It always feels good to get some recognition after a big project or a successful quarter at work.
It’s even better when the praise comes in the form of a cash bonus. It’s rewarding and a sign of your company’s appreciation.
Once the money is yours, you may be dreaming of how to spend your bonus. Sure, there are plenty of ways to treat yourself. Before blowing it all in one place, consider all your options. Here’s how to narrow down your choices for what to do with a bonus.
Here’s how to narrow down your choices for what to do with a bonus.
How Should You Use Your Bonus?
You have a lot of options when choosing what to do with a bonus. It’s important to know there is no one-size-fits-all solution. It depends on your family’s unique financial situation and goals.
You may consider adding to your emergency fund and other savings. Or, you may be anxious to pay off high-interest debt.
If you are eager to invest more money, that may be worth considering, too. Before making a quick decision, weigh the pros and cons of each of your options.
Option #1 – Save your bonus
We get it—of all your options, saving may not be your top pick for how to spend your bonus.
But it could be an easy way to beef up your emergency fund. Car repairs and medical bills often happen when you least expect them.
By saving three to six months of living expenses, you should have enough to tackle most of life’s curveballs.
Option #2 – Use your bonus to pay off debt
Another less thrilling choice for how to spend your bonus is paying off debt.
If you are wrestling with more than one type of debt, see how much you are actually paying in interest.
Not all debt is equal. High-interest debt like credit cards may cost you more over time—making them harder to pay off.
By using your bonus to pay them down, you may save a lot of money on interest. This will free up cash for your future priorities.
Option #3 – Earmark your bonus for investing
If your emergency fund and debt are in a good place, investing is another choice for how to spend your bonus. Before diving into investing, always consider your risk-tolerance and goals.
One of the best places to start is your company’s retirement plan. Contribute at least enough to receive your company’s match.
After that, you will have a few more choices. You can continue saving for retirement with your workplace plan.
Or, you can save with an individual retirement account (IRA).
If you have children, it may be a good opportunity to contribute some extra money to their college fund.
529 college savings plans are an excellent, tax-savvy way to set money aside.
Alternatively, you may choose to invest in short-term goals like a wedding, buying a home, or a vacation. Apps like Twine make it easy to reach your goals.
Option #4 – Spend some of your bonus
If you’re feeling confident about your other financial priorities, you may prefer to enjoy the fruits of your labor.
After all, there is nothing wrong with spending part of your bonus on, well, whatever you want.
You may be eager to enjoy a celebratory meal and cocktails with your friends. Or, you may be ready to splurge on a new pair of noise-canceling headphones.
Either way, you don’t have to feel guilty about treating yourself. Building in small splurges is an excellent way to stay on track with your long-term financial goals.
How to Spend Your Bonus
When it comes to how to spend your bonus, you will find that everyone has an opinion.
It may be tempting to try and keep up with your colleagues, but everyone’s situation is unique. The best choice for what to do with a bonus looks different for everyone.