Surprise! You received a little extra cash for the year. What should you do with an unexpected or year-end bonus?
A bonus is an opportunity to start a habit that will change your life for the long-term. Many times, we end up spending bonuses on a present to ourselves for all our hard work. Instead, allocate it toward goals that will pay compounding presents to your future-self!
The top four ways to use your bonus for a present to your future-self are:
- Pay down high-interest debt
- Fund emergency savings
- Fund retirement savings
Pay down high-interest debt
What defines ‘high-interest debt’? In my mind, this is debt that you don’t pay off on a monthly basis and has a higher interest rate than 8%.
List out your high-interest loans and credit cards, the balances outstanding, and what the interest rates are. Stack the debt by highest interest rate and start hacking away. Doesn’t that feel good?
But here is where the habit part starts. Paying off your debt and keeping it paid off are two different things. If you make the decision to pay off your debt, you should also make the choice to keep it paid off. Take another look at your spending habits and put together a budget to make this good feeling last.
Fund emergency savings
Do you have 3 to 6 months of savings on hand for emergencies only? If you think your credit card limit counts, guess again. Having three to six months worth of savings is vital in today’s economy. You may bounce around from job to job more often or decide you need a sabbatical to check back in with yourself. Not having this money available for breathing space wreaks havoc on your emotional well-being.
Fund retirement savings
Do you have a 401(k)? Are you making the maximum contribution? If not, this is a chance to save for your future self and reduce your taxable income. Cha-ching!
A lot of articles I read are focused on setting the right tone with budgets and savings. What do you do for your longer term savings goals? Maybe you want to take an international trip in 5 years, provide for your children’s college fund, or invest extra money so you have more options in the future.
Long-term success requires investments in yourself and in the financial markets.
Little tweaks now create huge differences later. The benefits of compounding interest and gains can change your life. Check out our philosophy on long term success HERE.
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