Four Immediate Things to do After Salary Increment
So, after years of hard work, you have finally been rewarded with a salary increment. Big Congratulations! Landing a raise at work is certainly a great achievement. A salary increment is a reward for all those long nights and working weekends you have put in to give it your best to the company. It helps you justify the job you are doing and also make you feel like an intrinsic part of the company. But a salary increment is more than just that.
An increase in your pay has significant financial implications – good and bad – for you. The extra influx of funds is a motivator. More than that, it helps you improve your standard of living. So, now, you can move to a bigger house, buy that dream car you want, go shopping and do much more. However, with a salary increase also comes a huge responsibility.
As your standard of living rises, your life insurance plan needs enhancement too. Further, the home and car you buy with extra money also have debt implications, which your family might need to pay off in case of your unfortunate demise. Apart from this, a salary rise also means you will fall into a higher tax bracket. And unless you plan wisely for tax minimization, you might end up paying a hefty tax bill.
So, when you get a raise at work, think about how you can benefit from the increased earnings. You must enjoy the success your hard work has brought you, but you must also remember to continue to grow your net worth and ensure your family has an expanded financial security net.
Here are four immediate things to do after you receive a salary increment:
Review your life insurance plan:
You might be all excited to spend the extra cash on improving your standard of living and buying those things that you have always dreamt of. But there is one thing you must realize is that as you enhance your standard of living and your family monetary requirements increase, you will also need to upgrade your life insurance plan.
Your previous income plan might only be sufficient to financially cover your family before the salary increment. However, as your salary increases, you need to widen your personal income insurance plan to ensure it is sufficient to support your family in case of your unfortunate demise.
As per experts, your life insurance plan must at least be 10 times your annual salary. So, when you get that salary increment, the first thing you must do is enhance your current life insurance cover. If you do not have a life insurance plan, now is the right time to buy one.
You can consider investing in an income plan that gives you the dual benefit of a life insurance plan and guaranteed1 returns. Your family can use the sum assured received from the income plan to meet their everyday costs and keep up with the way of life that you were accommodating them.
Increase your net worth:
As you receive salary increments, your life and other financial objectives change. You might want to travel more frequently, send your kid to a better school, collect a larger corpus for your retirement and much more. However, for this, you should put the extra inflow of money to wise use. Instead of immediately splurging your salary increment towards consumable expenses, it is more prudent to direct those funds to grow your wealth in the long term.
If you are a risk-taker and want high returns related to the market, you can consider investing in ULIP (Unit Linked Insurance Plan). ULIPs give you the benefit of insurance and investment combined in one. You can invest in market-linked funds, such as equity, debt and balanced funds, as per your risk tolerance, investment horizon and financial objective.
Making a smart investment with your salary increment will prove beneficial in the long run.
Pay off debts:
As you start to earn a higher salary before you plan to spend it, you may use the surplus money to pay off any pending financial liabilities. So, if you get a salary increment, think of the debts that you can easily pay off using that money. You can pay off the home loan or car loan EMIs, get rid of any personal loan, pay the pending credit card bills, etc.
The objective is to reduce your debt so that your financial burden decreases, which ultimately contributes towards growing your wealth. You should get rid of the high-interest debt as soon as possible because it can devour your hard-earned money. Moreover, as you reduce your debt to eventually become debt-free, you will have more peace of mind knowing that your family will not be burdened with any financial liabilities in case anything was to happen to you.
Plan for taxes wisely:
On the good side, a salary increment means an additional influx of money. However, on the downside, it also puts you in a higher tax bracket. This means that unless you plan for your taxes wisely, you might end up paying a hefty tax bill. You can reduce your tax burden and also contribute towards increasing your net worth by investing in the right financial instruments.
You could invest in a life insurance plan, like a personal income plan, ULIP etc., that suits your needs. The premiums you pay for your life insurance plan are exempt from taxes* under Section 80C of the Income Tax Act, 1961. Moreover, the death or the maturity benefits received from these life insurance plans are also free from taxes* under Section 10(10D), provided specific conditions are met.
This means that you can easily reduce your tax* liability by investing in a life insurance plan.
Getting a salary increment at work calls for both celebration and financial planning. Wise utilisation of the extra income can lead to long-term benefits. Make a wise decision and choose plans like Value Income plan(UIN- 110N153V01) from TATA AIA Life Insurance to secure your and your family’s future.
Tata AIA Life online payment of premiums and guaranteed1 returns are also tax* exempted.