Diwali Bonus: 5 Smart Ways to Effectively Use Your Bonus Salary

Diwali is one of the most famous and greatest festivals of India. Also, it is a time for joyful celebrations. Most people typically receive a wage bonus from their employer during this period as well. It is so simple to be sucked into the celebrations going on around you and not want to miss anything. As a result, it might be very tempting to overspend on items you do not require. It especially happens in light of all the sales and promotions that various retail outlets are doing. 

You must resist the urge to spend all your money. Nevertheless, budgeting your bonus is essential if you want to take advantage of the joyous occasion while also saving some cash for the future. You should prioritise paying off any debt you may have because it can be a significant financial burden. Personal loans and credit card debt might deplete your funds. However, there are some loans that are warranted, such as those for housing or education. The following are some of the greatest methods to utilise and maximise your Diwali bonus: 

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Table of content

5 Smart Ways to Effectively Use Your Diwali Bonus

Make New Investments

Repay Expensive Loans

Create a Fund to Meet Some Unforeseen Expenditure

Secure Yourself with Life Insurance and Health Insurance

Invest for the Long-Term

Bonus Tip: Invest in Yourself

Diwali Bonus: Tips to Invest Wisely

Conclusion

Most Asked Questions

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5 Smart Ways to Effectively Use Your Diwali Bonus

The following are some of the greatest methods to utilise and maximise your Diwali bonus: 

Make New Investments

Even though it seems simple, the most important thing to concentrate on is choosing the investment path and the amount to invest. Invest this Diwali if you have yet to do so previously to offer wealth creation a bright future. Divide the amount invested into short-term and long-term goals to make it easier to understand. Thirty to forty per cent of your bonus is a decent target amount. Short-term objectives could be a trip abroad, a down payment on a home in one to three years, etc. Debt funds, with their high liquidity, lack of market volatility, and consistent returns, are ideal for short-term investments. Compared to a savings account, short-term debt fund investments will enable you to attain your goal more rapidly. 

A diversified equities portfolio is a good place to put money down for long-term objectives like retirement and your kids' college tuition. Mutual funds that invest in stocks have the potential to provide substantial returns over time, making them excellent tools for building wealth. You can also invest in tax-saving ELSS mutual funds if you have not already made any tax-saving investments for this year. In this manner, you would be able to generate strong returns and lower your tax liability. Under Section 80C of the Income-Tax Act of 1961, invest in tax-saving financial products such as Equity Linked Savings Schemes (ELSS), Public Provident Funds (PPF), National Pension Schemes (NPS), 5-Year Tax Saver Bank FD, Pension Funds, Senior Citizen Savings Schemes (SCSS), and Term Insurance, among others.

Repay Expensive Loans

You might have funded your opulent lifestyle with a personal loan or credit card debt. Using your end-of-year bonus to pay off this debt might be preferable to just making the minimum credit card payment. For example, investing to generate a respectable return is useless if you are paying back a personal loan with an annual interest rate of 15–17%. Furthermore, you can find it difficult to pay back the 24- to 35% annual credit card interest. Repaying high-cost loans with an annual incentive can help raise your credit score. Investing after paying off expensive credit card debt and personal loans will be beneficial. 

Create a Fund to Meet Some Unforeseen Expenditure

There is always something unexpected to look forward to in life. You never know what can happen tomorrow. You might lose your job or maybe a family member ends up in the hospital. The likelihood of such circumstances increases with the annual cost of living. Therefore, you should always keep an emergency fund readily accessible. Experts suggest setting away money for three to six months' worth of expenses. 

Secure Yourself with Life Insurance and Health Insurance

The idea that there is always hope is one of the fundamental themes of Diwali. But we must get ready beforehand if we want to see that light. Uncertainties accompany our high-risk lifestyle. This is the reason why it is critical to obtain life insurance so that we can constantly support the people we care about. Purchasing life insurance is therefore among the best things you can do with your Diwali bonus. Similarly, you might choose to obtain health insurance through a plan offered by your job. Your family is protected from hospitalisation costs in the event of an emergency by a family floater plan. Furthermore, you only need a small portion of the incentive to pay for health and life-term insurance.

Invest for the Long-Term

The majority of your Diwali bonus should ideally be allocated to long-term investments because they yield better returns and benefit from compound interest. Enumerate all of your long-term objectives and the financial risks you are prepared to accept. A dream home purchase, your children's college bills, their wedding costs, and your own retirement are a few examples of these objectives. Your Diwali bonus can be used to accelerate the achievement of these financial objectives.

