How To Use Annual Bonus To The Best of Your Advantage
Those who are servicing a home loan can easily divide their lives in two parts— life before they took a home loan and life after the equated monthly installments (EMIs) started getting automatically deducted from their bank accounts. The carefree days when this person did not give much thought to his credit card getting swiped multiple times over the weekend for “aimless” purchases have disappeared in the wind. This person is keeping a diligent watch on every penny that now makes an exit out of his wallet. There is a stark difference between the life this person lived earlier and the life he lives now. In short, home loans are great teachers of financial discipline.
As someone who has a monthly EMI to pay, you know better. You may have used your yearly bonus on upgrading your wardrobe and buying fancy gadgets earlier but now you realise that saving some extra grand can play an instrumental role in your financial planning.
To pre-pay or not to pre-pay: As a home loan borrower, your first thought may go to using this money to pre-pay part of your home loan. This is a good idea, of course. Part paying your home loan can result either into lower EMI outgo or shorter tenure. Before you make plans to use your bonus in prepaying your home loan, however, do note that small payments are not going to make a great difference. One year’s annual bonus would not do the trick. It would be better to put this year’s additional income to work --- stocks are good options if you have the mental acumen patience---so that you are able to garner good returns by the next year. Wait for a couple of years till you have earned an amount which would make a substantial amount using which you could pre-pay your home loan.
It is important to understand here that home loan help you in several ways. While the interest rate is lower when compared to other types of loans, you could also avail of tax benefits. Wisdom does not lie in becoming debt free as soon as you can; wisdom lies in using this financial tool to the best of your advantage.
Are you value adding, really?: It would be a great mistake to assume you are done with adorning your dream home at any point of your occupation--- no matter how much money you spend, there is so much more that you think you could do to make it salubrious. This extra money could be used to purchase items that would help your home turn into a territory you so desire. On the other hand, you could also gift your home certain new items. Old electronic appliances that consume great amount of power could be replaced with energy efficient ones. An LED bulb, for instance, uses only 25 per cent the electricity than a normal one does.
All small and big options must be explored to move towards greener, healthier and cleaner living. In doing so, you would not only be reducing your monthly electricity bill but also your medical bills.
Create a fallback option: In case of any emergency, one has to have a back-up plan. A back-up plan is basically a euphemistic way to say, we need to have a corpus in place to deal with emergency situations. While all of us must build such a fund, acting on this rule is even more crucial in case you are employed in the private sector and do not enjoy job guarantee. Experts are of the opinion that you need to have at your disposal at least three months of your total expenditure in as emergency corpus. But, the stronger the fund, the better. This year’s bonus could be used for that purpose, too.