5 Smart Ways to Use Your Year-End Bonus

Here's where you should consider putting your money, from most to least important.

1. Catch up on your bills

This should be your first priority. If you're behind on any payments or know that a major expense is on the horizon, your bonus should go toward squaring up before spending on anything else. That's because racking up debt or missing payments can not only lead to late fees and interest charges, it can also negatively impact your credit — and that can cost you even more money in the long run.

2. Pay off high-interest consumer debt

Once your day-to-day finances are in order, a good way to spend your bonus is by paying off (or paying down) any outstanding credit card debt you might have. By reducing or eliminating high-interest debt, you get a lot of bang for your buck. You're sure to save more than you would earn by putting that money in a savings account — and possibly even more than by investing it.

Even better, you'll either reduce — or eliminate — the monthly payments you were making on that credit card debt. Once you've paid off any credit card debt, consider taking that extra money you used to spend on credit card payments and instead use it to make an additional monthly deposit into your savings account or retirement fund.

3. Build up savings

If you're not behind on your bills and have no credit card debt, you should devote one-third of your bonus to beefing up your savings. That starts with an emergency fund to protect yourself against life's unexpected costs. At minimum, start by setting aside $1,000 for emergencies. Once you have that, try building up three to six months' worth of expenses.

4. Invest in your future

Have you maxed out your 401(k) or IRA for the year? If not, consider devoting one-third of your bonus to your retirement — especially if you're a bit behind on retirement savings. Experts recommend putting away 15% of your income each year for retirement.1 If you haven't met that goal, your bonus could be a great way to bridge the gap. 

5. Treat yourself

While experts don't recommend running off to a tropical beach and spending your entire bonus, you could reserve up to one-third of your bonus to treat yourself. Whether it's a new gadget or nice dinner out, be sure to reward yourself for your hard work — and for being financially responsible with your bonus.

Of course, the above suggestions are simply guidelines. Everyone's financial situation and goals are different. If you'd like more guidance on the best way to use money from a bonus, or if you receive a particularly large sum of money, it's never a bad idea to visit your local branch and talk to a professional about it.

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