What are you doing with salary increment?
It's a season of appraisal with most salaried employees would have got their annual increment letters. If you are one of those you have been handed over a decent incremental income along with a bonus for the hard work put in the past year, you might soon have to think what to do with the increased amount.
Here are some tips on how we can make best use of it:
- Invest for Long Term: Investing for long term may be one way to make the best use of hike. Understand the power of compounding. Compounding returns can create a huge corpus even if the amount being saved is small but held on for a very long term
- Increase the Investment: SIP Top Up provides an opportunity to create more wealth in long term. SIP Top Up works by helping you increase your monthly SIP amount as a percentage or a fixed amount. It all adds up over time to make a big difference in the long-term earning of your investment
- Save Tax with Equity Linked Savings Scheme (ELSS): With increased salary, increases income tax. Invest in ELSS mutual fund or any other tax saving instruments and aim to create wealth simultaneously
- Loans/ Credit Cards: For somebody with outstanding credit, extra money in hand can be used for repaying a portion of the expensive loans and credit card bills. Understand the cost-benefit analysis of using the lumpsum to pre-pay any loan and clear off bad debts
- Building Emergency Fund: Increased salary can be set aside to build emergency fund. With some extra bucks in your hand, immediately use the extra amount to boost your emergency fund. Ideally, your emergency fund should have 12 times of your monthly liabilities
- Increase Insurance Cover: Since your increment has improved your income, it’s time to enhance the insurance cover adequately. Increase your insurance base plan or have a top up to increase the amount considering the rising cost of medical treatments
- Spend on Yourself & Enjoy your Success: You worked hard to earn your raise, so enjoy it a little. Set aside a portion of your increased income and treat yourself with a holiday, new course or a sport
Although it is hard to save money during the initial stages of your career, allowing yourself to spend just a part of the raise you get every year can work wonders. Before you start dreaming big, you should have something to back it up with.
Personalise your lifestyle in such a way that it creates a balance between what you have and what you intend to have in the future. Anyone who masters this quality will be able to maintain a consistent standard of living, not only while working but even during his/her retirement.
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