Updated June 17, 2019. If you're reading this, you're probably expecting an influx of cash from your employer — and searching, valiantly, for the best way to use it. You earned that money, after all. Payout season is the time to make those dollars work for you. Here are seven smart ways to spend your bonus.
1. Pay off credit card debt
Not terribly exciting, we know, but if you have balances past due, you owe interest. And if you owe interest, that balance will grow to negate your bonus — even if you decide to bank it. Credit card annual percentage rates are much higher (think around 15%) than savings account annual percentage yields (think 1.6% ... if even). Fortunately, there are ways to speed up your "get out of debt" plan.
2. Get life insurance
It's a mainstay on endless adulting financial to-do lists — and, bonus aside, there's an extra reason right now to finally cross "get life insurance" off yours. Rates are currently at a 20-year low. Plus, you're not getting any younger. Which is simply to say, insurance premiums go up alongside your age. (We can help you quickly compare life insurance quotes across companies here.)
3. Boost your emergency fund
Most Americans don't have money saved for a rainy day. Don't be like most Americans.
The best way to start an emergency fund is by opening a savings account. Fiona, a partner of Policygenius, can help you compare high-yield savings accounts online.
4. Make a five-minute investment
- Upping contributions to your 401(k)
- Tap an investment app or robo-adviser to start a stock portfolio
- Open an individual retirement account online — which (bonus bonus!) can help you score a last-minute tax break.
5. Pay your taxes
April is right around the corner and — when you get big bonuses, in particular — it's hard to estimate whether you're going to owe or get paid by Uncle Sam. If you're expecting (or suspect you're expecting) a tax bill, well, now you've got the funds to pay. Here's a guide to filing your taxes in 2018.
6. Open a college savings plan
A 529 plan traditionally has helped families save for college. But the GOP's tax bill, which went into law in December, allows parents to now use those funds to pay for private elementary and high schools, too. In either case, so long as the money from the 529 plan is spent on qualified educational expenses, there's no tax on your gains (a bonus to using your bonus on an account).
7. Splurge ... a little
The average holiday bonus in 2017 was $1,797, according to research from Accounting Principals. If you're making that or more, you don't necessarily have to devote every dollar to being the best adult ever. A term life insurance policy, for instance, can cost a healthy person as little as $20 a month and you can start an investment portfolio via an app for $500 or less. If you've got some wiggle room in your budget, treat yourself ... a little. Don't go on a spending spree that could lead you into debt.