How to spend your gratuity

OK, so you’ve put in your papers and said your goodbyes. It’s time to hang up that hat, belt out that swansong and say hello to the winds of freedom. Soon you’ll also have that share of cash you’ve worked so hard for.

But whether you’ve made pocket change or enough to live off for the rest of your life, be careful; it’s easy to squander it away.

But this is not about rules – you never know which expenses will blindside you and when. “Irrespective of the amount, it depends on the priority of the person,” explains Khetra Reddy, Senior Wealth Architect at Elixir Wealth Solutions, about investment.

Give it back

However, he lingers on debt repayment. “Should a person [have] debts, then with the gratuity money the person would prefer to settle those before leaving the country for good,” he says. Understandable – non-payment may mean legal trouble if the person tries to sneak back in.

Saving time

Plus, he adds, it is not treat money, consider it a nest egg. “It’s highly recommended that the person should not consider using the gratuity money [up]; the stated money can help then setting up an annuity plan for their retirement such as pension schemes from various financial institutes or government annuity schemes. Even if the gratuity payment is low [in] initial years, it tends to accumulate in years to come”.

Investment?

Don’t take risks with it; you want to keep these bills. “It’s not advisable to go for high risk/return proposition such as high risk equity schemes with this pot of money as chances of losing the capital is high.” Instead, invest in capital-protected instruments such as capital secured bonds and principal-protected saving plans.

Moving back home to retire and unwind? Great idea; use your gratuity to cushion the dip in income. “The gratuity pot of money should be in the safe instruments which provides fixed income on a monthly basis such as fixed deposit, income notes.”

Ask yourself what are the income, expenses, charges, taxes, currency and the risk/reward options that are beckoning. Make lists, then take a level-headed decision.

Can they keep my gratuity from me?

Consider the nightmares as part real. While most companies do not create trouble while paying someone out, there are times when there’s a hiccup. “The company may consider not to pay the gratuity when the employees’ liability with the company is equal to the amount of gratuity or company grantees any debt on behalf of the employee,” explains Reddy. “As a precautionary measure the company should always carry out periodic review about the employees’ liability and educate them to manage their finances better.”

On a side note

P.s: if you are involved in financial fraud or knowingly incur financial loss to the company, the odds of you getting any gratuity is slim. “The company may settle those losses with that pot of money rather releasing the gratuity fund to the respective employee.”