What to do with your end-of-year bonus
Put 30% toward your future by topping off your emergency fund if it’s lacking, paying off high-interest debt like credit cards, paying off an extra bit of your student loans, adding to your short-term goal accounts, and/or contributing to retirement accounts. You can do a combination of the above recommendations depending on your priorities or their level of importance. As for the remaining 70%, treat yo’ self.
Bonus time is like a visit from Santa for adults. It's tempting to spend it right away—you earned it, after all! But before you run out and buy the most expensive thing you can think of, ask yourself one quick question:
"If you don't plan for your future, who will?"
We here at Stash Wealth are all for using some of your bonus to #treatyoself. However, a bonus is also a chance to get ahead on your goals. Distribute this extra money wisely today, and you'll put yourself in a much better position for the future.
The best way to invest your bonus check
Invest In Yourself First: Put 30% toward your future
It's up to you how to divvy up this amount. Everyone's situation is unique, and what makes sense for one person may not be the best choice for someone else. If you don't have a complicated financial situation (if you do, we suggest working with a financial advisor!), here's our general recommendation for allocating this 30%:
Top off your emergency fund (which should be in a high-yield saving account at an online bank, such as CapitalOne360 or Ally). You should have 3 months worth of fixed expenses (rent, car payment, phone bill, etc.) set aside.
Pay off any credit card balances. Start with cards with the highest interest rates. Carrying a balance hurts your credit score, costs you money, and is basically the surest way to never get rich.
Contribute to student loans. Make sure it goes toward the principal—you may have to call to ensure this happens.
Contribute to a near-term goal. This could be anything occurring in the next year or so, like an upcoming vacation, wedding, or new addition to the family.
Contribute to retirement accounts. Assuming you're maxing your 401(k) match, max out your Roth IRA next if you're eligible. The easiest way to invest money in a Roth IRA without the help of a professional is to use a Target Date Fund that lines up with the year you plan to retire. Vanguard has a good selection.
Invest in fun: use 70% to treat yo' self
When we say blow it, we mean it. Enjoy that money! If you are using 30% of it too for things like saving and debt, you're #adulting hard. You deserve to take a spontaneous trip, book reservations at Per Se, or buy that designer item you've had your eye on. If the thought of blowing your money on something extravagant makes you nauseous, think about something else you want. Maybe it's a new coach, a nicer apartment, or a car. Set aside some money for it in separate savings accounts specifically assigned to that goal. Once you've taken this step, you can truly spend guilt-free. Psst! This system works great for your tax refund, too! To read more financially savvy articles like this, click here.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Priya Malani
Stash Wealth, Founder & CEO
Priya is a force in the personal finance space. As an industry disruptor, she specializes in bringing the unapproachable world of money to young professionals across the country.
