It’s that most wonderful time of year, when fun and festivities mingle with some often- unbudgeted expenses. If you’re fortunate enough to be expecting a holiday bonus, you may find yourself more dazzled by possibilities than you are by the tinsel and twinkling lights of the season. But fear not: This handy guide will help you decide how to make the most of your holiday bonus.
Have a little splurge
You’ve worked hard and might’ve leveled up at work, and by all means you should enjoy yourself. However, if you splurge, make sure you set reasonable limits to your spending. If it’s something that could really add value in your life, go for it. If you’ve been trying to eat better, maybe it’s time to invest in something like a juicer. If you’ve been hit by the travel bug recently, why not put a few bucks toward a savings Goal for that once-lofty dream trip to Japan? Choose a long-term goal to make a dent on Sure, you could divvy up your bonus and put it toward a bunch of different Goals, but your dollars could really jump-start a Goal you’ve long had your sights on. Do you want to make some serious headway toward buying your first home? Or put a little bit of seed money to turning your artistic talents into a profitable enterprise? Spend a bit of time figuring out what’s most important to you, and then dive in.
Delete your debt
It may not be the most exciting option, but using a bonus to pay off debt is a wise investment. Whether you have looming loans or a credit card bill from holiday shopping, you can use that extra money to put a dent in your debt or even eliminate it completely. If you don’t have enough to completely cover your loan, you can still make a payment toward the principal, which will reduce your future payments. In addition to peace of mind, the money you’ll save by avoiding interest will become a gift you give to yourself.
Put it toward your retirement
If you want to get serious about investing put some of your end-of-year bonus toward your retirement nest egg. If you put your money in a tax-deferred account such as a 401(k) or traditional IRA (or SEP IRA, which is for self-employed folks), you’ll pay taxes when you take funds out at a later date. If you put money toward a Roth IRA, that money will be taxed now so it will grow tax-free. The benefit of socking away money toward a tax-deferred account such as a 401(k) is that you’ll have less money that will be taxed.
Bolster your quarterly budget
Not all quarters are created equal, and your quarterly budgets should reflect that. For example, the final quarter of the year is always more expensive due to the holidays, so it can be super tempting to prop up your spending by dipping into your Goals or, worse, reaching for a credit card. Instead of getting into debt, protect your savings progress by adding a little cushion to your budget. If you’re wondering how much of your bonus you should put toward these extra expenses, look at how much you spent at this time last year. And if you’re a Simple customer, you can use Reports to figure that out.
Use your end-of-year bonus as an opportunity to make a meaningful contribution to something that you feel passionate about. Whether it’s a no-kill animal shelter, neighborhood bike kitchen, or resource center for savvy women business owners, donating to a charity will give you a case of the warm fuzzies while helping your community. An added bonus? These contributions are oftentimes deductible come tax time. Getting an infusion of cash at the end of the year is an exciting thing. By putting it toward things that matter the most to you, you’ll not only be helping out, you’re ensuring a richer, more meaningful life.
Celebrate and spend
Your bills are paid, your debt is under control, and your savings accounts are looking jolly. If that’s the case, you can go ahead and spend that check, guilt-free—after all, it’s your bonus! You might consider giving yourself a percentage to spend—for example, one-third to debt, one-third to a savings account, and one-third to spend. You can use your bonus to cover those extra holiday expenses like flying home to visit family or buying gifts. And, of course, there’s always the possibility of buying yourself something from your wishlist, using your bonus money to pay for it.
There’s no need to be miserly about your holiday bonus. However you manage it, make it part of your holiday celebrations, because being smart with your money is cause for celebration all year long.
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