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Come increment season, and the air is filled with the palpable excitement of unlocking new possibilities - a new designation, bigger responsibilities, and of course, a higher annual salary. Landing a raise at work is an accomplishment that makes you feel like a valuable part of your company, and it often justifies chasing deadlines and sleepless nights. Bur more importantly, it motivates you to strive for improved performance as you further your career.
Once there is money in hand, a thousand ways pop-up in your mind on how to spend it - a short holiday, retail therapy, or indulging in the latest gadget. But, if you look at it another way, the surplus money can significantly improve your financial security. So, here are a few tips to help you reap more benefits from your salary hike.
1. Clear outstanding debts
While investing any surplus money is always a good decision for the future, it is more essential to get rid of any piling debt. It could be as small as your credit card bill or as large as a home loan. With an increase in your salary, you can minimise the stress that pending debt could cause you in the future. A good tip is to start by clearing off debt with the highest interest rate and then tackle those with lower rates. Alternatively, you can start small and move your way up to more enormous debts. This will not only relieve your stress but also contribute to a positive credit score.
2. Build your emergency fund
There's no better time to prepare for the bad days than when you have good ones. And one of the best ways to do this is by building an emergency fund to ensure that your core savings never take a hit during a financial crisis. Ideally, an emergency fund should consist of 4 to 6 months' worth of your monthly expenses and is best put in a Savings account, where it can be readily available when you need it. Once you set this fund up, you can divert a fixed amount from your salary into it at routine intervals.
Open a Savings Account online with IDFC FIRST Bank and take the first step to starting your emergency fund.
3. Invest the extra money
Review any financial goals you have set for yourself and look for investment opportunities that can help you improve your financial portfolio. Whether it is a short-term goal like taking your family on a holiday or a long-term aim, such as buying a home, you can plan to achieve these milestones with specific instruments such as PPF, Mutual Funds, Fixed Deposits, SIPs, etc. Once you've outlined your goals, set a timeline for yourself that can help you track the progress you are making.
4. Build your retirement corpus
There may be a considerable number of years before you throw in the towel and retire. And you might think that there's no reason to rush into building a retirement corpus. The truth, however, is that the sooner you start planning for your golden years, the more fruitful they will be. The National Pension System is an excellent scheme to start things off as it is covered under section 80C of the Income Tax Act. Hence it not only lets you put away money for your retirement but provides tax benefits as well. You can also consider other investment options - annuity plans or Public Provident Fund (PPF) - to diversify your investments.
5. Get insurance to protect yourself and your family
Insurance policies are amongst the most underrated financial instruments you could have in your portfolio. These plans can help safeguard you and your loved ones in some of the most dire situations. For instance, when you get a health insurance plan, it can cover the cost of hospitalisation, tests, and more if the need arises. This means you would not have to pay for these medical expenses from your own pocket. Similarly, a life insurance policy can help protect your family's future should something happen to you, and you are not around. Suitable health and life term cover can help you and your family focus on your dreams without worrying about future uncertainties. With several insurance policies available, you can pick what suits your requirements the best and even save on tax while doing so.
Additionally, buying insurance at a young age also comes with its perks, the best of which is lower premium rates. IDFC FIRST Bank provides customized insurance plans to protect yourself & your loved ones.
6. Treat yourself
Once you've taken care of your pending debts and future investments, you can focus some of that salary hike on more immediate gratification - the present. Pamper yourself to a day out or a much-needed vacation because you've earned the right to blow off some steam.
Following these suggestions can help you enjoy the long-lasting benefits of an incremented salary. So, prioritise the list according to your needs and choices and gear up for another fruitful year at work and life.