It’s that time of year again when many of us are thinking about our year-end bonus. Whether you’re planning on using it for a big purchase, investing it, or just saving it, here are a few smart moves to consider.
Hello, everyone It’s a bright, sunny day in the world of Corporate America. The economy is recovering, companies are sitting on lots of cash, and year-end bonuses are making a comeback.
If you, my friend, are you the proud owner of a new chunk of change, congratulations! Your boss recognizes your commitment to hard work. I do too, and I give you a pat on the back, a gold star, and a high-five!
Since you want to be sure you use that one-time windfall the right way, EndofDiscussion compiled 20 smart money moves for your year-end bonus.
BUT! First things first, before you even about using your year-end bonus, here are some best practice pointers:
Best Practice Pointers Before You Spend Your Year-End Bonus
- Don’t spend it before you get it. You likely don’t know how much your year-end bonus will be, or how much will be taken out in taxes. If you rack up credit card debt expecting you can pay it off with a bonus, and you don’t get that bonus, you’ll be in for an unpleasant new year.
- Move your year-end bonus to a savings account ASAP. You don’t want to accidentally burn through your bonus just because it was sitting in your checking account, subject to the whims of the holiday spending season.
- Sit on your bonus while you decide your best course of action. There’s no need to make a move right this second (and you may be better off by letting your emotional dust settle).
- Use 80% to improve your financial life and future opportunities, and use 20% for play. In my mind, it’s REALLY important that you enjoy a portion of your bonus.
When you take time to enjoy what’s been given to you, you create a good feedback loop:
Work hard–>Enjoy the fruits of my labor–>Feel good about working hard–>Want to work harder, etc.
When you fail to enjoy your bonus, you may end up instead in a downward spiral:
Work hard–>Hoard money–>Feel like work only helps you “get by”–>Resent your work–>Work less hard because you’re only “getting by” anyway–>Life sucks.
See why that’s important?
And now that we have that out of the way–
The 20 Smart Money Moves for your Year-End Bonus!
- Pay off any high-interest credit card debts. You’re so ready to be done with them anyway!
- Build up your emergency savings to 3-6 months of expenses.
- Build up “future expense” savings, for things like a car, house down payment, babies, travel, quit-your-job-to-start-a-business funds, etc.
- Ask your employer how to direct a portion of your bonus to your 501(k). (Note: Your standard contribution will likely be automatically taken out of your bonus, but you can elect to contribute more!)
- Increase your 501(k) contribution for the next year and use your bonus to help improve cash flow in the short term.
- Open or fund your IRA or Roth IRA.
- Start educational savings plans for your children.
- Pay off a chunk of your mortgage, student loans, and other “good debts” (depending on your tolerance for debt and your long-term goals).
- Make home improvements that increase the value of your property.
- Get vehicle repairs that extend the longevity of your ride.
- Pay for industry conferences and industry organization fees that will help you network and get ahead in your career.
- Invest in certifications or education that will help you transition to your “dream” job.
- Give to your favorite charity (use the Charity Navigator to check on how wisely they use your donations)
- Start a small non-retirement brokerage account to learn about investing.
- Save for any taxes you’ll pay in April.
- Sell some under-performing investments, and use your bonus to fund any capital gains tax hit you may incur.
- Consider life or disability insurance, and use your bonus to fund the premiums.
- Hire a financial planner, accountant, or estate planning attorney to protect yourself and your family.
- Upgrade your household appliances or windows to be more energy efficient.
- Invest in a collectable that will appreciate in value, like fine art, jewelry, watches, or something else.
So enjoy this, and remember that this advice isn’t limited to your year-end bonus. In the event you receive a large windfall of any variety, check back here and see how you can strengthen your financial position and increase your overall net worth.
Happy bonus season, and Happy Holidays!!