What should I do with my year-end bonus?

Parker Trasborg, CFP® December 19, 2018

If you are one of the many American employees who find themselves fortunate enough to receive a year-end bonus, you’ll have to decide what do with it. While it could be tempting to pull a Clark Griswold from Christmas Vacation and spend it all on one big item, you should take a step back and think before doing anything.

Once you know you are receiving a bonus, you should come up with a plan on how to best use it. If you simply leave the money in your checking account, you’ll find in a few months that most, if not all, of it has disappeared on day to day extra spending. So what should that plan entail?

If you have immediate or short-term savings goals, such as a future down payment on a house, you should move most of the dollars to savings.

If you have higher interest debt, such as credit cards, student loans, or a variable rate HELOC, you should plan to put 50% of the bonus towards paying those down/off. Put 30% into savings to build an emergency fund and use the remaining 20% to treat yourself today.

If you have little to no debt, then it would be fair to save 70% and spend the remaining 30% on something fun for today.

As always, everyone’s situation is different and you should consult your planner if you have questions or need guidance.



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