If 2015 is like last year, 78% of workers can hope for some kind of year-end bonus from their employers. If you’re like most people, you’ve probably decided how you want to spend your end of the year bonus before you even have the check in hand. Maybe you’re planning to take off on a shopping spree, host an unforgettable holiday party or even jet away to a luxury vacation resort in the Bahamas. Certainly these all sound like fun ways to spend your bonus-but don’t kid yourself into thinking they’re the smartest ways to use your extra cash.
This year, consider saving or investing your year-end bonus rather than using it to fund a few fleeting moments of fun. You’ll be much better off in the long run when you handle your holiday bonus responsibly, and-trust us-your future self will thank you for it later. Read below to learn more about how you can get the biggest bang for your buck when it comes to your bonus.
Assess the amount of your bonus. Figure out what your bonus check means to your personal financial situation. Is it an extra day’s pay? A week or even a month? The more money in your bonus the more strategy you will need.
Pay off high-rate debts.
If you have high-rate credit card debts to pay off, don’t even think about spending your holiday bonus on a frivolous item or vacation getaway. Instead, put the money toward your bills to start digging yourself out of debt. A good strategy is to tackle the credit card with the highest interest rate first, and then work your way down to the cards with lower rates.
Build an emergency fund.
No matter how secure you may feel about your current financial situation, you never know if a job layoff or surprise expense is heading your way. Be prepared for the worst by using your holiday bonus to build up an emergency fund. Experts typically advise having enough savings on hand to cover three to six months’ worth of living expenses, but families depending on one income should consider saving even more.
Contribute to a Roth IRA
If you plan to rely on Social Security or pensions during your retirement years, you’re in for a rough ride. These days, it’s up to you to build your own retirement fund. And if you haven’t already started saving, now is the time to start. Use your bonus to contribute to a Roth IRA, and you’ll be on your way to securing a stress-free retirement.
Not everyone needs to be a miser with his or her year-end bonus. People should feel free to splurge once they have their bills in order and money set-aside for retirement. So, “if it is truly gravy for you, by all means go for it!”
So there you have it-the three best uses for your end-of-year bonus. Though you may be tempted to use your bonus for frivolous items, do everything you can to resist the urge. You don’t want to use it to get yourself further behind. After all, your future may depend on it.