7th Pay Commission hikes notified: As the payout day approaches, FeMoney spoke to a few personal finance advisors to bring you some last minute tips on how to use the increased money that will flow into your accounts.
The 7th Pay Commission hikes have been notified by the government and the increased money is soon likely to flow into accounts of nearly 1 crore central government employees and pensioners.
The minimum salary increase will be in the range of Rs 7,000 to Rs 18,000 depending on the employees’ grade. The overall increase in salaries and allowances will be in the range of 23.5 per cent. However, a committee set up by the government will give its final views on the allowances within the next months.
Also, the government has decided that arrears would be paid with effect from January 1, 2016, and that payments would be completed within the current financial year itself.
As the payout day approaches, FeMoney spoke to a few personal finance advisors to bring you some last minute tips on how to use the increased money that will flow into your accounts.
“The increase should help you meet your dreams, responsibilities and obligations that you would’ve otherwise struggled to meet. Children’s higher education, marriage, home, etc are all more easily achievable if these small droplets are accumulated to make an ocean,” Sanjeev Govila, CEO, Hum Fauji Initiative, said.
He advises inprovement of your quality of life through the pay increase. “It should not happen that after a few months or a few years you regret that the additional increment simply went to fund your lifestyle expenses without actual increase in your quality of life,” Govila told FeMoney.
Arvind A Rao, founder Arvind Rao and Associates, says debt repayment should be an integral part of the future financial plan with the additional money. Rao says that arrears should be used principally to retire debt. “Nearly 60 per cent of the arrears should go into debt repayment and the rest be invsted for other life goals,” Rao said.
Sanjeev Govila, too, advises debt repayment as a principal goal. Here he breaks up the inflow into the parts that you would get – arrears and monthly salary increase – and tells us how best to utilise each of the parts.
Here are what Govila would like you to do with the money:
Dealing with arrears:
“The best way to utilise arrears it is to retire debt, if any. This implies that one should try to reduce the loans taken – costlier loans first,” Govila says.
Step 1: Repay debt – A logical order to pay off the loans should be personal loans, product loans (taken for vehicles, durables, jewellery etc), loan against property, and lastly, home loans. It not only reduces the interest payment, but there is a big psychological relief too when a loan is paid off, however small.
Step 2: Create contingency fund – After the loans have been paid off, if money is left, a contingency fund, typically equal to about three months’ expenses (including all loan payments) should be created or topped up, as the case be.
Step 3: Make tax-related investments – Any further money available should be directed towards tax- related savings for the financial year. Given the small amount of arrears likely to be available this time, these priorities should take care of it more than adequately.
Dealing with monthly increment:
“More important this time will be the monthly increments that will become available,” says Govila. The additional monthly amount is likely to be in the range of 23.5 per cent in all.
Govila says the monthly salary hike should go to meet long term goals. “Rather than aiming to go in for a ‘better lifestyle’, or buy that long-pending big car on loan and pay EMIs, it will be better to take a look at your long-term goals and how this additional monthly increment can be used to fortify them,” he says.
He advises the following investments:
- Increase your PF contribution – this will create a reasonable corpus for your retirement years
- Start or increase of mutual fund SIPs (Systematic Investment Plans) – Investing through SIPs would ensure that your money is handled by professional fund managers and you do not run the rik of losing money if market fall since you will be adding more units at lower levels. In the long run, a good SIP would lead to good wealth creation
- Invest in recurring deposits – These deposits would also add to your long-term wealth by giving assured returns while reducing risk of capital erosion.