1st Jan 2006 was a magic year for Govt servants round the country. The 6th pay commission was operational from that day and had started working on the 10 Year ritual. It did take some time to give its final recommendations, but it was touted as one of the best pay commissions that Govt servants in India had seen. People got a good increase in pay and allowances, hefty arrears and there was rejoice all around.
Even before it had come around physically to all, most of the defence officers had already planned its expenditure. Some had to buy a new car, some a great vacation (alas! there were no selfiesof the vacation spot to post on facebook at that time), some for white goods and some to pay off loans etc. Some even indulged in risky bets like direct stocks or commodity/derivatives play without an understanding. And since it took a long time for the arrears to actually come, they were pretty hefty when they finally came. So lots of dreams got fulfilled and financial satisfaction achieved.
While the bulk receivables were planned for, hardly anybody planned to deploy the good monthly increase in take-home pay even after the hefty taxation. Consequently, the increases got absorbed in the routine and the lifestyle expenses adjusted to take it in without any real long-term benefit accruing to most of the officers.
But where’s all that money now?
Today, do you remember where haveyour 6th pay commission arrears or increase of pay gone to? Or for that manner the 5th or 4th pay commission monies? Has it really contributed to your family’s lifestyle or got something tangible or intangible for you? Most of the people would not really be able to answer this question unless, by chance or by design (or by mistake!), they invested the bulk amount in a credible financial or physical asset or used the monthly increases in salary to pay installments of a loan, or better still, start fresh Systematic Investment Plans (SIPs).
Are you on the way to repeat the same with your 7th Pay Commission (CPC) money – bulk as also monthly increases? Have you made a credible plan to utilize both effectively so that when 8th CPC comes around, you can look back with satisfaction and pinpoint how the decadal exercise adds real value to your family’s life?
So, What should you be doing then?
You have many options for the bulk that will be received as also the monthly increase that will come in your pay. Our suggestion is as given below:-
Bulk Amount: You should use this to pay off your large loans – definitely the expensive credit card and personal loans, car loans, loans against property (LAP) and any other loans that you’ve taken like the white goods loans. It also is a good occasion to at least part pre-pay your home loans and bring down your overall interest burden. If you are fortunate enough not to have any such loans, look at investing this money wisely.
Monthly Increase in Pay: Whether you realize it or not, this is the part which will create your future wealth and give you the ability to meet your long-term obligations. As they say, little droplets make the mighty ocean. You are likely to receive about 15% increments in your gross pay. Instead of following Murphy’s Law and let your expenses increase to absorb the hike like the last pay commission, use this for systematic investing on a monthly basis. And start the process of setting up this systematic investing now, rather than wait for the money to start coming in. Research has shown that if the plans are put into motion well before money actually comes in, the chances of the investment plans surviving beyond a few months are almost 100%.
And what should you invest in?
Getting into a carefully worked out combination of Equity and Debt funds would be a very good idea for the long term as per your future requirements and risk profiling. Make a good and balanced portfolio of mutual funds and start off with monthly SIPs (Systematic Investment Plans) of a MF portfolio. If you don’t have any requirements of the bulk amount, plough that bulk too here. If the requirement for the bulk amount is later, use Liquid Funds to park them and get a better return with flexibility to take it out whenever you want in whatever number of installments.
Make your money count. When 8th CPC comes, you shouldn’t be left wondering where did your 7th CPC money went!!
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