Ways to invest your Annual Variable Pay or Bonus
Every employee of the company would be excited in April/May where he / she would get their annual variable pay or annual bonus for the last financial year. You would have already planned on how to spend such bonus. Take a step back and check how to invest your annual variable pay or annual bonus efficiently. In this article, we would tell you various Ways to invest your Annual Variable Pay or Bonus.
What is Annual Variable Pay or Annual Bonus?
Annual variable pay or Bonus is the compensation received over and above the basic pay in addition to the base salary and is considered as the part of salary only. Bonus is used as a tool to provide incentives to the employees for their hard work and dedication and for attracting their personal interest towards what is recognized as gainful for economic success of the company. The base salary is usually fixed but bonus is dependent upon many factors – annual turnover, personal performance, and current position of the company to name a few.
There is one more mode of compensation that is gaining grounds in today’s business world – variable pay. It is employee compensation that changes as compared to salary which is quite fixed and equally proportioned throughout the year. It is used, in particular to recognize and reward the contribution of employees towards the company. Sometimes referred to as ‘pay for performance’ or ‘at risk pay’, variable pay is directly linked to performance of the employee or the company. It intends to provide tangible rewards for superior performance and encourages hard work and efficiency.
Variable pay programs are made up of variety of different compensation methods which include annual incentive, individual incentive plan, lump-sum payments, cash profit sharing plans, payments for newly acquired skill or knowledge etc. In such companies it is called as annual variable pay or bonus or Annual Performance Driven Pay (APDP). Few companies pay the variable pay quarterly too.
10 Ways to invest your Annual Variable Pay or Bonus
Many of us generally spend such annual variable pay or bonus as expenses or vacation trip. But instead of spending such hard earned money, use such money efficiently which can benefit you. Here are the 10 ways where you can invest your bonus or annual variable pay.
1) Pay your high interest rate Debts
Bonus can be the best way to get rid of your debts or small loans. First get rid of the high interest rate debts. E.g. if you have taken any personal loans which carries high interest rates, check the possibility of repaying before tenure.
2) Pay down the mortgage / home loans
By paying the mortgage in lump sum, you can cut down your EMI and save on your monthly savings and feel a bit free in your cash crunch. You can even pay back your home loan and reduce your tenure enjoying the same income tax benefits too for some more years.
3) Put the money in retirement savings
Investing in PPF or Tax Saving mutual funds for long term can help you to saving money for the old age along with saving income tax year on year.
4) Invest in real estate
If possible, try to invest in real estate which may be in the form of a small plot or land. Another way is to invest through Real Estate Investment Fund (REIT), where one can own a part of real estate property by investing a minimum of Rs. 1 lakh. It acts like mutual fund in which you own a part of property and reap the returns in the form of rent and capital enhancement.
5) Build an investment portfolio
You can build a good portfolio of mutual funds or stocks. This way one can pave his own way for extra income in the future.
6) Review life and health insurance policies
In case you have no life or health insurance cover or fully dependent upon your employer, then bonus is the perfect thing to get yourself insured and put all your other expenditures on hold. You can also check how much insurance you may need as an additional step to check whether you are under insured,
7) Build up an emergency fund
You can use your bonus to build an emergency fund. One can prepare himself or the contingencies of life that may arise any time anywhere.
8) Invest in Sec. 80C
If you have any scope left to invest in the tax saving scheme, then allocate amount of bonus towards saving taxes. Investing your money during May/June in various tax saving options would help you to plan your tax in advance for the financial year.
9) Invest for your child education or daughter marraige
You might be good today, but in future you may face cash crunch for your child education. Why don’t you invest in a good mutual fund scheme today which might be helpful for your child education or for your daughter marriage? Think Think Think.
10) Plan for vacation
Last, but not least, if you think that all above options are already explored by you, then, you can Plan for vacation. Yes, this is not an investment, but it can help you to regain your energy for your daily routine office work or from your business which can help you to work smarter in future.
Be cautious: Don’t start day-dreaming with the amount of bonus declared to you. It is going to be a bit smaller because of the deduction of income- tax. And if your bonus is bigger than your regular pay-cheque, the rate of taxation may be higher.
Conclusion: Bonus is always a very pleasant surprise that an employee receive. Utilizing such variable pay or bonus in efficient manner would help you to have good financial planning for your future.
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Ways to invest your Annual Variable Pay or Bonus