Diwali bonus makes it easier to decide on the shopping list. But have you ever thought that this money could also improve your future? This additional amount, received after a year of hard work, should not be limited to festive shopping. It can also be used to repay debt, build an emergency fund or start investing for the future. However, the right way to use a bonus depends on each person’s financial situation, savings and needs. Therefore, it is important to set financial priorities before spending it. So today we will discuss Diwali bonuses. We will also learn: Expert – Jitendra Solanki, Financial Adviser, Ghaziabad Question: What is the first thing most people do as soon as they receive their Diwali bonus? Answer: A bonus can be called a ‘windfall income’-that is, additional money received suddenly or on a special occasion, over and above regular monthly income. People often spend it on festive shopping, clothes, gadgets, home decoration, travel or gifts. Question: How does a financially smart person handle a bonus? Answer: Typically, a financially smart person plans how to use the bonus before spending it. Question – How much of the bonus should be spent and how much should be saved? Answer – This depends on the person’s financial situation. If they do not have an emergency fund or have outstanding debt, it is better to prioritise saving and repaying the debt. If their financial situation is strong, they can use part of the bonus for festival shopping and invest the rest. Question – Is there any simple rule for spending and saving this money? Answer- You can follow budget rules such as 70:20:10 for this. However, this is not a fixed rule. You can divide the bonus amount according to your financial situation and needs. Understand it through this graphic- Question- If someone receives a ₹20,000 bonus, what is the best way to spend it? Answer- Understand it with an example- Suppose a person has no debt and does not need to spend the entire bonus immediately. In such a situation, they can divide the bonus according to their financial situation and needs as follows- Total bonus- ₹20,000 Emergency fund- ₹15,000 You can set this money aside for unexpected medical or other essential expenses. Long-term investment – ₹3,000 If you already have an adequate emergency fund, you can invest this amount. Diwali and small expenses – ₹2,000 You can spend it on festive shopping or your wants, within the set budget. Keep in mind – This is only an example, not a fixed rule. If you already have an adequate emergency fund, you can invest a portion of the amount set aside for savings. If you have outstanding debt, you can repay it first. Question – How can you make the right decision if you are still unsure what to do with your bonus after receiving it? Answer – In such a situation, first decide where this money is needed most. Ask yourself three questions: Make your decision based on the answers to these questions. This is called ‘financial prioritisation’-prioritising your financial needs before spending or investing the money. This can help you avoid making a hasty decision simply because you are happy to have received a bonus. See all the bonus management tips in the graphic- Question-What mistakes should be avoided while spending a bonus? Answer- When people receive a Diwali bonus, they often get carried away and buy things they do not need. Avoid these mistakes to make the best use of your bonus- Question- If you are in debt, should you use the bonus to repay it? Answer- It depends on the interest rate on the debt, the outstanding amount and your savings. If you have a credit card balance or a high-interest personal loan, it is better to repay it with the bonus. This can reduce the interest you will have to pay in the future. Question- If you do not have an emergency fund, should you put the entire bonus into one? How large should an emergency fund be? Answer- If you have no emergency fund at all, it may be sensible to put a large part of the bonus towards it. However, it is not necessary for everyone to put the entire bonus into the fund. First, check whether you have any essential expenses coming up over the next few months or any high-interest debt. For example, if your essential monthly expenses are ₹20,000, your initial emergency fund target could be ₹60,000 to ₹1.2 lakh. A bonus of ₹20,000 could be the first step towards reaching this target. Question- If a major expense is expected in the next 6-12 months, what should you do with the bonus? Answer- It is better to avoid investing such money in volatile investments such as the stock market. Instead, keep it in a safe and easily accessible investment option from which the money can be withdrawn when needed. Keep a few things in mind- Question- Is it better to put the bonus in a fixed deposit or keep it in a savings account? Answer- This depends on when the money may be needed. Money in a savings account can generally be withdrawn easily, while a fixed deposit (FD) may offer interest if the money is kept for a fixed period. However, breaking an FD before maturity may result in lower interest or a penalty, depending on the bank’s terms and conditions. Question- Can a bonus be invested in PPF, NPS or other long-term savings schemes? Answer- Yes, if the emergency fund is adequate, there is no expensive debt and the money is unlikely to be needed in the next few years, a bonus can be invested towards long-term financial goals. However, PPF, NPS and other savings schemes have different objectives, withdrawal conditions and tax rules. Let us understand them- Question: How much tax is levied on a Diwali bonus? Is the entire bonus taxable? Answer- The bonus received by a salaried employee from their company is generally included in salary income and is taxable. However, this does not mean that everyone has to pay tax on the entire bonus at the same rate. Tax is calculated based on total annual taxable income, the applicable tax regime, and the exemptions and deductions available.