After that, you can choose your assets according to your level of risk tolerance. Purchasing debt mutual funds and initiating a Systematic Transfer Plan (STP) for equity funds with the same mutual fund firm is a wise use of your lump-sum bonus money. It is critical to realise how important it is to choose the appropriate mutual fund programs. It is important to consider both your financial objectives and risk tolerance while choosing the best mutual fund schemes. Therefore, getting advice from an expert is advised. 

Bonus Tip: Invest in Yourself

You can enrol in financial, public speaking, or computer courses with your bonus money to advance your profession. Concentrating on abilities that will boost your income is beneficial. The end-of-year bonus can also be utilised to increase your personal interests. It might support your personal and professional development.

Diwali Bonus: Tips to Invest Wisely

• To set clear financial goals for yourself. Invest in short and long-term investments. And make a choice accordingly which suits you the most.

• Understand the risk tolerance by opting for conservative options such as fixed deposits or debt funds. 

• To spread the investments across different asset classes. This helps to reduce risk and increase returns.

• Start early to invest as more time is needed to grow money. Even small and regular payments can add up over time. 

• A qualified investor help can be taken if you do not know how to invest the Diwali bonus received. As they can help you design the investment plan according to your financial goals. 

Conclusion

With Diwali around the corner, you should make prudent use of your bonus money to ensure your financial future and well-being during the celebration. Use your bonus money and the cash gift carefully to achieve your financial objectives and fulfil your desires. Also, put some aside for later. Just keep in mind that conserving money or having idle cash will not be enough to combat inflation on its own. You must use your money wisely to generate decent returns over inflation (sometimes referred to as the actual rate of returns) if you want it to multiply. Remember to take corrective action and track and assess your investment portfolio at least once every six months. If you have exercised sufficient caution while investing initially, it need not be done daily or weekly.

FAQ

Q1. What is the Diwali bonus for employees?

Employees of the central government receive an annual non-productivity linked bonus known as an ad hoc bonus called the Diwali bonus. Employees must have been employed as of March 31, 2023. Additionally, they must have given at least six months of continuous service during the fiscal year 2022–2023 in order to be eligible for the Diwali bonus.

Q2. What are the rules for the Diwali bonus?

Companies can award their employees with bonuses, which are essentially extra cash, for their hard work. However, since it is not required. Therefore, Indian businesses are not required to give Diwali bonuses to every employee. 

Q3. Is the Diwali bonus included in CTC?

Your company will include bonuses in Form-16 since they are categorised as "Income from Salary." Therefore, it is not necessary to disclose Form 16 separately. 

Q4. Is the Diwali bonus taxable?

Any cash presents you accept from your company will be taxable as part of your compensation. Consequently, a gift such as a Diwali bonus becomes taxable in the hands of the employee without any cap on the amount of money. 

Q5. How should you use the Diwali bonus amount?

A few things you can do with your Diwali bonus include indulging yourself, paying off expensive debt, and saving for emergencies. You can also improve your abilities, manage your taxes, set financial objectives, pay off your house loan, and so on. 

Q6. How Diwali bonus is calculated?

The Diwali bonus is statutory. It is calculated as a percentage of an employee’s salary and is paid within 8 months of the end of the accounting year. The bonus is called a Diwali bonus as it is paid around October and November months when Diwali falls. 

Q7. What are the Diwali bonus rules?

The Diwali bonus rules are that the minimum bonus paid can be 8.33% and the maximum is 20%. Bonus is payable annually to all employees whose salary does not exceed INR 21,000 per month. 

Q8. What is Diwali advance given to an employee?

Diwali advance given to an employee is known as capital expenditure. This is because it is an investment in the workforce that improves the company's productivity and efficiency. It is expected to yield long-term advantages and be classified as a capital expense.

Q9. What types of investments are ideal for a Diwali bonus?

The types of investment ideal for the Diwali bonus are mutual funds, fixed deposits, equity stocks and retirement funds. 

Q10. Why is it important to plan how I use my Diwali bonus?

Planning how to use the Diwali bonus helps to make the most out of additional income. Instead of spending impulsively, a well-thought-out approach is better. This helps to invest in long-term benefits.