Did you just receive bonus at work and the first thought is “splurge”? This can be a great mistake. Though you are free to use your funds as you please, making wise money moves can lessen unseen future financial burdens.
If you engage the money to pay debts or for savings, make a suitable plan and follow it promptly; this way, the bonus won’t grow legs and depart. The longer you remain with the money, the more you will be tempted to spend it on wasteful purchases. Here are some ideas on how to use the bonus optimally.
What you should not do
- Accumulate credit card debt prior to your bonus with an aim of paying it off.
- Spend it to treat your friends and family with extravagant gifts.
- Use the entire amount on purchasing electronics and clothing that you’ve always wished to have.
- Concentrate on planning your finances around the same bonus availing the following year.
Tackle credit card debt
Settling down debts can save your money that is otherwise spent on interest payments. According to debt snowball method, you should consider tackling the smallest balance first; as recommended by some financial experts. However, it makes financial sense to settle the debts with higher interest first. For more details on how to effectively and quickly eradicate these credit balances, read “7 Steps to Get Ruthless about Paying off Your Debt.”
Get caught up on past-due bills
If you have any bills that are due, settling them should always be your top priority. Pending bills will put you at risk of interest and slew late fee penalties. Past bills can wreak havoc upon your credit score for not paying them off.
Boost your emergency fund
You may also use the bonus money to boost your emergency savings fund. This way, medical emergency, a layoff or the unexpected event can never cripple your financial well-being.
If you settled on this plan, seek financial institutions that offer great returns for your savings accounts. Remember to check out “9 Ways to Build an Emergency Fund When Money’s Tight.”
Beef up your nest egg or other investments
If you have not considered making contributions to the 401(k), then this is your golden opportunity to get going. You do not wish to miss the free money that comes in form of match contributions by your employer, or tax breaks arising from your contributions. Failure to build a nest today could surely mean that you’ll be poor in you golden years. You should always try to maximize the Social Security benefits.
Yet another advantage of loading your nest egg is the promise of compound interest. It always favors early, smart investors. Once you’ve maxed out your retirements, invest your funds in nonretirement accounts. If you feel intimidated by the entire thought, please seek a good financial advisor. Money Talks News financial expert Stacy Johnson avails some tips on how to find a reputable financial adviser.
Establish a college fund
Do you intend to incur higher learning expenses for you or your children in the near future? Be ahead of time by securing a 529 plan, which will allow your money to grow steadily while saving for college. Furthermore, 529 plan withdrawals are usually tax-free as long as you intend to cater for university or related expenses.
Before subscribing to the 529 plan, consult a financial expert to gage whether alternatives such as the Coverdell higher education savings account, could suit your needs accordingly.
The bonus you received could also fund repairs for those with ancient air conditioning units, have a leaky faucet, install a new safety gate or garage door. Utilize the funds now to handle these problems early enough before they cost you a fortune in the long run. Such home improvements can offer you great pleasure and add the value of your property.
Donate to charity
Donating your bonus money to a worthy course will reduce your tax liability and ultimately warm your heart. To isolate the tax-deductible contributions, consult the IRS Publication 526, or utilize the IRS online eligibility tool.
While it’s worth investing your money wisely, it is only human that you live a little. Allocate a fraction of your bonus such that you self-motivate for all your smart, hard work. You have been working so hard until this point, thus this should your reward. Come up with something you think will make you feel happy and go for it.