You have worked hard, put in your time and it paid off with a nice bonus. But now what are you going to do with it? There are many different things people choose to do with their bonuses - some smarter than others. Here are a few common ways to use that hard-earned cash:
Pay off debt: Using your bonus to pay off any outstanding debts you have is probably the smartest way to use your extra cash. Paying off your debts as soon as possible will not only free up money that would have been paid in interest, it may also help to improve your credit score and, in the long run, earn you a better interest rate should you want to invest in a home or car.
Take a vacation: For many people, a well-deserved vacation is tops on their bonus spending list. If you can financially swing it, this may actually be a very worthwhile option. A relaxing vacation can serve as a great way to mentally and physically unwind; helping you be more productive and happy in both your career and your social life after the vacation is over.
Buy a material good: Many people use their bonuses to pay for that material something they desperately have to have – whether it is a new washer and dryer, TV or even a car. The important thing to think about when making this sort of decision is whether the purchase is something you need versus something you want. If the item is something you truly need, it is easier to justify buying it. However, if the item is something you simply want, and may tire of quickly it is probably not money well spent.
Save it for the future: Saving your bonus for the future, whether for college tuition, your daughter’s wedding, a down payment for a home or even retirement, may be the ideal solution for you. There are a variety of savings options to choose from including an IRA, a CD, 529 college savings account, stocks, mutual funds, bonds or even a good old savings account.
Make home improvements: Is your kitchen begging for a makeover? Has your roof seen better days? Is now the time to build that addition you’ve been talking about for years? A bonus can be a great way to help pay for some of those home improvements you’ve have been putting off. When researching teams to complete your work, it is important to make sure that the contractor has a good track record. Also, remember that some home improvements may be tax deductible – such as those that improving energy efficiency – so keep this in mind as well.
Put it towards the principal of your mortgage: Want to pay off your mortgage sooner rather than later? You may want to consider using all or part of your bonus to pay off part of the principal of your mortgage.
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