(Image Source – Shutterstock)
So, you got a salary hike recently? Great, you must be thrilled. Who does not like to be appreciated for all the hard work put in overtime? You can take the liberty to treat yourself with a small gift or buying one for your loved ones. But it would help if you were practical. It does not make sense to blow up all the extra money. Be prudent and earmark the bulk of it for future use. You have many options. Just give some thought and figure out what you need at this stage of life and plan towards it.
Here are some tips to help you make the best use of your salary hike.
Debt Wipe Off
If you have any debt, your priority should be to wipe it off. It can be an outstanding personal loan or a car loan. If so, then this is a good time to pay it off. The thumb rule is to pay off high-interest loans, such as personal loans or credit card loans. You can utilize half of the raise to increase your loan’s EMI and devote the other half to investments.
The never-ending struggle between spending and saving makes it difficult to decide what to do with extra money. On the one hand, you would like to buy yourself a trendy smartphone, and on the other, you would want to secure your future. Here’s what you can do. Ask yourself if you would have been able to carry on comfortably even without the increment. If yes, then by all means, do splurge a little. But make sure that you use the rest of it to secure your future. If you find yourself struggling financially, it might be better to use all the extra dough to stabilize yourself and wait a while to reward yourself.
Investing your surplus money in carefully-researched options is the best way to use your salary hike. There are multiple schemes in which you can invest the extra money from your increment. Take a look at some of them:
“What is term insurance, and why should I buy it? Does it provide health cover? Will it increase my invested amount?” Are some questions that most people have due to their misconceptions on the benefits of term insurance.
Well, first of all, term insurance is a cost-effective and necessary form of insurance. It safeguards your dependents’ future and helps them mitigate the financial stress that might result, should something happen to you. Ideally, the cover should be at least ten times your annual income. However, a low-cost term plan can also provide you with an adequate cover that suits your need as well as your pocket. So, every individual should buy term insurance for an elementary life cover.
Unit-linked insurance plans provide you double benefits. They offer insurance and investment in a single integrated plan. And as you have some extra income, thanks to your salary hike, what better use of the money than opting for a ULIP? A word of caution: do not jump on to the first scheme you come across. Spend some time checking out the insurance provider’s credentials and only then lock in your money.
If you are married and have children, you can use the salary hike to invest in a good child insurance plan. Ideally, it would help if you did not wait to have children to take a child plan – buy the plan even before the child arrives. That way, you will give your child a head start. A child insurance plan’s advantage is that the insurance company will continue paying the premium to the policyholder even if the person who bought the plan is no more. Although child insurance plans are costly, they serve the interests of your children better.
The best time to buy a retirement plan is EARLY. Retirement plans are insurance products that provide you with financial security once you stop working. You might think that you are young and healthy, and a retirement plan would be a waste of money. But the sooner you plan your retirement, the sooner you can retire. If you use the proceeds of your salary hike to buy a retirement plan, it might be one of your life’s best decisions.
With so many investment options, you might feel overwhelmed and confused about choosing the right instrument. However, there’s no reason to panic. Before purchasing any investment instrument, you must check for the insurer’s claim settlement ratio. You would get an idea of how efficient the insurance company is in paying out benefits to its customers. Among private insurers in India, Max Life Insurance offers the highest claim settlement ratio of 97.81 percent (F.Y 2016-17).