How to Spend Your Holiday Cash or Year-end Bonus

Do you have a little extra money on hand thanks to your year-end bonus or a holiday cash gift? That money you didn’t plan on having is a great way to get ahead financially. Whether you get $100 or $1,000, there are many ways to put it to good use. So how are you going to spend your extra cash?

Save, save, save

The first thing you should do is set some money aside for your savings account. It’s important to have an emergency fund set up in case you lose your job, have unexpected car repairs, medical bills, or other unanticipated expenses or life events. Experts recommend having at least three months’ worth of bills built up in your savings. That could be a large number, so don’t fret if you’re not quite there. Just contribute as much as you can to your account.

You can also use those extra funds to save towards one of your financial goals. That could be your next vacation, a larger purchase you’ve been saving up for like a television or laptop, or something longer term like a down payment.

Whatever you decide, I would recommend depositing money into whichever account earns the most interest to make a little extra on your bonus.

Pay down debt

Take a portion of that money and pay down some of your highest-interest rate loans. Credit cards are among the highest – with interest rates running upwards of 20 percent. It may not sound like a fun way to spend your bonus, but it’s beneficial to start chipping away at debt when you can. The money you save by avoiding steep interest charges will make your efforts worth it in the long run.

Save for retirement

Consider making a contribution to a tax-deferred account such as a 401(k) or educational plan. Unfortunately, bonus checks are taxable, but one way to avoid paying unnecessary taxes while maximizing your earnings is to put as much into retirement or education as you can afford.

Donate it

You can help neighbors or your local non-profit. A charitable donation not only makes you feel good about supporting significant causes, but you can write most donations off on your taxes. This type of donation can help relieve your tax burden at the end of the year while also benefiting your community.

Treat yourself

Depending on your financial situation, you could take some of your extra holiday cash and spend it on something fun for yourself. You work hard all year round to earn it, so if you can afford to, treat yourself! Buying something special is a good way to start the New Year. Make sure it’s something that makes you happy and hopefully it will motivate you to do your best work, so you can look forward to your bonus the following year. I only recommend this if you don’t have high-interest debt and have met your other savings goals (especially that emergency fund).

Whether you have cash in hand or are waiting for your bonus check to arrive, make a game plan. How you are going to allocate the extra funds? With that decided, you will be less tempted to use it in less productive ways that don’t get you closer to your financial goals.