If you’re one of the lucky few who will be receiving a well-deserved year-end bonus, celebrate your achievement by making the most out of the extra cash. But how do you make these dollars count, you ask? Here are some ideas to get you started in the right direction.
Pay Taxes: Even though paying taxes isn’t very exciting, getting an early start on them can make tax season much less stressful. Consider putting some of your hard earned bonus aside for any taxes you may owe for this year. This will allow you to get ahead of the game so you can spend your future earnings on better things.
Pay off Bad Debt: High interest rates can do significant damage to your savings, if you aren’t careful. Identify any high interest loans or lines of credit that might be holding you back and pay it off quickly with the cash you get from your year-end bonus. This will have a dramatic impact on your financial portfolio by greatly increasing your overall savings potential.
Beef up Your Cash Reserve: Having a strong cash reserve is essential if you want to be prepared for life’s little (and sometimes not so little) surprises. By putting some of your year-end bonus into this reserve, you will be well prepared for anything that’s coming your way. Determine how much to put back by weighing your emergency funds with all of your other financial obligations on this list.
Put it Towards Retirement: Make your money work for you by pumping into existing retirement accounts. Whether it’s a 401(k) or IRA, this savings strategy offers you multiple benefits, especially if you haven’t reached your contribution limits. If you haven’t reached your limits, any money you contribute now will be tax-deferred. Also, you might be able to boost the total amount of your bonus if your employer matches contributions.
Refinance Your Mortgage: Interest rates are still low enough that you may be able to benefit from a mortgage refi. This will not only build your equity but you’ll also get to enjoy all of the savings you’ll get from the reduced interest rate. You may choose to use some of your bonus to cover the upfront costs of refinancing.
Have Fun (within reason): Go ahead. You earned it. Take this chance to do something nice for yourself. Whether it’s giving yourself a spa day, going on a mini vacation or attending your favorite sports game, treat yourself to something special. Just remember to set strict limits with yourself and don’t indulge in anything that is outside of your budget.
Not everybody is fortunate enough to receive a year-end bonus. So if you are one of the lucky ones who get this well-deserved token of appreciation from your employer, make sure it doesn’t go to waste. Even though it might be tempting to buy the latest electronics for yourself, splurge on new clothes or to burn through it with expensive Christmas gifts, consider putting the money to better use and investing it in your future.
FINANCIAL ADVISER WARNING! Are you being ripped off? Call 281-907-5136 to hear the 5 Costly Misconceptions about Financial Planning. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director of United Capital Financial Advisers, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Please contact your financial adviser with questions about your specific needs and circumstances. The opinions expressed herein are those of Byron Ellis and not necessarily those of United Capital Financial Advisers, LLC.