Should you splurge or invest your bonus?

Many of you, who are fortunate, might have received their bonus this month or likely to get one next month. This bonus amount is ‘unknown’ and is paid in ‘lumpsum’ and are easy to splurge as you have not taken into account while you were budgeting and hence it feels like a lottery or windfall gain. Therefore, chances are high that you might splurge it on the latest gadget or go for that unwanted vacation.

Nonetheless, there are better ways to spend your bonus, which will help you achieve your financial goals. Following are some of the options you can use to spend your bonus.

Increase your emergency fund: The normal practice is to have 6-8 months of your monthly expenditure as your emergency fund. Part of the bonus can be used to increase your emergency fund.

Pay off your high interest bearing debt: If you have availed loan to fund your car or buy that dream home or any other thing and are paying interest on the same, it is advisable to pay part of the loan or repay the loan fully. This applies to even your home loan which gives you a tax deduction.

Start SIP: If you are someone who is addicted to SIP. You can invest the lumpsum that you got in your bonus to invest in liquid funds and from there you can do a systematic transfer plan (STP).

Allocate to existing goals or start a new goal: You can use the bonus to either start a new goal or increase allocation to an existing goal.

Increase your retirement corpus: This remains one of the most important goals of a person and hence you should, whenever possible, make additional contributions to develop your retirement corpus. So, invest a part of your bonus to make your retired life smooth and comfortable.