Not everyone who works hard all year round gets a year-end bonus as a thank you for a job well done. But many companies to do have a habit of rewarding workers in the form of a lump sum in cash.
If you get a year-end bonus, you might be tempted to spend that money on something fun, like a vacation. After all, it is extra money that you have earned and therefore you deserve to make the most of it.
Before you rush off to spend that bonus on something fun, recognize that such great deals might not come to you that often. You may want to consider using this money to deal with these large financial movements.
1. Start or increase your emergency fund
No matter your age or income, it’s important to have money in savings for unexpected bills or for a period of unemployment. Typically, a strong emergency fund is one that has enough cash to cover three to six months of essential living expenses. If you don’t have any money in a savings account right now, you should definitely use your bonus to build a safety net. Even if you to do already have some savings, if it’s just enough to cover, say, a month of expenses, then increasing your emergency fund is a smart move.
2. Pay off high interest debt
The longer you keep a credit card balance, the more interest charges you will earn. Plus, having too high a credit card balance could negatively impact your credit score, making it harder to borrow money when you need it. If you are ready for some emergency savings, you should really consider using your bonus to reduce the credit card debt that you have accumulated.
3. Pay off healthy debt
While a personal loan or car loan can be a healthier type of debt than a credit card balance (your score won’t suffer as long as you make your ongoing payments on time), paying off your debt more early on could still save you money on interest. Equally important, once you eliminate those monthly payments, you’ll have more leeway in your budget to spend on other things.
4. Make home improvements
Updating your home won’t just make it more pleasant to live in. You could also increase the value of your home. You never know when life circumstances might force you to sell your house, such as if you have to move for a job. Having a renovated house could really be to your financial advantage in this situation.
5. Invest in your career
Getting a bonus is a good thing. But what if you could prepare to earn more money on an ongoing basis? If you use your bonus to further your education or learn new professional skills, you might manage to earn a higher salary in the new year, a salary that earns you a lot more than your bonus earns you.
Getting a bonus is something to be happy about. Before you rush to spend that money, think about how it could improve your overall financial situation.
Having said that, it is not unreasonable to spend some of your bonus on a fun treat if you are using most of that money to work toward a financial milestone. If you get a salary of $ 1,000 in December and put $ 900 in the bank, there is no need to feel guilty about spending $ 100 on concert tickets. The key is to take advantage of this windfall, especially if getting a bonus isn’t always the case in your world.