Ever wondered how to make the most of your salary hike? It is an exciting time, but it is important to consider how to readjust your investments to ensure long-term financial security. One key aspect to consider is term insurance, which provides financial protection for your loved ones in case of an unfortunate event. Using a term insurance calculator, you can determine the ideal coverage that suits your needs.
Investments After Salary Hike
Readjusting your investments after a salary hike is crucial for long-term financial security. By quantifying your salary hike, reassessing your investment goals, filling any gaps in allocations, and choosing the right investment options, you can make the most of your increased income while working towards achieving your financial aspirations.
As you plan for the future, term insurance plays a vital role in ensuring the financial well-being of your loved ones in case of any unfortunate events. To calculate the coverage you need based on your specific requirements and preferences, use a reliable term insurance calculator. It will help you make an informed decision and secure your family’s future.
Quantify Your Salary Hike
Assess how each part of your compensation has changed and check whether it affects factors such as your provident fund contribution or tax bracket placement. If your provident fund contribution has increased, it means a lower take-home salary. Additionally, exploring investment opportunities can help reduce the additional tax burden if you have moved into a higher tax bracket.
Minimising Tax Liability
Let us say you have been pushed into a higher tax bracket due to your salary hike. By investing in tax-saving instruments such as tax-saving fixed deposits or ELSS (equity-linked saving scheme), you can reduce your taxable income while simultaneously building a corpus for the future.
Increasing Provident Fund Contribution
If your provident fund contribution has increased due to your salary hike, reevaluate your budget and ensure you are still saving enough. Adjusting other expenses such as discretionary spending or non-essential subscriptions can help maintain your savings rate. Consider automating the process by setting up a SIP (systematic investment plan) to invest a fixed amount regularly in mutual funds or ULIPs (unit-linked insurance plans.
Find and List the Investment Gaps
Take a moment to evaluate your financial goals and aspirations. Make a comprehensive list of big and small goals, including short-term aspirations like adding accessories to your car or going on a family vacation, and long-term goals such as retirement planning and funding your child’s education. Prioritise these goals based on their importance and allocate resources accordingly.
Prioritising Goals
Let us say you have three main goals: funding your child’s higher education, saving for retirement, and paying off loans. In this scenario, allocate a significant portion of your increased income towards these priorities.
Start Filling the Gaps
Once you have identified the gaps in your investment allocations, it is time to take action. Here are a few strategies to help you maximise your returns:
Emergency Fund
As your income increases, consider topping up this fund to cover at least six to nine months of expenses. An emergency fund provides a safety net in case of unexpected events such as job loss or medical emergencies.
Step-up SIPs
If you have long-term goals, consider increasing your SIP contributions. This strategy involves investing a fixed amount regularly over a specific period. You can accelerate the growth of your investments and align them with your financial goals by increasing your SIP amount.
Retirement Contribution
Do not neglect your retirement planning. As you receive salary increments, increase your contribution to NPS (National Pension Scheme) or other retirement plans. Doing so can build a larger corpus to ensure a comfortable retirement.
Choosing the Right Investment Options
It is important to select the right investment options to make the most of your increased income. Consider the following factors:
Investment Tenure
Align the tenure of your investments with the duration of your financial goals. For long-term goals, opt for long-term investments such as equity mutual funds or ULIPs. Short-term goals may require more liquid and lower-growth options.
Cost of Investment
Be mindful of the expenses associated with different investment options. Compare expense ratios and understand how they impact your returns over the long term. While ULIPs have fixed expenses, mutual fund expenses are based on the fund value.
Affordable Loss – Diversification
Diversify your investments to mitigate risk. Avoid overexposure to a single asset class and consider diversifying within each asset class. This strategy helps reduce the impact of market volatility on your portfolio.
Partial Withdrawals (Liquidity)
Consider the liquidity options offered by investment instruments. Ensure that you have flexibility in accessing your funds, especially regarding milestone-based withdrawals or emergency needs.
Conclusion
As you enjoy the fruits of your salary hike, it is important to reassess your investments to ensure long-term financial security. Use tools like term insurance calculators to determine adequate coverage for your loved ones. By quantifying your salary hike, filling investment gaps, and choosing the right options, you can make the most of your increased income and achieve your financial goals. Remember, it is about enjoying the present and securing a brighter future.