How to Make Sensible Use of Your Diwali Bonus to Brighten Your Financial Future

While this bonus can be a significant boost to household income, it often gets quickly spent on festive shopping sprees, discounted purchases, or luxury items, thanks to the flood of promotional offers that businesses roll out during this time.

The tendency to splurge during Diwali is reinforced by the psychological appeal of 'festival-only' offers and sales. Online and offline retailers create a sense of urgency with limited-time discounts on electronics, home appliances, and other luxury goods. As a result, many individuals get carried away by impulse purchases, buying things they don't necessarily need. From smartphones to designer clothes, the attractive prices make it easy to lose sight of financial priorities. While enjoying the festive spirit is important, there is a fine line between spending for joy and overindulging in unnecessary purchases.

[Read: This Diwali Lighten Up Your Financial Well-Being with These 5 Financial Lessons]

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However, in light of recent economic trends and rising inflation, especially in essential areas such as healthcare, groceries, and fuel, it is more crucial than ever to use the Diwali bonus wisely. The cost of living is increasing, and many households are experiencing greater financial pressures. Rather than succumbing to the temptation of festive discounts, individuals should consider putting their Diwali bonus towards securing their financial future. Whether it's by building an emergency fund, repaying high-interest debts, or investing in long-term assets like mutual funds, this bonus can serve as a stepping stone to financial stability.

Here's how you can make the most of your Diwali bonus and brighten your financial future:

1. Build or Strengthen Your Emergency Fund

One of the most prudent uses of your Diwali bonus is to either start or fortify your emergency fund. This fund acts as a financial cushion for unexpected events such as job loss, medical emergencies, or sudden home repairs. Financial experts recommend that your emergency fund should cover 6 to 12 months of living expenses. If you haven't already started building this buffer, your Diwali bonus can give you a solid start.

Why You Need an Emergency Fund

Life is full of uncertainties, and an emergency fund helps you navigate unforeseen situations without relying on loans or disrupting your financial goals. Having a financial buffer also gives you peace of mind and ensures you remain financially secure.

Deposit a portion of your Diwali bonus in a liquid fund or a high-interest savings account that provides easy access to funds. Ensure that the money is not tied up in long-term investments, as the goal is to have quick access when needed.

2. Repay Debt and Reduce Financial Burden

If you have accumulated debt-whether in the form of personal loans, credit card debt, or payday loans-your Diwali bonus can be a golden opportunity to reduce or eliminate this burden. High-interest debt can severely strain your finances, and repaying it early saves you from paying extra interest.

Benefits of Reducing Debt

• Less Financial Stress: Debt can cause anxiety, and paying it off reduces mental and financial pressure.

• Improved Credit Score: Lowering your debt-to-income ratio positively impacts your credit score.

• More Disposable Income: Once the debt is cleared, you have more free cash to save and invest.

List out all your debts and their interest rates. Focus on clearing high-interest debt first, such as credit card balances, which usually have the highest interest rates. Use your Diwali bonus to make a significant dent in your principal balance, bringing you closer to being debt-free.

3. Purchase or Upgrade Your Health Insurance

With healthcare costs rising due to medical inflation, having adequate health insurance is no longer optional. A medical emergency can deplete your savings if you're not adequately covered. Use your Diwali bonus to either purchase a comprehensive health insurance plan for yourself and your family or to upgrade your existing coverage.

Why Health Insurance Is a Must

• Medical Emergencies: can strike at any time, and without insurance, you may have to dip into your savings or even take on debt to pay medical bills.

• Medical Inflation: is on the rise, meaning healthcare costs increase every year.

• Preventive Health Check-ups: and cashless hospitalisation benefits are additional perks that come with a good insurance plan.

Review your current insurance coverage and see if it meets your needs. If you don't have coverage, now is the time to buy a health insurance policy. If you already have one, consider topping it up or adding riders like critical illness coverage or maternity benefits based on your requirements.

4. Save and Invest Sensibly for Long-term Wealth Creation

After securing your immediate financial needs, focus on long-term wealth creation. Sensible saving and investing can multiply your Diwali bonus over time, enabling you to meet future financial goals such as buying a home, funding education, or planning for retirement.

