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