9 Smart Ways to Spend Your Year-End Bonus

Beth Mayer is a planning excellence consultant at Northwestern Mutual.

Is a year-end bonus in your future? According to recent career research, nearly half of private industry and 37 percent of state and local government workers received some type of bonus not tied to production. And in 2024, the average bonus for all workers (regardless of industry) was equal to approximately 2.8 percent of an employee’s total compensation.

While receiving some extra money is likely a welcome boost after holiday expenses, you may also be wondering if there’s more you could be doing with your windfall. The right time for a financial review is right now—especially if you have economic concerns about inflation, high interest rates or job cuts.

Here are some smart ways you can use your year-end bonus to help you finish your year strong and ready to start the new year on the right foot.

1. Splurge a little

You could spend your entire bonus on financial goals, but it’s also important to enjoy yourself today. Your hard work deserves a reward—just as long it doesn’t wreak havoc on your budget. So if you’re feeling as though the time is right to splash out, take a portion of your bonus off the top and spend it on something you want now.

In fact, while it seems counterintuitive, spending some of your bonus today might also save you in the long run. Think of it like your diet: If you restrict yourself from eating any of your favorite foods, you could be tempted to go overboard on an ice cream binge. The same principle applies to a budget that’s too austere: Being too hyper focused on saving and living frugally can actually increase your stress.

2. Build your emergency fund

Northwestern Mutual’s 2024 Planning and Progress Study found that only half of Americans say their savings would be enough to cover more than six months of expenses. Yet without an adequate emergency fund, you’ll probably find yourself right back in credit card debt the next time your car needs a big repair or you’re faced with a vet bill.

That’s why it’s generally a good idea to have around six months of expenses stashed away in a safe place like a high-yield savings account. If you’re not quite there yet, consider using some of your bonus to bolster your emergency fund. If you are trying to pay off debt, take some time to determine if you should pay off debt or build your emergency fund first.

3. Pay off credit card debt

As interest rates jump, credit card debt becomes even more costly. According to a 2025 report from the Federal Reserve Bank of New York, credit card balances are surging. They rose by $27 billion during the second quarter of 2025 (5.87 percent increase from 2024). That amounts to a total of $1.21 trillion in outstanding credit card debt.

If making progress on paying down your debt is one of your goals, applying your bonus to pay off your balance could save you big bucks in the form of future interest payments. If you aren’t sure which method would work best for your situation, these debt management strategies could help.

4. Make a dent in other loans

Understanding the difference between “good debt” and “bad debt” is key component of good financial health. Credit card debt is typically referred to as bad debt because it tends to carry high interest rates—and rarely helps you work toward financial stability. But other types of debt, such as student loans and mortgages, are considered good debt because taking them on can help you reach important life goals. The interest rates are typically manageable and relatively low.

However, making extra payments on any of your loans if you can is beneficial because it means you’ll owe less interest overall—not to mention that it’s good for your peace of mind. But keep in mind that if these payments have a very low interest rate, you might want to consider putting your bonus toward a low-risk investment. Talking to your financial advisor can help you make the best choice for your situation.

5. Put your money to work with investments

If you’re new to investing, think of it as putting your bonus to work rather than letting it sit idle. Unlike cash or traditional savings accounts, which tend to lose purchasing power as inflation rises, investments have the potential to grow in value and outpace rising costs. While saving is often linked to short-term goals, investing can be a powerful way to build wealth over time.

The most common types of investments are mutual funds, stocks and bonds, but which ones you choose and how much you allocate to each will greatly depend on your individual risk profile. A financial advisor can help you design an investment strategy that you feel comfortable with that takes your full financial picture and long-term goals into account.

6. Save for your future

Saving for retirement or your kids’ college may seem eons away, but that’s exactly why it’s important to start now. The more time you have, the more you can benefit from compound interest—allowing your money to grow exponentially over the years. For example, you may want to consider opening a Roth IRA: Not only will you earn compound interest, but your contributions grow tax-free, and since you’ve already paid taxes upfront, you won’t owe them again when you withdraw the funds in retirement.

For a fun peek into the future, check out this handy calculator from the U.S. Securities and Exchange Commission to see what your bonus could be worth if you let compound interest work for you. If you’re not sure if you can save for both your retirement and your kids’ college costs, you should prioritize your retirement—after all, you can borrow for education, but not for your golden years.

7. Do some good

Despite the old adage to the contrary, it turns out that money can buy happiness. Studies have found that people who spent their annual bonuses on others or donated them to charity were happier than those who spent it on themselves. The end of the year is a great time to allocate some or all of your bonus to a cause that’s important to you—you could possibly reap a tax deduction, too. A provision in the recently passed tax law known as The One Big Beautiful Bill Act will allow taxpayers who take the standard deduction can now also deduct charitable contributions beginning in 2026. But before you part with your funds, do a little research on the organization to make sure it’s legit, and then give with a happy heart, knowing that you’re making a difference to an important cause.

8. Save for a meaningful goal

Whether you’re trying to save up for a down payment for a house or want to convert your dated kitchen into an entertainer’s dream, saving for a near-term project can be motivating. Designating your bonus for a specific purpose can give your fund a jumpstart and inspire you to set aside a little from each paycheck so you can reach your goal faster.

9. Plan a vacation—instead of a shopping spree

Sure, buying a pair of fancy shoes or a big-screen TV might make you happy today. But before you spend your fun money on material goods, consider that many people derive more happiness from spending money on experiences than things—especially given all the adventures we’ve missed out on over the past few years. A vacation is a great way to make memories with friends or family as you relax and recharge; plus, the anticipation can be a big part of the fun.