What did you do with the big Diwali bonus?

What did you do with the big Diwali bonus?

Did you get a fat Diwali bonus this year and spend it all on gifts and personal gratification? It is useless having a buyer’s remorse now. Be wiser next year.

There are two scenarios. First, your employers might have taken out 30% as tax, if you fall in that bracket, before writing you that bonus cheque. Or, they might have been in a more benevolent mood and just deducted 10% as tax deducted at source (TDS) and given you the money.

In case of the latter, you would be better off putting the extra money that you will owe as tax in a savings account or in a mutual fund because you have to pay the tax sooner or later.

Now, if you one of those people who, in anticipation of a bonus, charged credit cards, those bills would be due in 45-30 days, whatever the grace period for purchases on your card. So, you should also plan on paying off those debts or the principal on any personal loans that you have.

In addition, if you are having a tough time making those equated monthly instalment (EMI) payments on a floating rate home loan, which may have gone up with rising interest rates, you should try to pay down the loan to reduce the tenure of the loan.

Ideally, when you get a bonus, with full taxes withheld, you should have a three-pronged spending strategy—a budget to buy gifts, a budget for delayed gratification, such as putting some money in a pension fund, and starting up a pool to put a down payment on a big ticket item that you always wanted to buy, such as a car. You should never underestimate the importance of planning for your retirement as early as you can and put money in a retirement fund on a systematic basis, as well as when there is a financial windfall, such as a bonus.

Also, next year, when you run around trying to splurge on those firecrackers and celebrate the festival season, don’t forget about the many who are not as fortunate. If you can, plan to give some of that bonus money to charity or to a non-profit organization that is close to your heart.

Know your stripes

You cannot swipe your credit card if scratches damage the magnetic strip at the back. But, do you know why the magnetic strip is so important? It is because the first code, called Card Verification Value (CVV1) is encoded on the magnetic strip. The credit card machine cannot read the CVV1 number and the transaction fails if the strip is damaged.

The second Card Verification Value (CVV2) is often asked for by merchants in case of transactions taking place over the Internet. CVV2 comprises the last three digits printed on the back signature panel of the card. It is not encoded on the magnetic strip of the credit card.

CVV1 is an important safety feature because a corrupt merchant cannot use the CVV1 number for online transactions. You need to give the CVV2 number for all online transactions.

Though the purpose of CVV numbers is to deter phishing incidents, 80% of such complaints still relate to credit cards. (Teena Jain)