The end of the year can be a wonderful time full of gatherings with friends and family, beautiful decorations, and the prospect of a new year and new beginnings. It’s a time to make resolutions for the new year for your physical, mental, and financial well-being.
If you’ve been good all year and your company is doing well, you probably received a holiday bonus. Showing appreciation for the hard work employees do for a company by giving them a bonus is a tradition that began around the turn of the 20th century. Bonuses originally consisted of things such as a Christmas turkey but eventually evolved into a cash gift. Although the number of people receiving holiday bonuses has continually declined over the years, for those who’ll be receiving them in 2017, the good news is that the average bonus amount is $1797, up from $1081 in 2016.
If you were one of the lucky ones, what should you do with this “free” money? First off, this isn’t “free” money. It’s money that you earned by working hard, and just like you wouldn’t run out and blow your whole paycheck on the latest and greatest gadget, the same should be true of your bonus. It’s also unwise to put Christmas presents on credit with the intent of paying for them when you get your holiday bonus. Bonuses are never certain, so don’t bank on them. Remember, you do have to pay taxes on your bonus money.
It may be tempting to spend your entire bonus on fun presents for friends, family, and yourself, but unless you’re financially secure, you shouldn’t do this. Before you make any decisions on what to do with it, you should closely look at your financial situation. Do you have high debt? What kinds of debt do you have? Do you have money in your savings account? How much is the bonus? Once you have a full understanding of what you have and what you owe, you can make a smart decision with what to do with the money.
Emergency fund
Do you have an emergency fund? This is money set aside to pay your living expenses if you’re out of work due to job loss, injury, or other emergencies. A good sum to set aside is 3-6 months’ worth of expenses.
Retirement savings
You can never have too much saved for your retirement years. This is a way of paying yourself. Make contributions to your 401(k) or IRA account and you’ll thank yourself later.
Current debt
If you have high-interest credit card debt, paying down your highest interest card will help you eliminate your debt. It’ll bring down the amount of interest you pay, which will help you pay them off faster.
Mortgage
If you have a mortgage, making an extra payment or two toward your principal (be sure to specify this with your payment) will not only help you pay your mortgage off sooner, but your interest is calculated off your principal so it’ll save you money in the end as well.
Home buying
Are you buying a home in the near future? While there are programs that allow you to purchase a home with little or no down payment, having a good down payment will allow you to borrow less, pay down points to get a better rate, or give you extra wiggle room on what you can spend on a house.
College savings
If you or a loved one is planning on going to college, it’s never too early to start saving. Student loan debt is at an all-time high with no signs of slowing down. The less money you have to borrow, the better off you’ll be after graduation.
Charity
It’s the season of giving, and giving to those in need gives its own rewards. You might choose a company such Heifer International or your local homeless shelter so you can make sure others are staying warm and fed in the winter weather.
If you decide to splurge, do it wisely. Put a large portion of your bonus toward debt and savings, and then carefully consider what you’re spending the rest on. Consider a trip, as vacations can be invaluable family bonding experiences and a great way to help you recharge your batteries before returning for another year of work. If you get an expensive piece of jewelry, how often will you really wear it? Do you need a new laptop? How old is your current computer? Can you upgrade it cheaper?
If you have a lot of debt hanging over your head and you blow your whole bonus on something frivolous, it’ll be fun, but that fun will be fleeting and you’ll most likely regret it. Instead, make a New Year’s resolution to improve your financial situation, and put a large amount of your bonus toward debt and savings. Once you’ve done that, go and have fun with the rest!