There is no greater feeling than getting that year-end bonus after 365 days of hard work. But you’ve to make sure you’re using that money smartly. Here’s how
This year, holiday bonuses are going up by an average of 66 percent. As many as 63% of employers will be adding a little bow on their employee’s checks. That’s a lot of extra dough, which I’m sure for some who are strapped will go straight to x-mas gifts.
For those who can reinvest that money, you shouldn’t hesitate to do so. It’s a bad idea to give in to temptations that you’ll end up regretting. These are some examples of what to do and what not to do with year-end bonuses.
What You Should Do
You need to extract the most value out of that year-end bonus, here’s how:
1. Throw it in Your 401(k)
The most common investment is your 401(k) retirement plan. It appears right on any payroll check template, showing exactly what you put in. Go ahead and juice it up and make it a habit of increasing your contributions. Future-you is going to be proud.
2. Consider a Roth IRA
Step up to a bigger and better retirement savings plan, a Roth IRA. This should be your primary retirement fun, with your 401(k) as back-up. The biggest example of 401(k) uncertainty is what happenedduring the recession of 2009.
3. Take Care of Debts
Paying off debt isn’t a glamorous use of a yearly bonus, but it is vital. The more accounts that you can bring to good standing, the better your credit rating and more opportunities you’ll have in the future to invest.
4. Have a Plan “B” Fund
Saving for retirement should always take precedence over everything unless you don’t have an emergency fund. Many people make the mistake of ignoring the recommended 3-6 month emergency fund. This is to cover natural disasters, layoffs, loss of vehicle, or anything that can put your life on hold.
What Not to Do
1. Gamble It
Gambling with your year-end bonus is not smart, no matter how it’s done. Taking it to the casino, dog tracks, fantasy sports bets, or dumping it into a stock like Bitcoin is bad value. You have to build a lifestyle with more control over your odds and better return for your money.
That’s why retirement funds are so important. Once you get a taste of contribution-matching and high yields, you don’t go back.
2. Buy Electronics
Again, unless you have no money for Christmas, at all, don’t go buying electronics. The depreciation rate on these luxury items is horrible. You’re likely to lose half that investment by the next year.
There are some exceptions to the rule, but you have to shop smart and ahead of fads.
3. Give it Away
Being charitable during the holidays is great, we’re not discouraging that. However, try to avoid going over-the-top by writing your own Secret Santa story of infamy, a braggadocious present, or a charity that doesn’t need it. We’re looking at you, Salvation Army, Red Cross, and United Way.
Be Smart With Your Year-End Bonus
Pick up that 1-UP mushroom in real life by being smart with your year-end bonus. That extra $1-2 thousand can turn into $10-20 thousand if you play your cards right. If you start doing this as early into your professional career as possible, you’ll be one of those 40-somethings who can retire early.
If you’re looking for more tips like these to upgrade your life, check out We Are Augustine’s business column.