As we approach the end of the year, the holidays are in full swing meaning family time, parties, and gift shopping. The end of the year also brings about your annual bonus. You have worked hard all year, clocking overtime, crushing deadlines, and ensuring everything is tip-top in the work that you do. Your company appreciates your hard work and rewards you with a nice annual bonus. While it may be tempting to go out and treat yourself to that item you have been coveting all year or spend it on fancy gifts and experiences for loved ones… there are smart ways to spend that new money burning a hole in your pocket.
1. Invest in Yourself—Contribute to your Retirement Plan
401K, 403b, or 457 plans are offered by most companies, and employees not only have access but can make changes or add to their contributions at any time throughout the year. Ask your company what the max contribution is in a calendar year and if you are not currently at the max, then ask to contribute more to meet the maximum contribution.
2. A Traditional IRA (Individual Retirement Account)
If your company doesn’t offer a retirement account or you have already maxed out your contributions, then consider putting your annual bonus into an IRA. An IRA is a tax-deferred savings plan where your investment grows tax-free until you make your retirement withdrawal.
3. Emergency Savings
Life happens, and when it does it happens quick. While you may think that you are prepared for the worst, you never know when something will happen that will require a large amount of money. Be prepared for everything from car repairs to family emergencies, or unexpected health scares. Putting your extra annual bonus money into an emergency fund helps to prepare you for the unexpected in a financial way.
4. A Savings Account
Want to invest your money but have the reassurance that you can access it when you need it? Invest your extra annual bonus into a savings account, where your funds will grow interest, but will be available to you whenever you should need it.
5. Extra Day-to-Day Expenses
If your monthly budget is tight from extra things such as television or music subscriptions, events with friends, or even an upcoming holiday, then use your extra funds to plan ahead. Pay off anything that can be paid in full ahead of time, providing you with extra money left over at the end of each month. Some expenses may even offer a pay-in-full discount or a cash incentive, and it relieves you of a nagging monthly payment.
6. Have Some Fun or Treat Yourself!
We all know how hard it is to come into unexpected money and not want to do something for yourself. A good rule of thumb is to take a third of the bonus and put it into retirement, another third into savings or an emergency fund, and then the final portion of it to do something fun or splurge on yourself.
Receiving an annual bonus at the end of the year not only makes you feel appreciated but helps put extra money back in your pocket. While it may be tempting to spend this annual bonus right away, there are smart ways to invest, save this extra money, pay off bills, and still treat yourself in the process.
