Receiving a year-end bonus is an exciting reward for your hard work. Deciding what to do with your bonus, however, can be a little tricky. Do you do the responsible thing such as paying down your debts or putting it straight into a savings account? Or do you reward yourself for a hard year’s worth of work and buy that HDTV you’ve had on your list? A year-end bonus creates an opportunity to do a lot of things you otherwise might not have been able to, yet it can be extremely tempting to spend it unwisely. Here are 5 things NOT to do with that bonus:
One of the most dangerous things you can do with your bonus is leave it lying in your checking account. If you have big plans for that extra bit of money, don’t keep it in a place where it’ll be too convenient to accidentally spend it on everyday items.
What you should consider doing: After you deposit it, immediately set the money aside in a savings account or another safe place where it will remain untouched until you’re ready to use it.
You’ve worked hard for your bonus and while it can be tempting to put it towards a larger, more expensive purchase you’ve had your eye on, you may be better off getting your money’s worth and putting it towards something more productive.
What you should consider doing: Make a list of places where the extra money would be best served, such as credit card debt, student loans, debts with high interest rates, or charity, and prioritize which of those items you should allocate the money towards.
A big mistake many make is planning on receiving a bonus each year. Try to avoid depending on the bonus or even calculating how much it could be ahead of time—remember, bonuses are still taxed like regular income. Even if you know you will be receiving a bonus at the end of the year or have received one regularly in the past, resist the urge to pull a Clark Griswold and make a large purchase ahead of time while expecting to pay it off with that extra money.
What you should consider doing: Wait it out. There’s no harm in thinking of what you may want to put some money towards but avoid acting on those ideas prior to having the money safely in your account.
It seems natural to want to spend your bonus on the holidays—after all, it is the season of giving. However, try not to spend the whole sum on gifts and décor. Getting an extra boost at the end of the year does not necessarily mean you should go the extra mile and buy outlandish or over the top gifts for family and friends.
What you should consider doing: Spending some of the money on gifts for your loved ones isn’t a bad thing, but remember to keep it in your budget. As for the décor, try to hold out until after the holiday season to purchase these items—they are almost always heavily discounted in January.
You likely already have some sort of a budget in place—that shouldn’t go out the door once some extra money arrives. While it may seem worth it to use the money for a rare shopping spree or to buy the latest tech gadget, you’re better off in the long run to fight the urge to spend it all on yourself.
What you should consider doing: Stay strong and stick to your budget.
Whatever you choose to do with your bonus, remember that treating yourself doesn’t always mean buying the latest and greatest. Look at your bonus as an opportunity to start the New Year off strong in a good financial position.
Written by North Star Resource Group.