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Excitement is running rampant through your veins. You feel like a kid on Christmas morning because you just learned that you’ll be receiving a bonus from your employer for all of your hard work.
And without a doubt, the first word that comes to your mind is “splurge.”
Although you may feel entitled to use the funds however you please, there are some wise moves you can make to alleviate financial burdens, right now or later on down the road.
But there is one thing you must do immediately: Make a plan and execute it promptly so the funds don’t grow legs overnight and run away. In other words, the longer that money sits, the more tempted you may be to waste it all on meaningless purchases.
Here are some suggestions for putting that bonus to good use:
1. Tackle credit card debt
It may not be possible to completely eradicate what you owe, but paying the balances down can save you money that is otherwise flushed down the toilet each month on interest payments.
The debt snowball method, which suggests that you tackle the smallest balance first to build momentum, is recommended by some, but it makes better financial sense to tackle the card with the highest interest rate first.
Here are a few additional tips to help you quickly eradicate those credit card balances.
2. Boost your emergency fund
You can also use the extra funds to beef up your savings account so that a new set of tires, a layoff, a medical emergency or other unexpected event or expense doesn’t immediately turn into a financial nightmare.
And it wouldn’t hurt to shop around at other financial institutions for savings accounts that offer a greater return on your money.
Take a look at “9 Ways to Build An Emergency Fund When Money’s Tight.”
3. Establish a college fund
Planning to incur higher education expenses for yourself or your children in the future? Why not start preparing ahead of time with a college fund? A 529 plan is worth considering because it allows you make tax-free withdrawals, as long as they fit the bill for a qualifying expense.
But before making the leap, speak with a financial adviser to determine if other plans, such as the Coverdell education savings account, better suit your needs.
4. Beef up your nest egg
Have you maxed out contributions to your 401(k)? If not, this may be the perfect opportunity. You don’t want to miss out on free money in the form of matching contributions from your employer or the tax breaks derived from pretax deductions of the money you save in it. And you don’t want to retire poor.
Another benefit of beefing up your nest egg is the beauty of compounding interest. It tends to favor those who make smart investments early on.
5. Get caught up on past-due bills
Have you been hit with a slew of late fees and interest penalties on a delinquent account? If so, that obligation should be at the top of your priority list. Overdue bills are costing you money and likely wreaking havoc with your credit scores.
6. Be charitable
If you’re in the giving mood, donating funds to a good cause will warm your heart and could reduce your tax liability. To determine which contributions are tax-deductible, refer to IRS Publication 526 or use the online eligibility tool.
Now, before you dive head first into the world of securities or any other form of unfamiliar investment, speak with a fee-only financial adviser for guidance. The last thing you want to do is fall for some inflated promise you saw on a late-night infomercial.
8. Home improvements
How about that leaky faucet or ancient air conditioning unit that’s causing your utility bill to spiral out of control? Use the funds to take care of those issues now before they end up costing you more in the long run.
Check out “8 Home Improvement Projects That Pay Off Big.”
9. Live a little
This suggestion may have caught you off guard. After all, life isn’t about fun and games; most of us have to find a way to make a decent living for ourselves. But you must live a little on occasion to make the most of it.
So allocate a small percentage of your bonus to the slush fund and give yourself a proverbial pat on the back for all of your hard work and accomplishments.
Regardless of which route you take, move as swiftly as possible before temptation knocks at your door.