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Pay Hike – This word does wonders to one’s mind set, it motivates
you, makes you feel happy, and most importantly it makes you think of what all you
are going to do with the extra money that you will get. You can plan this money
for buying something you have been thinking of from a long time, you can use it
for travelling to your dream destination, you can save it for your rainy days,
you can add it to your retirement corpus, or you can just let it stay in your
bank account. Every Coin has two sides; similarly hike in the salary can also
be either good or bad depending on the choice you make in its utilization. The
feeling of affording things you didn’t have before, sometimes leads to bad
financial habits. If you want this salary hike to be useful to you, then you
have to make the right choices.
Don’t jump in immediately for
buying all the pending things you have been planning to buy. Let this take some
time to settle in, and then you can plan how and where you are going to spend
this cash. After all, you have not won this money from a lottery; it has been
given to you as a token of appreciation for all the hard work you have put in
your job. So, you should think it through before spending it anywhere.
1. Do your math: This extra money which
you will be receiving will also increase your tax liability. So, you should
make proper calculations on what is going to be your in-hand income and how
much will you need to pay for taxes. You can plan for your purchases post
clarity on this issue. If still you are not clear, you can wait for 2-3 pay
checks to come then make decision.
2. 20% for Self Development: Of whatever
amount you have got as an increment you should use at least 20% on your
self-development. After all you got this hike because of your skill-set and you
should improve it by learning more. It will make you more competent in your job
and increase your prospects. You can do so by reading some books, by enrolling
into some online program, or by doing some week-end course.
3. 10% for fun: All work and no play makes
Jack a dull boy. You have worked so hard to be where you are today and you
definitely deserve some pat on the back. Take some time out to do things which
rejuvenate you, be it travel, partying, or good food.
4. Do your budgeting: After taking 30% out
of your increment, you can start your planning by doing budgeting of your
monthly income and expenses. Were you delaying some important expenditure which
can be included in your monthly budget now? You should make a list of all your
expenses including your savings outflow like insurance premiums, mutual SIP’s,
Recurring Deposits, Public Provident Fund, etc. You can do so by checking your
monthly out go from credit cards, bank statements, and cash expenditure.
Checking your previous month’s statement won’t give you much clarity, you need
to check it for at least last 3-4 months to get a fair idea.
5. Increase Inflow towards Retirement: Check
out with your financial planner if your contribution towards the retirement
plan is sufficient, if not you can start adding more money towards it. Even if
you are contributing the required amount, it will never hurt to add on more as
due to compounding effect you will get more at the end.
6. Pay-off your loans: Are there any loans
on you? You should consider paying off loans like personal loan, car loan, and
credit card over-debt, etc., as these loans are given on a very high rate of
interest. So, if the interest on loans is higher than the prevailing savings
rate it is better to pay these debts rather than investing the amount into some
financial instrument.
Planning for
your future should always be a priority for you, as efficient planning leads to
a stress free life. You have earned this raise; you should ensure its proper
use as it is not unlimited in nature. After all at the end of it, you should
not be left wondering where the money went, so put an action plan for it.
Charu Hastir, CFPCM is founder of www.theriteplan.com. Rite plan is an online financial planning
portal created to achieve a single objective of providing easy and Do It
Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun
Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/
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