First, congratulations on receiving a bonus! Take a small amount, maybe 10% of the total amount, and treat yourself to something special. Make sure it’s something you would not normally do, so it really feels like a treat. You might also like to set aside 5-10% for a charitable contribution.
Second, if you have high interest credit card debt, consider some of your bonus to pay it down for an immediate return on your money. No debt but no savings? Building a small emergency fund with the remaining bonus is an important start. If you have an emergency fund already, are you contributing enough to your retirement plan at work to earn the company match? If not, increase your contribution rate to earn the employer match and keep the bonus money in reserve until you know that you can still meet your monthly expenses. As our CEO Liz Davidson says in our new book, What Your Financial Advisor Isn’t Telling You, employer-sponsored benefits are often overlooked and maximizing them can make you an automatic millionaire!
Third, if you already have no high interest debt, a healthy emergency fund that would cover 3-6 months of expenses, and are contributing enough to your 401(k) plan to stay on track for financial independence, consider using your bonus money to invest towards other goals. You might set up an account to save for the purchase of a home, or contribute to a Roth IRA. Alternatively, you could consider investing in yourself by going back to school or learning a new skill.
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