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Spending, Saving, or Investing Your Bonus Money: How About All of the Above?

Many people put their bonus check into savings, while others opt to invest it in a retirement account. Some consider it "free money" to spend on something they want. Find out how you could do all of the above.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Look at a map: Ideas for spending or saving your bonus
4 min read
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Key Takeaways

  • Divvy your bonus between spending and savings/investment vehicles
  • Put savings portion toward long-term goals such as retirement or your children’s education
  • Use some of the spending portion to help reduce debt and save money on interest

You just got your bonus check. Now, like many people, perhaps you’re wavering between being practical (paying bills, investing, and saving toward your goals) and splurging on some of your wants and wishes. But it doesn’t have to be an either/or situation.

While everyone’s finances are different, it’s generally a good idea to use your bonus as a way to pursue long-term goals, such as retirement, and also enjoy some of the money. With a little planning, it’s possible to do both.

Divide Your Bonus Check

To start, consider treating your work bonus like a paycheck. You’ve likely earmarked a certain percentage of your pay for expenses, savings, and discretionary spending based on your goals and financial needs. You can use this same approach for your bonus.

For example, if you’re trying to pay down debt, you might allocate 50% of the money for that, 30% for savings, and 20% for spending. But if you feel your debt situation is at a manageable level, you might invest a chunk into a 401(k) plan or Individual Retirement Account (IRA). Or, if you're already contributing the maximum allowable amount to your retirement accounts, you might up the percentage earmarked for other goals.    

Keep in mind, there’s no right or wrong way to divvy up the funds. Look at your budget and financial plan to help figure out what breakdown makes the most sense. 

Identify and Prioritize Your Goals

Bonus money earmarked for expenses and savings is often used to pay bills or to boost an emergency fund. But if you already have these basic needs covered, your bonus check becomes a way to help move forward on your financial journey. Here are some possible ideas.

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Paying down your mortgage. 
Are you hoping to pay off your home before retirement? Using a portion of your bonus to make an extra payment is one way to make progress on this goal and save money. For example, an additional one-time $2,000 payment on a $200,000 mortgage could knock three months off the loan and save approximately $1,400 in interest, which you could put toward other goals. Doing this each time you receive a bonus may help you pay off your mortgage even faster.
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Reducing high-interest debt. 
Many credit companies have limited-time deals where you can transfer or consolidate your balance at lower to no interest. If you typically carry a credit card balance from month to month, you may want to take a closer look at these offers. It could be a way, along with using some of your bonus money, to help pay off your debt sooner.
Investing for your short- and long-term wishes.
Hoping to have a vacation home or travel abroad? The bonus dollars you put away today could help make these dreams a reality. You might also consider setting up a separate account to save for these goals to help minimize the temptation to use the money for something else.
Funding a health savings account (HSA).
If you’re participating in a high-deductible medical plan, you might be able to put some of your bonus in a health savings account. Contributions are generally tax deductible, and you can usually withdraw money tax-free for qualified medical expenses now and in retirement. For 2019, individuals can contribute up to $3,500 ($7,000 for families) to an HSA. If you’re age 55 or older, you can contribute an additional $1,000. Health care is one of the largest expenses you're likely to incur. Having an HSA to help cover these costs could potentially free up your savings for other things.    
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Saving for your children’s or grandchildren’s education
According to the College Board, the average cost for an in-state, four-year college was over $21,000 for the 2018–19 school year. And this figure will likely go up. Consider giving your loved ones a helping hand by putting some of your bonus in a college savings plan for them. Every little bit helps, and your contribution could potentially reduce the need for student loans.     

It's important to balance current needs and wants with long-term goals.

Be a Savvy Spender

Figuring out what to do with the bonus money allocated for spending is the fun part. As you make your wish list, look for ways to make the most of your shopping. If you have a credit card that offers rewards such as cash back or air miles, consider using it for your purchases. Then pay the balance off with your bonus to help avoid interest charges. Any rewards you earn are an added bonus that could help you get something else you want.

And don’t limit your list to just material goods. Think about experiences you want to have—perhaps visiting a new city, taking a cooking class, or learning how to sail. The memories you create are priceless and may bring you joy for years to come.

You worked hard to earn your bonus check and deserve to treat yourself. But remember to consider your future self by splitting the money between your expenses, savings, and spending. It’s important to balance current needs and wants with long-term goals. 


Key Takeaways

  • Divvy your bonus between spending and savings/investment vehicles
  • Put savings portion toward long-term goals such as retirement or your children’s education
  • Use some of the spending portion to help reduce debt and save money on interest

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