Is a year-end bonus in your future? According to PayScale’s 2019 Compensation Best Practices Report, nearly three-fourths of companies offer a “variable pay” plan — and an individual bonus is the most common type of incentive.
While you might be tempted to spend it all on yourself right now, you may also be wondering if there’s more you could be doing with your windfall. Here are seven smart ways to spend your year-end bonus and start 2020 off on the right financial foot.
- SPLURGE A LITTLE
Yes, you could spend your entire bonus on financial goals, but you should also enjoy yourself today. Take a portion of your bonus off the top and spend it on something you want now. Your hard work deserves a reward. And 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 limit yourself to eating kale, you could be tempted to go overboard on an ice cream binge. The same principle applies to a budget that’s too austere.
- PAY OFF CREDIT CARD DEBT
According to the National Foundation for Credit Counseling, 60 percent of Americans have had credit card debt in the past 12 months; Transunion puts the average debt per borrower at $5,645 in the second quarter of 2019. Using your bonus to pay off any debt you might have can save you money in the form of future interest payments. If you aren’t sure where to start, this guide offers some savvy suggestions.
- BUILD YOUR EMERGENCY FUND
Nearly 40 percent of Americans would struggle to meet an unexpected $400 expense, according to the Federal Reserve. If you don’t have an emergency fund, you’ll probably find yourself right back in credit card debt the next time your car needs a big repair. A good rule of thumb is to have three to six months of expenses stashed away in a safe place like a savings account. If you’re not quite there yet, consider using some of your bonus to bolster your emergency fund.
- SAVE FOR FUTURE GOALS
Goals like retirement or your kids’ college may seem eons away. But that time is exactly why you should save now. That’s because compound interest can allow you to earn exponentially more on your savings when you have more time to let it grow. For a fun peek into the future, check out this handy calculator 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.
- DO SOME GOOD
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. 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.
- SAVE FOR A MEANINGFUL GOAL
Whether you’re trying to amass 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 large project can give your fund a jump start and inspire you to set aside a little from each paycheck so you can reach your goal faster.
- 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 this Momentum Worldwide study, which found that 76 percent of consumers say they would rather spend money on experiences than things. A vacation is a great way to make memories with friends or family as you relax and recharge; plus, planning it can be half the fun. Replace your screensaver with a photo of your dream destination to remind you why you work so hard each day — and vow to stay on track to nab that bonus again next year.