If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
by Maurie Backman | Updated July 17, 2021 - First published on Jan. 6, 2020
Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
It's time to put that extra cash to good use.
Not everyone is fortunate enough to get a bonus from work. But if you're employed by a company that gives out year-end bonuses, there's a good chance you're sitting on a nice pile of cash right about now.
The question is: What should you do with it? You could put it toward the European vacation you've been planning in your head all year, or upgrade your electronics. But before you make plans to spend that money on these and other luxuries, consider the following smart financial choices instead.
Tips and tricks from the experts delivered straight to your inbox that could help you save thousands of dollars. Sign up now for free access to our Personal Finance Boot Camp.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.
No matter what your income looks like, you should have an emergency fund with enough money to cover three to six months of living expenses. Without that safety net, you may have no choice but to rack up debt the next time you're hit with a home repair, car problem, or bout of unemployment. If your emergency fund needs a boost -- or a start -- then you shouldn't even think about spending a dollar of your bonus until you've got enough to pay for three months of essential bills in your savings account.
If you're carrying a credit card balance, whether from the holidays or before, the longer it takes you to pay it off, the more money you'll throw away on interest. And, carrying lots of credit card debt could also hurt your credit score. If you've gotten a bonus, it's wise to use it to pay down your debt. And if you're not sure where to start -- say, because you owe money on more than one card -- see what interest rates are attached to your different balances, and pay off the cards with the highest rates first. Or, transfer your balances onto a single card with a lower interest rate and pay off that single card.
Building an emergency fund should trump retirement savings. But if you're all set with the former, then it pays to start focusing on the latter. Imagine your year-end bonus leaves you with $1,000 to play with. If you were to put that entire sum into an IRA or 401(k), invest it at an average annual 7% return (which is doable when you load up on stocks), and leave it alone for 40 years, you'd grow it into about $15,000.
Maybe you've been meaning to go back to school, or take specific courses to further your career. If a lack of money has been holding you back, now's the chance to move forward. By investing in your professional success, you could help yourself earn more money (and higher bonuses) over time. And if you have a side hustle that earns you a decent chunk of cash, investing in new tools or equipment for it could help you boost your near-term earnings. The same holds true if you sink a little money into self-marketing.
Resisting the urge to spend your bonus on fun things takes willpower, and lots of it. But if you do wind up using that money responsibly, you'll be much happier for it in the long run.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's picks of the best online savings accounts can earn you more than 8x the national average savings account rate.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2022 The Ascent. All rights reserved.