- Date : 11/05/2023
- Read: 3 mins
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- Check tax implications and take-home pay before spending increment.
- Pay off high-interest loans first, then car loans and more.
- Save atleast 50% of salary hike
- Get insurance plan, particularly medical insurance
Excited about your salary hike? Before you rush to splurge on those long-awaited luxury items, pause and think. A salary hike can mean more than just an increase in your spending limit. It is an opportunity to revamp your financial goals, budgets, and overall personal finance planning. In this article, we will explore how a salary hike can help you achieve your financial goals, make smarter budgeting decisions, and take control of your financial future. So, sit back and read on to discover the power of a salary hike in your financial planning.
Some tips to help you improve your finances:
Understanding tax implications
Understand the complete breakdown of your new salary to compare it to your old one. A raise can affect your taxes and other benefits, so it's best to wait a month or two to see how much more money you'll actually take home.
Paying off your debts
Begin by paying off high-interest loans, such as credit card and personal loans, before addressing car and home loans. Then, consider using your annual bonus to pay off these high-cost loans. If your bonus is low, but your salary has increased, consider asking your lender to increase your EMI. Achieving freedom from debt as soon as possible reduces financial burdens and opens doors to more credit opportunities.
Saving at least 50% of your increment
Generally, if your increment is substantial, consider investing at least 50% of it. For instance, if your increment is Rs 20,000, aim to save and invest at least Rs 10,000 in addition to your regular investments. Let us understand how small amounts or stable investments can reap rich dividends later.
If you invest Rs. 10,000 monthly via SIP and earn a return of 12% CAGR, your portfolio will be worth Rs. 98 lakhs after 20 years. By increasing your SIP by 10% every year, the value of your portfolio will be approximately Rs. 1.96 crore after 20 years.
Retirement Planning and Insurance Planning
To ensure a secure retirement, keep improving your plan and invest in long-term plans like EPF and PPF. Increase your contribution to get a more considerable retirement corpus and term cover.
It is essential to have an insurance plan, particularly medical insurance, to avoid getting into debt during a medical emergency. Increasing the coverage amount with the increment can improve insurance coverage.
The article discusses using salary hikes and bonuses to retire high-interest loans. In addition, various ideas are discussed for financial planning, and you can adopt one or many to suit your specific needs.