The festive spirit is in full swing across various regions in India. With Diwali just round the corner, many companies are rewarding their employees with annual bonuses.
Diwali is also an auspicious time to make investments for your future gains. If you are also thinking about how to make the most of your Diwali money this year, it’s important that you make some informed choices on the same. This year, Diwali will be celebrated on November 12, 2023. However, the festival will start with Dhanteras on November 10, and end with Bhai Dhooj, on November 14.
In this span, let’s find out how you can use your Diwali bonus wisely.
First and foremost, you must have an emergency fund before you plan your festive spending and investing.
Says Shweta Jain, Founder of Investography, a financial planning firm: “You must have emergency funds for at least three months’ expenses. Using part of the bonus for festive expenses is a good idea but only after you have made the necessary provisions for an emergency fund, if you don’t have any. Things can get expensive close to the festive season. So, you could find out about festive discounts depending on the items you are thinking of buying. Choose your priorities and deals accordingly. Don’t fall into the trap of showing off for others when you have high-cost loans.”
Dilshad Billimoria, certified financial planner, and managing director, and principal officer of Dilzer Consultants, a financial planning firm says that any bonus received by an employee should be wisely allocated towards repay high-cost debt first.
“Typically, personal loan and credit card debt are the highest-cost debts, with the rate of interest ranging from 12-14 per cent on personal loans, to as much as 48 per cent on credit cards. Since the interest payouts on these are so high, we recommend that you deal with these high-cost debts first.”
Use your Diwali bonus wisely by investing in home improvement. Identify areas that need attention, such as the kitchen or bathroom. Plan a budget for materials, labour, and unexpected expenses. Consider energy-efficient upgrades for long-term savings. Also explore smart technology for modernising your home. If you enjoy Do-It-Yourself (DIY) projects, allocate funds for personal touches. Keep some money aside for emergencies.
“If one is planning for home improvement or minor reconstruction costs of a home, the ideal way is to build a goal around it which is recurring – say, every five years. However, one can also use bonus money for home improvements,” says Billimoria.
Fix Gaps In Your Investment: Consider addressing the gaps in your financial plan with your bonus money. While most savings are reserved for long-term goals, such as retirement or children’s education, achieving these can be challenging. You may consider postponing some of these goals until you receive a significant salary increase or your existing debts are settled. Establish a routine of using irregular lump-sum amounts, such as your Diwali bonus to invest in long-term goals. Even with a tight budget, individuals can build a substantial fund by supplementing regular investments with occasional
surplus money. This disciplined approach ensures progress towards financial goals despite limited resources.
If you have received a lump sum as a bonus, the right way to invest it would be to weigh the interest earned on your deposit versus the equated monthly instalment (EMI) outgo on your existing loan. If the differential in investments has, say, an alpha of 5-6 per cent, ideally one should use the extra bonus money towards investments rather than loan repayments. “During Diwali, you could use 33 per cent for expenses, 33 per cent for loan repayment, and 33 per cent for investments,” says Billimoria.
“In the list of priorities, when it comes to investment, you must first pay off the high-cost loan, second invest, and third, use for self-consumption. When it comes to investment, always assess your risk tolerance and stick to your asset allocation, then identify mutual funds that are suitable to your goal, and time horizon, and then allocate. At any given time, your investment allocation will never cross your asset allocation,” says Vivek Rege, founder and CEO, VR Wealth Advisors, an investment management, financial planning, and consulting firm.