Many companies are bringing back the bonus. If you are lucky enough to work for one of these companies, there are some ways you can maximize this extra money coming in. Don’t let the money disappear on you.
1. Assess the Situation
Before you start treating everyone at the bar to drinks, take a step back to evaluate your financial situation. Some celebration is certainly in order, but there may be some smarter ways to use that money that will have you celebrating much longer than the time it takes to finish one drink.
2. Dump Debt
Look over your budget to see if there are any areas that could use an immediate influx of cash. Perhaps you’ve been having trouble paying off those credit card bills. This is a great opportunity to catch up. Knocking out your debt will keep you from paying additional interest and also free up the money each month that you had been using to pay the bills. Even if your bonus won’t cover the whole thing, it’s a good idea to use at least some of it to pay down your debt. While it’s nice to put some money toward your student loans or mortgage, it’s usually best to first use this cash to reduce your higher-interest debt.
3. Stash for Savings
Fattening up your savings will help you reach larger financial goals. There are several ways you can split up the money. You will want to make sure that you add to your emergency fund until you have at least 3-9 months’ worth of living expenses. Exactly how much you need will depend on your personal preference, job security and flexibility of your overall expenses. But your bonus can help you be prepared for unexpected expenses in the future.
You can also use some or all of your money to boost your retirement savings. If you’ve paid off all your high-interest debt and have a healthy emergency fund, it’s time to consider your long-term future. The earlier you put money aside, the longer it has to grow. There are several ways to add to your retirement — make sure you are maxxing out contributions to any employer plan to get matching benefits (if available). Also, you can contribute to a traditional or Roth IRA.
The important thing is to make a plan for the money so you don’t end up wondering where that bonus went.
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Image: Alexey Lisovoy