Employees Provident Fund (EPF) higher contribution to NPS, PPF: 6 things to do after salary hike

What to do after salary hike? Investing is a long-term process which requires regular review and adjustments along with changes in the financial situation of an investor

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Impact of Budget 2023 on salaried employees

Employees in India can expect a salary hike of 10% or even more in 2023, according to various surveys. Financial advisors suggest that getting a salary hike is an excellent opportunity for an employee to reassess his/her investment strategy and make any necessary adjustments.

Salary hike provides a tempting reason for an employee to increase spending in proportion to his/her increased income. However, increasing daily or monthly spending is not the best approach for long-term financial stability. Instead, one should try to save as much as possible in view of job uncertainties and the rising cost of living. For instance, a calculation suggests that you may require Rs 6 lakh on retirement after 30 years if you are spending Rs 1 lakh today.

It is also important to understand that investing is a long-term process which requires regular review and adjustments along with changes in the financial situation of an investor.

Also Read: How salaries increased in 5 years and what you may get in 2023

Vineet Patawari, co-founder and CEO of StockEdge, says that by keeping your expenses in check and avoiding lifestyle inflation, you can increase your savings and have more money available to invest.

For example, if you receive a 10% salary increase, but only increase your expenses by 5%, you’ll be able to save and invest the remaining 5%.

“Over time, these savings can add up and compound, resulting in a larger investment portfolio and more financial security,” says Patawari.

For any salaried employee, it is important to strike a balance between enjoying the fruits of labour and investing for the future. By keeping expenses in check and prioritizing savings and investments, employees can achieve a secure financial future while also enjoying the present.

6 tips to readjust investments

If you receive a salary hike this year, you can take the help of the following five tips shared by Patawari to readjust your investments.

Revisit your financial goals

Review your financial goals and see if they have changed during the year. With an increase in salary, you might like to increase allocation towards a particular goal. If you have any high-interest loan, then prioritize the repayment of it.

Increase your contributions to Retirement Planning like EPF

If you are enrolled in the Employee Provident Fund (EPF), consider increasing your contributions to take advantage of the higher salary. This will help you build a stronger retirement nest egg.

Invest in mutual funds

Consider investing in mutual funds that align with your financial goals and risk appetite. Mutual funds are a popular investment option in India, and they offer a range of benefits, including professional management, diversification, and liquidity.

Diversify your portfolio

Diversification is important to reduce risk and maximize returns. Consider investing in a mix of stocks, bonds, and other assets that are aligned with your risk tolerance and financial goals.

Consider tax-saving investments

With a higher income, you may be subject to higher taxes. Consider investing in tax-saving options, such as Public Provident Fund (PPF), National Pension System (NPS), and Equity-Linked Saving Schemes (ELSS) to reduce your tax liability.

Consult a financial advisor

Consider working with a financial advisor who can help you navigate the investment landscape and provide tailored advice based on your unique financial situation and goals.

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First published on: 03-03-2023 at 12:55 IST
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