The appraisal season is on. You may be filling up your appraisal form or might have got the salary hike letter already. With a hike in salary, your cash flows are going to increase. So you should plan to use them wisely for the improving your overall financial health, say experts
“One should review his or her overall financial situation and allocate the extra savings where they need to contribute more,” says Jitendra PS Solanki, a Sebi-registered financial planner.
Retire your debt
If you have a loan, which does not give you tax benefits and is high on cost, you should get rid of it using the salary hike. Debts such as credit card dues carry an interest cost of as high as 36 per cent per annum while in case of personal loans interest rates are around 15-20 per cent per annum. It will be difficult for you to earn such a high rate of return from any investment, so it is wise to clear such loans as soon as possible. You can increase your equated monthly investments (EMIs) to repay the debt earlier. This may leave you with lower money to spend but will help you save on interest cost.
Increase your investments
As your income rises, your investments should also go up. This will help you achieve your financial goals faster and you will be able to achieve a higher corpus. For example, if you invest Rs. 5,000 per month for 10 years, you will accumulate a sum of Rs. 11.62 lakh, assuming a rate of return of 12 per cent. At the same time, if you increase the Rs. 5,000 monthly investment by 10 per cent per year, you will be able to accumulate Rs. 16.87 lakh during the same time, assuming the same rate of return.
As your salary increases, your tax liability is also going to go up. So keeping that in mind you should plan your tax-saving investments right at the beginning of the financial year that is in the month of April and accordingly, spread your tax saving investments throughout the year, says experts. “It is advisable to do your tax planning in the month of April so that you are not burdened towards the end of the financial year,” says Mr Solanki.
Also, keeping the surplus money in your savings account and investing at the end of the year means you lose the returns, say experts.source