- Give every dollar a job, whether that means building an emergency fund, saving for retirement, or paying down debt.
- Having an adequate emergency fund is a great place to start with your extra cash.
- Consider the taxability of a retirement plan when deciding which account to fill first.
From giving yourself a safety net to saving cash for upcoming expenses, your future self will thank you for making these moves today.
1. Build an emergency fund
By having an emergency fund, you can save yourself the headache of liquidating other savings should the worst come to pass. An emergency fund should be used for unexpected emergencies like the loss of a job, a car or appliance repair, or medical bills.
Experts recommend having an emergency fund equal to between three and six months of non-discretionary expenses, which can amount to thousands of dollars. Use your bonus grand to start, build, or refill your emergency fund.
2. Contribute to an HSA
As they are one of the few triple tax-advantaged savings accounts available, contributing to a Health Savings Account is a smart way to stash for future expenses in a tax-efficient way. The first tax advantage of an HSA is that contributions are tax deductible, no matter your income. Additionally, investment earnings in an HSA grow tax-deferred. Finally, if used for a qualifying medical expense, withdrawals are not taxable income.
It almost always makes sense to contribute to an HSA, but first you need to be eligible. Only those covered by a high deductible health plan can open an HSA. Not sure if that applies to you? Ask your provider.
3. Supplement a 401(k) contribution
No, you can’t directly deposit that extra grand into your 401(k). 401(k) contributions are deferred from your income, and are thereby tax-advantaged. However, you can still use your windfall to up your contribution.
You could increase your 401(k) contribution by $1,000, and replace that lost income with the $1,000 in your pocket. This strategy works even better if you haven’t maxed out your employer match, which could double your savings!
4. Boost your IRA
An extra $1,000 can get you one step closer to maxing out your Roth or traditional IRA for the year. Because of the tax-advantaged nature of IRA accounts, saving for retirement by using one is a good option. The contribution limit for a Roth or traditional IRA in 2022 is $6,000, or $7,000 if you’re over 50.
5. Pay down consumer debt
Whether you have credit card debt, furniture loans, auto loans, or more, nobody likes consumer debt. In addition to the feeling it gives you in the pit of your stomach, consumer debt typically carries a high rate of interest. Why not use your bonus cash to pay off high cost debt ahead of time, and potentially save on future interest payments?
Read More:Our best debt payoff apps for 2022
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