What To Do With Your Bonus Money

After setting aside funds for a small treat, you can use the remainder of a work bonus as an opportunity to meet your larger financial goals. Financial plans are extremely important when it comes to the best. So make sure to use some portion of your bonus to increase or establish your emergency fund. Also, you want to keep this in a very liquid account, such as a simple savings account. This is not money you want to be investing, as you might need to tap into it in just a moment’s notice. Read more about building your. Another way to be proactive with your bonus money is to open or contribute to a 529 plan. Williams says this is an especially smart solution for people with younger kids.

Regardless of bonus size, I encourage you to use your bonus money intentionally and thoughtfully, which means you need to start your work well before you actually get the bonus money! Do you want to make sure you’re not wasting the opportunity your bonuses. Salaries with bonuses or commissions are offered at a majority of businesses, according to CNN. It can be tempting to use your bonus to treat yourself, like splurging on a luxury item or vacation.

For many of us, bonus season sparks these big ideas of purchasing a new watch, going on vacation, or buying a new car. While I’m the first to admit that I enjoy all of the above, and truly believe that rewarding myself for a job well-done can help create a habit of continuing to excel, I still maintain that it’s crucial to spend intentionally, and to have a plan to make sure that you put yourself first.

‘Putting yourself first’ can mean many things. You could buy something really nice, or invest towards furthering your education, or take a course on a topic that you were always interested in. But putting yourself first also means taking care of future you.

So, today, I want to focus on a few ways that might not be first to your mind when you think about what it means to put yourself first.

Paying off bad debt

“A man in debt is so far a slave.” - Ralph Waldo Emerson

To start, you should use a portion of your bonus to get rid of any lingering credit card debt that you might have. Even credit card debt can stack up and seriously hurt your financial health. With many credit cards charging upwards of 15% in interest, it makes sense to get rid of any balances as quick as you can.

Stock up your emergency fund

Traditional advice says to have between 3 and 6 months of cash saved up for any emergency that life might throw at you. This could be anything from being laid off from work to the broken refrigerator that needs repair or replacement. Having enough cash to pay for these unforeseen events will alleviate the financial stress that can come with disaster or mishaps. Trust me, you’ll thank yourself later for having this in place and stocked up when you don’t need to worry about how you’ll pay for a medical bill or repair charge. So make sure to use some portion of your bonus to increase or establish your emergency fund. Also, you want to keep this in a very liquid account, such as a simple savings account. This is not money you want to be investing, as you might need to tap into it in just a moment’s notice.

Read more about building your emergency fund here.

Increase your retirement contribution

Remember me earlier talking about putting yourself first? Take that hard-earned cash, and make it work for future you. Bonus season is one of the best times of the year to add to your retirement goals, because that lump sum can accelerate the effect of compound interest that much more. When you’re selecting a retirement plan, don’t fall into a generic investment product. Take the time to find one that reflects your personal timeline and risk preferences. The worst thing you can do is to not have your investments in line with your risk level, because if you’re overly aggressive in your accounts, but in life you are more risk-averse you could find yourself worrying and losing sleep over it. Retirement is a long-term game that includes the ups and downs of the market, but rewards you for staying the course on your terms.

Put money towards your big life goals

Your debts are paid off, you’re comfortable with your emergency fund, and you’ve contributed a little more to your retirement plan. So now what? After knocking those off, and you still have more money to allocate, why not craft a plan and chase the other goals you’ve had in mind? Whether that’s saving for a downpayment towards a house or flat, or perhaps you always dreamed of starting your own business, these goals take significant amounts of money. This is a great time to create an action plan to figure out how to achieve them, starting with a little extra cash to give you that initial push.

Treat yourself and have fun

So, the first four topics may not have been the most fun. Receiving a bonus is a testament to a job well-done, and now is the time to reward yourself. Go and take a small portion (10-20%), and spend it on whatever you like. For some, it might be a new handbag, and for others, it might be the joy of giving back to the community, or taking a weekend trip. Whatever you fancy, treat yourself and others so that working hard for that next bonus is always a fun and rewarding journey.

It always feels good to get some recognition after a big project or a successful quarter at work.

It’s even better when the praise comes in the form of a cash bonus. It’s rewarding and a sign of your company’s appreciation.

Once the money is yours, you may be dreaming of how to spend your bonus. Sure, there are plenty of ways to treat yourself. Before blowing it all in one place, consider all your options. Here’s how to narrow down your choices for what to do with a bonus.

Here’s how to narrow down your choices for what to do with a bonus.

How Should You Use Your Bonus?

You have a lot of options when choosing what to do with a bonus. It’s important to know there is no one-size-fits-all solution. It depends on your family’s unique financial situation and goals.

You may consider adding to your emergency fund and other savings. Or, you may be anxious to pay off high-interest debt.

If you are eager to invest more money, that may be worth considering, too. Before making a quick decision, weigh the pros and cons of each of your options.

Option #1 – Save your bonus

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We get it—of all your options, saving may not be your top pick for how to spend your bonus.

But it could be an easy way to beef up your emergency fund. Car repairs and medical bills often happen when you least expect them.

By saving three to six months of living expenses, you should have enough to tackle most of life’s curveballs.

Option #2 – Use your bonus to pay off debt

Another less thrilling choice for how to spend your bonus is paying off debt.

If you are wrestling with more than one type of debt, see how much you are actually paying in interest.

Not all debt is equal. High-interest debt like credit cards may cost you more over time—making them harder to pay off.

By using your bonus to pay them down, you may save a lot of money on interest. This will free up cash for your future priorities.

Option #3 – Earmark your bonus for investing

If your emergency fund and debt are in a good place, investing is another choice for how to spend your bonus. Before diving into investing, always consider your risk-tolerance and goals.

One of the best places to start is your company’s retirement plan. Contribute at least enough to receive your company’s match.

After that, you will have a few more choices. You can continue saving for retirement with your workplace plan.

Or, you can save with an individual retirement account (IRA).

If you have children, it may be a good opportunity to contribute some extra money to their college fund.

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529 college savings plans are an excellent, tax-savvy way to set money aside.

Alternatively, you may choose to invest in short-term goals like a wedding, buying a home, or a vacation. Apps like Twine make it easy to reach your goals.

Option #4 – Spend some of your bonus

If you’re feeling confident about your other financial priorities, you may prefer to enjoy the fruits of your labor.

After all, there is nothing wrong with spending part of your bonus on, well, whatever you want.

You may be eager to enjoy a celebratory meal and cocktails with your friends. Or, you may be ready to splurge on a new pair of noise-canceling headphones.

Either way, you don’t have to feel guilty about treating yourself. Building in small splurges is an excellent way to stay on track with your long-term financial goals.

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How to Spend Your Bonus

When it comes to how to spend your bonus, you will find that everyone has an opinion.

What To Do With Your Bonus Money 2020

It may be tempting to try and keep up with your colleagues, but everyone’s situation is unique. The best choice for what to do with a bonus looks different for everyone.