The best way to spend any year-end windfall you’ll get is not always the most interesting way. Often, the smartest way to use this money will be the least eye-catching. How much you’ll receive isn’t important. What you’ll do with it could drastically affect how you’ll be financially prepared for years to come!
Many people use “bonus” or any year-end extra money simply as “additional cash.” Year-end bonuses are more than just “additional cash.” They provide us with an opportunity to make progress toward becoming financially free (reaching our goal of ultimate financial independence).
Debt should be paid off before any other spending or investment goal.
Of course, if you owe anything on credit cards, student loans, car loans, etc. you’ll want to apply the bonus toward paying off those types of loans.
Think about it this way: by paying off a loan with your bonus money you have created an additional source of cash flow for your future self (now instead of the borrowing company).
You may think about using the bonus for fun or entertainment. But by using that bonus to pay off your debt, you will effectively be giving yourself a permanent raise when your debt is completely gone.
Safeguard your financials. There’s always a chance of having a financial emergency. By establishing an emergency fund, you’ll have cash available when faced with an unanticipated expense, e.g., a defective automobile, unanticipated bills, or any kind of employment uncertainty. An emergency fund provides a cushion or safety net in the event of a future financial crisis.
One way to propel the creation of an emergency fund into high gear is to make use of a bonus.
Expanding Your Vision: Establishing a Home
So you’re free of debt and have money stashed away in savings; now what?
This is where the fun really begins! Rather than allow your money to just sit there stagnating, you can begin accumulating funds toward a major goal — home ownership. By owning a home, you are paying off your own mortgage rather than someone else’s and building your own equity.
Using your bonus as a down payment for a mortgage can help you to reach this goal faster than you think!
Once you have completed all the preceding steps (no debt, emergency fund complete, AND having a mortgage) you absolutely deserve to spend some of your bonus!
If you’re planning to get a new car, consider staying practical. Avoid using financing to buy your car; pay cash whenever possible; and don’t place too much emphasis on purchasing a new vehicle simply for the sake of being able to say you bought a new vehicle. New Vehicles Depreciate in Value Very Quickly!
When you make a good purchase, you feel good about it, but it doesn’t hold you back financially.
Long-term investing can be an excellent use of your bonus as long as you’ve adequately met your basic financial needs. For example, by putting some of that bonus money into a retirement account, you will have created a way for that money to accumulate interest, ultimately providing you with even more retirement funds in the future.
A single bonus that you invest in today could grow into much more money for you 20 or 30 years from now, with little or no effort on your part.
You may have a real opportunity to bless someone else with your bonus. Not everyone has the opportunity to receive a bonus like you do, so sharing even a little of your bonus will make you happy and bless someone else as well.
In addition, it alters your perspective of money from an expense to a tool for positive change.
Most individuals do not fit neatly into any one category; you may be carrying debt and want to save money while building up an emergency fund and thinking about investing.
Bonuses can be divided between debt repayment, savings, and enjoyment. Be intentional about how you use your bonuses; this will lead to long-term results versus impulse decisions.
Why This Is Important
A holiday bonus may seem like a “one-time” addition; however, the decision made with this money can be used for years to come.
By spending your bonus, you would receive short-term satisfaction, while spending your bonus strategically will lead to long-term results.
And ultimately, long-term financial independence is the result of progress.
Even a small bonus, used correctly can help change the way you think about where you would like yourself to end up financially; it is simply how you use that money.
So, before making an impulse purchase with your bonus, take a moment to ask yourself:
“Will this decision make things easier for me in the future?”
If the answer is yes, you are on your way to making a great financial decision!
