Its that time of the year in which you’re anxiously waiting to recieve your end of the year bonus or you’ve even recieved it, nice one mate, feel free to treat yourself. You’ve earned it. But resist the temptation to blow your entire check on some very luxurious fun. Excessive spending isn’t the smartest way to handle your bonus.
There are tons of other options that will be better in the long run, but could make you want to pee your pants today, too.
Increase your 401(k)
Ideally you’re already putting money into your 401(k) retirement account if you have the option, but, if possible, you also want to get in the habit of increasing your contributions consistently. A year end bonus is a great opportunity to double or even triple your investment
Diversify your Retirement Savings.
Enrolling in your employer’s 401(k) plan is a good start, but it’s smart to consider alternate retirement savings accounts too, such as a Roth IRA, a traditional IRA and/or a health savings accounts (HSA). It might be worth directing some of your extra money towards one of those options as it would give you the opportunity to see what other companies are offering and to decide which one will be better for you in the long run.
Bonus points if you set up automatic contributions so your account continues to grow over time.
Note: While anyone can contribute to a traditional IRA, your income may disqualify you from the tax benefits. If you contribute to an employer-sponsored retirement plan and your income exceeds certain levels, the amount you can deduct may be limited. And if you’re interested in contributing to an HSA, keep in mind that you have to have or apply for a high-deductible health care plan (HDHP).
Build an emergency fund
Only about 35 percent of the population are prepared for an emergency, and 55 percent of millennials couldn’t cope with a $1,000 crisis.
Experts agree that it’s smart to have three-to-six months’ worth of savings tucked away, or even more, to help protect you in case of disaster. If you’re not there yet, use at least part of your bonus to prepare for a rainy day.
Pay off any lingering debt
If you have student loans, car loans or credit card debt, a bonus can be a great way to get out of the red more quickly. Especially if the interest rate on your debt is high, getting rid of your loans as fast as possible will help you avoid having to pay thousands of dollars extra.
Chip away at larger savings goals
Chances are, big purchases are in your future, such as a home, car, grad school or education for your kids. Use at least some of the extra money to get a head start on saving. Months or years from now, you’ll be glad you did.
Consider other investment vehicles
Investing is one of the most effective ways to build wealth, and an unexpected bonus could be a good opportunity to get started.
Look into automated investing services known as robo-advisors, some of which have been shown to outperform actively managed funds and even index funds. That said, low-cost index funds, which investing legend Warren Buffett and billionaire Mark Cuban both recommend, are also a smart bet.
Invest in yourself
One of the best investments you can make is in yourself.
Take a chunk of your bonus and use it to further your education by enrolling in a course, attending a business conference or investing in books.
That can also mean investing in your health. Consider making room in your budget for a gym membership, exercise classes or a fitness-magazine subscription. Whatever helps you take care of yourself in the long term.
Try donating a portion of your windfall to a cause you believe in. Besides helping others in need, you may find that it boosts your mood and overall life satisfaction.
Before giving away any money, do your research on the organization you’re interested in contributing to and read up on tax-friendly ways to donate.
You’ve worked really hard, so spend some of your bonus on a reward, like a holiday, or buy an item that the whole family can enjoy, for example, a TV or a computer. Choose something worthwhile or that adds value to your life.
Other good options are to spend money on home improvements, like fixing the roof, painting walls or replacing kitchen surfaces, as this will add value to your property. Or cover upcoming expenses, such as your children’s school fees.