If you're a salaried employee, the end of the year could signify the one thing workers look forward to for months on end: a bonus. There's nothing like a lump sum of extra cash to give you something to celebrate, but before you make plans for that money, here are a few things you might want to do with it instead.
1. Build or pad your emergency fund
We're told we're supposed to have at least three months' worth of living expenses tucked away in the bank for emergencies, yet 40% of Americans don't have enough money to cover a mere $400 bill if it were to pop up out of the blue. If you're behind on emergency savings, the most important thing to do with your bonus is send it directly into the bank. If you don't, you'll risk landing in debt the next time an unplanned bill lands in your lap.
2. Add to your retirement account
A lump sum of cash can work wonders in boosting your retirement savings. Even if you're technically on track for retirement, adding more money to your IRA or 401(k) today will leave you with a larger income stream when you're older. Imagine you receive $5,000 in bonus cash this year, and you stick it into your retirement plan and leave it alone for the next two decades. If that money earns an average annual 7% return, it'll grow to over $19,000 after 20 years.
3. Pay down costly debt
Whether you're drowning in credit card debt or are tackling a mountain of student loans, you're no doubt aware that for each month you continue to carry that debt, you'll throw away more money on interest. That's why it pays to use your bonus to chip away at whatever balance you have to contend with. Doing so will help you avoid wasting more money on interest charges, and if you manage to wipe out that debt completely, you'll have one less thing to stress about going into the new year.
4. Invest in tools that make you better at your job
The more valuable an employee you are, the greater your chances of continuing to earn more money at your job. If you're sitting on some bonus cash this year, consider using at least some of it to help yourself get even better at what you do. You might invest in a new laptop, an online course, a business conference, or even a vehicle to make getting to and from the office easier and more efficient.
5. Get a will
Though getting a will is hardly a fun way to spend your bonus cash, if you've been putting off that crucial document, you no longer have an excuse (at least a financial one) not to move forward. It's estimated that 58% of Americans don't have a will, and as such, they're taking the risk that their assets won't be divvied up according to their wishes should the unthinkable happen. The good news, however, is that if your bonus is on the generous side and your estate isn't particularly complicated, you probably won't spend all of your newfound cash on a lawyer to draft that document, which means you'll have some money left over for other purposes.
6. Pay for that medical procedure you've been putting off
A frightening 54% of Americans routinely delay medical treatment because of cost. If there's a health issue you've been neglecting due to money, dealing with it is perhaps the best possible thing you can do with your bonus. Even if that issue is minor in nature -- say, you need an updated pair of eyeglasses -- it most certainly pays to invest in your own health.
7. Make a home improvement
If you've been dealing with an inefficient heating system or a leaky dishwasher all year, now might be the right time to replace it. If you use your bonus cash for home improvement purposes, you'll not only enhance your daily quality of life, but quite possibly save yourself money in the long run (think lower utility bills for an updated heater or less wasted water when your appliances work the way they're supposed to).
Bonuses at work aren't guaranteed, so if you're lucky enough to be getting one this year, be sure to make the most of it. After all, you never know when you'll get another windfall, so it pays to be responsible when a wad of cash lands in your lap.
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