I have heard my friends say that money or financial Management is quite a hard thing to do, and I agree with them to a large extent ,although Financial planning may appear to be quite simple and easy till we go into the details such as budget, savings, identifying investment instruments and also the risk involved in the various options.
And to be honest, finance management becomes somewhat more difficult when we plan for it at the age of 50 years or so for our life after retirement or superannuation.
While we generally plan for our savings and related investment, we sometimes forget or oversee the proper utilization of the amount which we receive as annual bonus, incentive or the money which we receive as the Tax refund from the IRS and take it as a Bonanza.
While we can easily blow up the money and spend it in luxuries such as purchase of latest Apple watch , or the latest smartphone for our son or plan for leisure holidays, but it would be wise to think about one aspect–that this money, Bonus or Incentive or the Tax refund is your own hard earned money and therefore, deserves the same amount of care and consideration which you do for your monthly or fortnightly , as the case may be, pay check and it should also be used smartly. Actually the Bonus is considered a deferred payment and the Tax refund is the amount which you have paid extra to the I.T. department.
Listed below are some of the smart ways to spend this money ;–
1. Pre-Pay the Loans and Lighten the Debt Amount :–
If you have outstanding amount on your credit card or car loan or mortgage on your house even at this advanced age- it is advisable to utilize the amount to make a part prepayment of your loan and reduce the debt. These are high interest rate loans/ debt and the amount of interest you pay each month is very heavy. It is always better to repay all the loans and clear the debt before you retire.
2. Start/ Top Up Your Emergency Fund :–
It is always considered a healthy practice to maintain an emergency fund which you can withdraw from only for emergencies. This emergency fund should have a sufficient corpus which is generally equal to about 5- 6 months of your salary, when you review your financial position at this age of fifty years. You never know the amount you would require during an actual emergency. It is better if this Bonus/ Incentive amount is kept in this fund.
3. Spend on Yourself and Your Family :–
When spending on yourself, nothing can be better than spending to upgrade your skill sets. You could spend the amount to take up a part time course or training program related to your field of skill and to enhance your competence. This, indirectly will help you in re-employ-ability, if you are near to your retirement or are already retired. Oh, and by the way, some of these training are also qualified for tax deductions. So, please don’t forget to tell your tax consultant while you file your returns the next time.
Some part of this amount can also be spent on the family, as they like such as going for an expensive dinner or buying a new refrigerator.
4. Home Improvement :–
Home maintenance require your regular and continuous attention but sometime you postpone the work for lack of funds or urgency. Use the new found fund to fix maintenance issues. A well maintained house not only makes for a pleasant place to live in but it also hikes up its market value.
5. Invest in Tax- saving instruments :–
Investing in Tax saving Mutual funds or debt funds or any other such saving schemes is a wise move as it helps you start off early on your Tax planning for the following year, and the money gets put away for future use. In one of my upcoming articles I am going to delve into details of how to smartly invest your hard earned dollars
6. Invest in Long Term Investment Options :–
Don’t get tempted by short term investment options. Think long term. For investments with a horizon of more than 5 years, equity mutual funds are ideal. Further, it depends on your risk taking capacity. If you are not interested in equities, then Bank F D/ C D are excellent alternatives.
CONCLUSION :–
It is always appropriate that you spend your money carefully considering all the aspects. Have a complete and honest look on your finances when you review your investments vis-a-vis your goals at the age of 50 years or so. One must spend the money and time wisely and better to live below ones means and with simplicity. Warren Buffet has once remarked that ” If you buy things you don’t need, soon you will have to sell things you need.”