You are a Central Government Employee. This is Bonanza Time. You have received a higher salary in August, than you had received in the month of July. You have also received the arrears for basic pay, for the months of January to July, for the year 2016. So what are you going to do with all this money? There is a famous saying by Benjamin Franklin “If you fail to plan, you are planning to fail!” What does this saying mean? Simple…If you do not have a plan, to manage the Bonanza you get from the 7th pay commission, the money will be spent in no time. Worse….This money will most probably be wasted. So what should you do with the money you get from the 7th pay commission?
You have a personal loan and credit card dues to repay. Paying the EMI’s on these loans is such a headache. The month seems to end so fast. Before you know it, there is an EMI to be paid. Now to the big question…. Should you invest the money you get from the 7th pay commission, or should you use the money to repay the loan? There is no investment you can make, which gives a return, higher than the interest you have to pay on a personal loan or a credit card. Yes, a personal loan charges an interest as high as 16-22% a year. Credit card interest on your outstanding balance, is as high as 24-36% a year.
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What should you do with the money you get from the 7th pay commission? Just pay back your personal loan and settle your credit card dues. This decision will not only help you save on interest, but also guarantee you peace of mind.
Emergencies are money killers. Your money is blown away in no time. Before you know it, you are broke. Worse…Emergencies do not knock and announce themselves. Would it not be wise to prepare for an emergency, so that you are ready when it strikes? Use the money you get from the 7th pay commission, to create an emergency fund. If you are single, the emergency fund should have at least 3 months of living expenses. If you are married, the emergency fund should have at least 6 months of living expenses.
You have used the money you get from the 7th pay commission, to repay loans and even kept aside money for an emergency. Would it not be great, if you could also invest some money for a bright future? Investing your hard earned money in a mutual fund, is a great idea. You can invest in mutual fund schemes, through a systematic investment plan (SIP). You invest small sums of money regularly (say at the beginning of each month), in the mutual fund scheme, through an SIP. You need to check your risk profile, before you make an investment. If you like to take risks while making an investment, then equity is just the right financial product. Consider an investment in stocks and equity mutual funds. You are rewarded with high returns, for taking high risks. If you are conservative (do not like to take risks in investment), then consider investing your money in a fixed deposit or a liquid fund. The returns are low, but your investment is safe.
You have repaid your loans, kept aside money for an emergency and even invested some money for a bright future. You are sufficiently insured with life and health insurance. Now, why not spend money on things you have always desired? Spending money is not a crime….Wasting money is a crime. You have always wanted to own a car. Go ahead and buy it. Want to go on a trip abroad? Go right ahead and enjoy your holiday.
You need to differentiate between a need and a want. If you cannot, you become a victim of impulsive spending. You might buy a big car, while your need is for a small car. You might blow up far more money on your vacation, than you intend to. You would soon be broke.
Finally, the Government and the economy depend heavily on you, opening your purse strings and spending your money. When you buy cars, two wheelers or even consumer durables, you boost the economy.Under : Financial Planning