How to spend your bonus

How to spend your bonus

A friend of mine would often comment on how she would wait for a bonus or windfall to 'live it up.'

When I asked her what stops her now, her response was, "I prefer blowing up money that is not regularly earned."

I am still not sure what she meant, but I think it is obvious that -- depending on where it comes from -- she segregates money in her mind.

Just because you get it unexpectedly or without working for it, don't undervalue or undermine your money's worth. Money is money.

It could be an inheritance, a gift from a rich relative, a bonus you were not expecting, a great return from some shares or mutual fund investment or maybe a tax refund. It could even be a lottery or a winning in a television game/ reality show.

Whatever be the source of the profit or windfall, do not gamble it all away or splurge. Here are some ways on managing an unexpected windfall smartly.

Don't take a risk with all of it

A friend of mind once made Rs 1,50,000 as profit from selling shares. This was during the peak of the current bull run. He wanted to live dangerously and reinvest the entire amount. His mentality -- it was easy money so why not play around with it.

Maybe you can settle your debt

An unexpected windfall is a great way to clear your loans. This will give you peace of mind and help you save on interest in the long run.

The first type of loans you should look at clearing are those with the highest interest rate and no tax benefit, especially if you are servicing a personal loan or credit card debt. These loans are the most expensive and the rates of interest are in the 18% to 30% per annum category.

Look for expenses that have been put on hold

Don't blow it all up. Have you been genuinely saving for something?

Draw a balance between your needs and wants.

Are you saving for a particular goal like an upcoming wedding? Or are you saving for the down payment of a home? Channelise this money towards that end. These are needs that will put pressure on you later.