Ever blown through that bonus check only to wonder if there was something better you could have done with the money? While it can be tempting to use the extra cash to splurge on something you would not normally buy, spending your bonus wisely will help you find long-term benefits from every dime.
So, how can you get the most out of your bonus? Here are five smart ways to use your bonus money.
1. Pay Off Debt
Instead of blowing your bonus check on something gratuitous, consider using the money to pay off debt. Make an extra payment toward the debt with the highest interest rate to save the most money in the long run. However, if your bonus is enough to completely pay off an account, the instant gratification of eliminating a bill entirely is also a smart option.
2. Boost Your Emergency Fund
If you do not have an emergency fund, a bonus provides the perfect opportunity to set up a high-yield savings account to start one. Having a fully-funded emergency account can help you keep debt to a minimum by saving you from having to borrow to cover an unplanned expense.
3. Invest in Yourself
Use your bonus to help in your professional life or to reach personal goals. This could mean increasing your 401(K) contribution or investing in another retirement savings account like an IRA. Or, if you have been aspiring to get a special certification or learn a new skill, your bonus may provide the funds you need to get a jump start on these aspirations.
[ Read more about which IRA option is best for you? ]
4. Invest in Your Kids
Look into a 529 Savings Plan. This is a great way to invest in your children without having to worry about market volatility. A 529 account can help with college expenses in the future and is also an option to help with private school tuition.
5. Let it Grow
Whatever you decide to do with your bonus, make sure to move the money into a high-yield account quickly. Avoid letting it sit in your checking account. This will save you from spending it on impulse and make sure you earn money on it. If you have no need for the above options, you can deposit your bonus into a high-interest CD. This an easy way to get a measurable return on your investment.