Wealth-Creating Avenues

• Equity Mutual Funds: Ideal for long-term investors, equity mutual funds provide opportunities for wealth accumulation through the stock market.

• Public Provident Fund (PPF): This is a low-risk investment option offering tax benefits and reasonable returns over a long period.

• National Pension System (NPS): If you are planning for retirement, NPS is a great tool to accumulate wealth while benefiting from tax deductions.

Allocate a portion of your Diwali bonus toward long-term investments. You could start by investing in Systematic Investment Plans (SIPs) in mutual funds, or if you prefer safer investments, consider increasing your PPF or NPS contributions.

[Read: Brighten Up Your Financial Future as You Illuminate Diyas This Diwali]

5. Step up SIPs in Mutual Funds

If you already have SIPs (Systematic Investment Plans) in mutual funds, Diwali is a good time to step them up. A higher contribution towards your SIPs can fast-track your journey towards achieving your financial goals, such as buying a car, funding your child's education, or saving for retirement.

Why Step up Your SIPs

• Compounding Benefits: The longer and more you invest, the greater the compounding effect, which helps grow your wealth exponentially.

• Rupee Cost Averaging: SIPs help you average out the cost of investment by purchasing more units when the market is down and fewer when it's up.

• Goal-oriented Investing: By increasing your SIP contributions, you ensure that you're consistently moving towards your financial goals.

6. Invest in Yourself: Learning, Skill Development, or Personal Interests

Not all investments need to be financial. One of the best ways to use your Diwali bonus is to invest in yourself. Learning new skills, enrolling in a professional course, or pursuing a hobby can add tremendous value to your life and career.

Benefits of Investing in Yourself

• Increased Earning Potential: New skills, certifications, or qualifications can lead to better job opportunities and higher salaries.

• Personal Fulfilment: Pursuing a hobby or passion can lead to a more balanced and satisfying life.

• Continuous Learning: Staying up-to-date with industry trends or expanding your knowledge base can give you a competitive edge in your career.

7. Allocate Funds for Travel and Experiences

While saving and investing are crucial, life should also be enjoyed. Allocating a small portion of your Diwali bonus for travel can refresh your mindset, broaden your horizons, and bring new perspectives.

Why Travel Is Important

• Rejuvenation: Travel allows you to take a break from daily routines, reducing stress and improving mental well-being.

• Broadened Perspective: Experiencing new cultures and environments can provide fresh insights and ideas that you can apply in your personal or professional life.

• Memories and Experiences: Rather than material possessions, experiences like travel often provide long-lasting happiness.

While it's tempting to use your entire bonus for a lavish vacation, it's important to plan sensibly. Set aside a small portion of your Diwali bonus for a budget-friendly trip or a weekend getaway. Travel within your means and avoid incurring debt for vacations.

Conclusion: Balance Festivity and Financial Planning

It's easy to get swept up in the festive atmosphere and spend without considering the long-term impact. However, those who take a step back and view their Diwali bonus as an opportunity to strengthen their financial standing will likely feel the benefits long after the festival is over.

This Diwali, light up not just your home but also your financial life by making smart, thoughtful decisions with your bonus.

Wishing You All a Very Happy Diwali!

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Hiral Bhuta is a Investment Consultant & Principal Officer. She is a seasoned professional in the financial services industry, currently serving as an Investment Advisor and Financial Planner at PersonalFN. With her expertise, she plays a pivotal role as the Principal Officer appointed under SEBI's amended IA Regulation. Hiral holds distinguished certifications such as Certified Financial Planner (CFP) and NISM XA & XB, complemented by a post-graduate degree in commerce (M. Com). Her primary areas of focus encompass financial planning, investment advisory, and wealth management, where she leverages her knowledge and skills to provide tailored solutions to clients. With a cumulative experience spanning five years, Hiral brings a wealth of expertise and insight to her role at PersonalFN, ensuring clients receive expert guidance and support in navigating their financial goals.
 

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This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.