The holiday season is filled with bright lights, festive music, and fun events with family and friends. However, there’s another reason that many employees’ spirits are high this time of the year – they are anxiously awaiting their year-end bonus.
If you’re fortunate to receive a year-end bonus or raise from your employer, it can feel like the perfect ending to the year and serve as a thank-you for all your hard work. While it can be tempting to splurge this money on you and your family, it’s wise to step back and explore all the benefits these funds can produce.
In this article, we’ll highlight some of the best tips for maximizing your year-end bonus and improving your overall financial well-being.
Start By Treating Yourself!
Anytime you receive extra money, it can be hard to resist spending it! You likely have a list of things you want to buy or experience. Whether it’s upgrading part of your home, taking a family vacation, pampering yourself, or something else, you deserve to splurge on yourself. After all, you worked hard for this money.
However, it’s wise to set some boundaries before you start spending. Yes, you earned it, but you need to treat it differently than just free money. How can it better your financial position? If this money was part of your regular pay, would you spend it frivolously? Probably not.
Instead, divvy up your bonus. For example, you could put 70% toward financial goals and keep 30% to treat yourself.
Pay Down High-Interest Debt
Eliminating costly debt is one of the wisest things you can do with any extra funds you receive throughout the year. Paying down and eventually eliminating debts from your economic equation can considerably increase your available cash flow and help you start the new year off on the right financial foot. Then, with less debt weighing you down, you can focus more of your budget toward your other financial goals.
Build Your Emergency Fund
An emergency fund is money you set aside for life’s unexpected yet unavoidable financial setbacks. We all face financial curveballs from time to time, and being prepared for them is crucial to your overall well-being.
Putting some of your bonus toward your emergency fund is a wise move that can:
- Protect you from unexpected expenses.
- Reduce strain on your monthly budget.
- Help you avoid costly new debts from relying on credit cards or payday loans.
- Ease emotional distress associated with money troubles.
- Put you on the path to economic security.
Maximize Your Tax-Advantaged Retirement Accounts
Saving for retirement is a long-term strategy that relies heavily on compound interest. The more time your money can grow, the more secure your retirement will be. Depositing a portion of your bonus into your retirement accounts is a wise move you will not regret.
Begin by ensuring you contribute enough at least to match your employer-sponsored 401(k) match, if applicable. Then, focus on tax-advantaged retirement accounts with contribution limits, such as a 401(k), IRA, or HSA (Health Savings Account).
Save for a Down Payment
Is buying a new home or car one of your financial goals? If so, setting aside some of your year-end bonus can move the needle closer to your goal and increase the amount of your down payment. A larger upfront down payment helps to reduce the amount you need to borrow, leading to a lower loan balance and fewer interest charges.
Down payments are one of the biggest hurdles that potential homebuyers face. Any progress you can make today toward this future goal is money well saved.
Prepare for Upcoming Tax Payments
Tax time will be here before you know it. While everyone wants a refund from Uncle Sam, that’s not always the case. You might owe money in April, depending on your financial moves over the past year, your income level, and other factors.
If you anticipate having to make tax payments this year, consider earmarking a portion of your bonus to cover these costs.
Expand Your Investment Portfolio
If you’ve already maximized your tax-advantaged retirement accounts and eliminated high-interest debt, such as credit cards, consider investing a portion of your bonus. Work with your financial advisor and explore opportunities that will earn greater returns on your money and move you closer to your financial goals.
Donate to Charitable Causes
Donating to charities and causes close to your heart can be a win-win for everyone. Your dollars will go to those in need, and organizations can continue toward their mission of helping others.
Plus, Uncle Sam rewards those who help others – you may qualify for extra savings on your taxes next year by making charitable donations to eligible non-profits. Just ensure your contributions are made by December 31st to qualify for the coming tax year!
What If I Have Multiple Goals?
People often plan to address various financial goals with their year-end bonus. If you fall into this category, create a mini budget for your extra funds.
For example, you might break your year-end bonus up as follows:
- 20% - Treat Yourself & Family
- 30% - Maximize Retirement Accounts
- 25% - Pay Down High-Interest Debt
- 10% - Donate to Charity
- 15% - Boost Your Emergency Fund
Remember, you earned this money and allocating it however you wish is perfectly fine. But do consider all the potential financial benefits these funds could unlock for you before you start spending.
We’re Here to Help!
Making the most of your holiday bonus is all about striking a balance between enjoying the fruits of your labor and investing in your financial goals. No matter how you plan to spend your extra funds, make sure every dollar counts. Allocating your assets thoughtfully allows you to set yourself up for success in the new year and beyond.
If you want to learn more about the solutions available to help you achieve your financial goals, we’re eager to assist you. Please stop by any of our convenient branch locations or call (409) 899-3430 to speak with a team member today.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.
