‘Tis the season for an expected or unexpected bonus payment at work. Many people are fortunate enough to work for an employer who recognizes their hard work.
What to do with it? Depending on your situation there are different answers.
Save it – Saving it would be a smart option. Beefing up (or starting) an emergency fund is a great idea. Read most any article and you’ll see this is a foundational step. How much to save? That depends. Dave Ramsey says 3-6 months; Suze Orman says 9 months. I am a fan of Suze on this one. There is nothing like having some cash when things don’t go as expected.
Invest it – Adding additional funds to your retirement savings is always a good move. Whether you can defer more into your 401(k) or IRA, your older self will thank you for doing so. I frequently ask myself when I am thinking of spending money needlessly whether my older self would care that I spent money on XXXXXX. The answer is always no. This helps me clarify needs vs. wants. Not to say I don’t spend on wants, I just don’t get into the stupid zone with it.
Pay Down Debt – If you have debt you are trying to clear, then this might be a great opportunity to gain some ground on it. Using an annual bonus to make an extra principal payment on your mortgage can reduce your interest in addition to scheduling that “burn the mortgage” party earlier!
Education – Have you wanted to take a class or start on a degree program? This might be the jumpstart you need. Have kids? You could put it into their 529.
Home Repairs – There might be a home repair you’ve been putting off that you would love to tackle over the New Year. This has the potential, depending on the repair, to increase the value of your home. You could do something big like a new furnace or something small like replacing your kitchen cabinet knobs with something new.
Spend it – Maybe you had plans and were saving up for something special and this puts you over that magical amount. Balance out your spending with other priorities. While items are nice, sometimes spending on experiences is well worth it, especially with family.
Donate it – I have a friend who donates her annual bonus every year split between her local church and a variety of good causes on her list. Some good ideas are food pantries, hospitals, conservation groups, homeless shelters or even a friend, family member or neighbor in need. There is no better feeling than being able to help somebody else.
Any of these or a mix of them would be great choices. The important thing is to plan out whatever you are going to do with it. You will then avoid that awful feeling of regret.
Do what you do intentionally. Your employer gave you the bonus to reward you for your hard work this year. Follow through and continue to do a good job for yourself.