Everybody loves having some extra money on their hands. It is certainly true that money cannot buy happiness, but can you deny that having extra money can make your life more comfortable? You don’t wish to hoard money for hoarding sake, but you need to provide a comfortable life for yourself and your loved ones. So if you have some extra money on your hands, it is important to spend it on something worthwhile.
So what should you buy for yourself from the money? We’re afraid we don’t have suggestions on getting a good deal on an iPhone or a new music system for your car. We’ve got recommendations that will help you build wealth if you invest your extra cash on:
#1 A Unit Linked Insurance Plan (ULIP).
A ULIP is an insurance-cum-savings plan that offers the dual benefit of life insurance coverage with controlled market exposure. This means that a part of your premium is paid towards the life insurance policy, while the other is invested in high grade securities. Over the course of the ULIP policy, you gain good returns over the investment based on market performance. However, even if the markets perform badly during the ULIP plan tenure, the life insurance component remains insulated. You can even switch between equity and debt securities to steer the ULIP policy in the desired direction.
#2 Health insurance.
Another vital thing to buy if you have extra cash, is a good health insurance policy. It has become imperative to buy health insurance in today’s times, what with the widespread Coronavirus menace and exponentially high healthcare costs in India. If you or a family member falls ill or suffers an accident in the future, your savings and investment corpus will take a massive hit to pay hospital bills, daily medicines, ambulance costs and surgical expenses. A health insurance policy that covers you and your family members is the need of the hour.
#3 A house.
You will need much more than extra cash to buy a house, but why not take the first steps towards owning a property this year? Shortlist homes within your budget and gather the funds to make a down payment on it. The rest can come from a home loan, provided you have a good credit score and repayment ability. Do remember that the down payment, registration and stamp duty costs must be borne by you, while the home loan pays maximum of 80% of the house’s value. Despite all these costs, think of how glad you will be when you can move into your dream home!
#4 A tax-saving fixed deposit.
A tax-saving fixed deposit is offered by Indian banks and NBFCs for a period of five years. True to its name, the fixed deposit does not attract any tax deductions in the form of 10% TDS that is applied to other FDs whose interest income exceeds Rs 10,000 in one year. At the end of five years, you can create a fresh 5-year FD with the matured corpus for higher returns while still not being taxed on the income.
#5 A dedicated savings account.
Extra cash is always welcome, but it must not be left lying around and spent on trivial things. If none of the above options interest you at the moment, we suggest putting the cash aside in a new savings account. Start the savings account with this money, and aim to save a fixed portion of your income in the account every month. Even if you save Rs 5,000 every month, you will have Rs 60,000 to spare at the end of the year. The savings earn interest every year, but you can invest a bulk of the corpus in a suitable short term investment like liquid funds, two-year recurring deposit or ELSS (Equity Linked Savings Scheme) for higher returns.
How to plan for a rainy day
If you don’t have the faintest idea about how to create wealth for the future, we suggest you team up with an experienced financial planner who can create a realistic roadmap for you. The planner studies your income, expenditure and current investments, and lists your future goals. Accordingly, they can guide you on making new investments, closing old ones that are low yield, curbing certain expenses, and so on. This helps you acquire the focus and knowledge you need to create wealth with an expert’s guidance.
Checking market trends and making low risk investments in SIPs is also feasible, and you can do this on your own after some research. Similarly, you can open a Public Provident Fund (PPF) account online with a bank that offers this instrument, or buy shares in a high performance company based in India.