While Radhika is enjoying the extra income, she wonders if she is making better use of it. She looks around and finds that there is really nothing to show for the money that has come. She wants the income to make a real difference to her family and wonders what she should do.

It is all right for Radhika and her family to enjoy the extra income she is bringing in, at least initially. But after some time, they should start being responsible for spending this money. With higher income, the family will increase their standard of living but it should not be to such an extent that they will not be able to manage again with a single income when needed. The same caution would apply for increase in EMI. that they are considering. While additional expenses are being considered to create an asset, they should not liability This may be too much for them to manage in a crisis situation. At this stage they should also increase the funds created to manage the situations of loss of income as their expenses and liabilities would have increased.

A good start for Radhika would be to divide her income between discretionary expenses and savings and Investment, Since her income is not required to meet the regular expenses of the family, she can create an investment plan that will help her family meet their wealth goals faster and more comfortably.

The goals that were set aside or cut short due to lack of resources can now be revisited. While making these investments, the family’s capacity is a higher risk They should also be considered for better returns, considering their sound financial position. It would be a good idea to first build a large investment portfolio of stocks, funds, deposits and bonds, which can be accessed and used when needed. Locking all or most of the new income into one house would be a comparatively inflexible option.

Radhika should consider a core portfolio that suits the family’s long-term needs and contribute a certain amount from her income before it becomes available for expenses. This will ensure disciplined savings. He should also contribute to the insurance and tax savings that will keep the outgo in check. All this augurs well for Radhika and her family to optimize the extra income and utilize it efficiently.

Content on this page is courtesy of Center for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.