9 Smart Ways to Spend Your Year-End Bonus

Paul Gougé is a lead consultant in Planning Excellence at Northwestern Mutual.

A year-end bonus can be more than extra money—it can be the right time to strengthen your financial foundation and move into the new year with more clarity and confidence.

According to the U.S. Bureau of Labor Statistics, 50 percent of private industry workers and 38 percent of state and local government workers received some type of bonus not tied to production last year. And in 2026, the average bonus for all workers was equal to approximately 2.5 percent of an employee’s total compensation. That can make a bonus feel like more than extra money—it can be the right time to get more clarity and confidence, so you head into the new year with stability and peace of mind.

While extra money can be a welcome boost after holiday spending, you may also be wondering if there’s more you could be doing with your windfall. A year-end bonus can be a useful reason to run through a year-end financial checklist—especially if higher costs, lingering high interest rates, or job uncertainty have you rethinking your financial priorities. You don’t have to have it all figured out right away; starting with a few clear choices can help you protect what you’ve built, strengthen your financial foundation, and set yourself up for whatever comes next.

Here are some smart ways you can use your bonus so you’re ready to start the new year on the right foot.

1. Splurge a little

You could set aside your entire bonus for future 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 help 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 hyper-focused on saving and living frugally can actually increase your stress.

2. Build your emergency fund

Northwestern Mutual’s 2026 Planning and Progress Study found that many Americans are still focused on strengthening their financial security, including building savings and preparing for the unexpected. That focus is well placed—without an adequate emergency fund, unexpected expenses like a major car repair or a vet bill can push people back into credit card debt.

That’s why it’s generally a good idea to have around three to 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 remain elevated, credit card debt can become even more costly. According to a 2026 report from the Federal Reserve Bank of New York, credit card balances increased by $21 billion during the second quarter of 2026, a 1.7 percent rise. That amounts to a total of $1.26 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 a 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 often considered good debt because taking them on can help you reach important life goals. The interest rates are typically manageable and relatively low.

Making extra payments on any of your loans 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 include 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. Your 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 just around the corner or eons away, but it’s important to start now if you haven’t already. 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 whether 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 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.

Tax rules around charitable giving can change, so it’s worth understanding how current deductions may apply before you give. And 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 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 jump start 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 upgrading your phone 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 on things—especially given all the adventures we’ve missed out on over the past few years. Nearly eight in 10 respondents (79 percent) to Northwestern Mutual’s 2025 Consumer Sentiment Survey said they’re willing to skip small indulgences to save for unforgettable events and experiences—the “core memories” they treasure.

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.

However you decide to use your bonus, the goal isn’t to make one perfect choice—it’s to make your money work hard for the life you’re building. Your Northwestern Mutual financial advisor can help you look at your full financial picture and create a personalized plan that balances protection and growth, so you can feel more confident about the steps you’re taking today and the future you’re working toward.

All investments carry some level of risk, including loss of principal invested.

Frequently Asked Questions

What are some good ways to spend my bonus?

Some good ways to spend a bonus include setting aside a portion for something you’ll enjoy, building your emergency fund, paying down high-interest debt, investing for long-term goals, saving for a meaningful purchase, or giving to a cause you care about. The best approach usually depends on your current financial priorities and how secure you feel heading into the new year.

What should I do with a $10,000 bonus?

If you receive a $10,000 bonus, consider splitting it across a few priorities instead of putting it all toward one goal. For example, you might use part of it to enjoy something now, part to strengthen your emergency savings, part to pay down debt, and part to invest or save for a future goal. A balanced approach can help you make progress while still giving yourself room to enjoy the money you earned.

What percentage of tax do I pay on a bonus?

Bonuses are generally considered supplemental wages, which means taxes may be withheld differently from your regular paycheck. The amount withheld can depend on how your employer pays the bonus and your overall tax situation. If you’re unsure how much of your bonus you’ll keep after taxes, consider checking with a tax professional before deciding how to use the money.

How can I minimize taxes on a bonus?

You may be able to reduce the tax impact of a bonus by increasing contributions to tax-advantaged accounts, such as a 401(k), IRA, health savings account, or other eligible savings tools if they fit your financial plan. Charitable giving may also provide a tax benefit in some situations. Because tax rules can change and vary by person, it’s a good idea to talk with a financial advisor or tax professional before making a decision.