As Diwali season sets in, aside from the dry fruits and sweets, there is another treat to look forward to: your festive bonus! It’s a little bit extra happiness in your wallet and can feel like a leeway to spend more. And what better time to spend than the festival of lights, when you deck up your home, don your best attire, shower your loved ones with gifts and get ready to dazzle your guests with the best party in town.
But while Diwali bonus can feel like a gift, keep in mind that it’s not a windfall, but a part of your salary. While we don’t advise against spending on Diwali celebrations, it would be wise to allocate at least a part of the bonus to other goals. Here are six things you can do with your Diwali bonus that would be smarter than blowing it all in one big spending spree.
Pamper your family
While it’s a good idea to be sensible with your money, it doesn’t make sense to deprive yourself of the joy that comes with Diwali shopping. If you have had an eye on an appliance or a gadget for a while, or have been planning to give your home a makeover, go ahead with it. “The spirit of Diwali should be imbibed in its entirety. But the key is to not give into temptation. If you have a pre-decided shopping plan then raining discount offers will not entice you, and you will be able to stick to your saving or investing plan," said Shilpi Johri, certified financial planner and founder of Arthashastra Consulting.
No matter how big or small the bonus, with good planning, you can make the most of it. “Rather than the amount, what matters is your planning and how you spend it. Moderation is the key," said Harsh Jain, co-founder, Groww, an online investing platform.
Pay your dues
You can put your bonus to good use by prepaying your outstanding loans, if any, especially those with high interest cost. “Arrange your loans in order of the rate of interest they are attracting. For instance, credit card debt accrues a higher interest rate and you can pay it off first. Subsequently, you can move on to pay other loans with decreasing interest rate, partially or fully. This will help enhance your creditworthiness," said Jain.
Once your loans are paid off, more of your inflows will be free for spending and investing.
Invest for the future
Having a little extra is a great opportunity to invest more towards your financial goals. “You should allocate part of your bonus to whichever goal you think is less serviced," said Deepali Sen, founder partner, Srujan Financial Advisers LLP.
What you invest in depends on which goal you want to service. “Divide your goals into short term or long term and then divide the amount to be invested. A good target amount should be 30-40% of your bonus. For short-term goals like a foreign vacation, down payment for buying a house in one to three years, debt funds are the best choice, as they offer high liquidity, and give stable returns. For long-term goals like your retirement or children’s education, you can invest in a diversified equity portfolio. Equity mutual funds have the potential to fetch you good returns in the long run and are ideal wealth creation instruments," said Jain.
Add to the nest egg
It’s hard to imagine how a crisis can feel, especially during good times. but it’s better to be prepared. A sudden job loss or an illness in the family can land you in financial trouble if you are not prepared. An emergency fund is, therefore, essential. The thumb rule is to have at least six months of your expenses in this fund. If you don’t have an emergency fund, using your bonus to start one is a good idea. “If you already have an emergency fund in place, you can use your bonus amount to top it up; if part of it has been used, just add to it," said Sen.
If you are saving up for something, like the down payment for a home, your bonus can help you add a lump sum to the funds you have already stashed away. Remember that the bonus amount is not designated for regular expenses like your salary is and is, therefore, available in its entirety.
Give what you can
Gifting is a part of our festive traditions. You will probably end up spending a chunk of your bonus on buying gifts for your loved ones and even tokens for neighbours and acquaintances. You will also probably put away a certain amount for giving gifts and bonuses to those you employ.
Once you have secured your finances, you may also consider donating. Find a charity of your choice and give what you can to brighten someone else’s festival. If you don’t want to give money, you can also buy clothes and distribute them, or arrange for a meal for the less fortunate with the help of an NGO or local body. “Not that donations should wait till all your finances are settled, but don’t give to charity at the cost of your own financial goals and well being," said Sen.
Invest in yourself
So you have spent on family and friends, put money away in sensible ways and even donated to a good cause. But one person you might have ignored is yourself. You deserve to spend that little extra on yourself, and we’re not talking about a spa day or a new smartphone.
You can consider things such as re-skilling yourself or pursuing a hobby. Courses, both online and offline, can help add to your resume so that you can become indispensable at your current job, and more employable if you choose to move on.
“While we get busy with the routine life, our passion, hobbies or things we love, take a back seat. Use a portion of your bonus to take a course in what you love, whether it’s wildlife photography, art, theatre, or something else," said Jain.
According to Sen, the best way to divide up your Diwali bonus is to use 30% of it on spending for the festival. Divide the rest for prepaying existing loans, investments, and charity. But if you do end up spending most of your bonus on festive indulgences, don’t beat yourself up about it. Remember that each experience can be used as a lesson for how you handle your money in future.
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