Expecting a bonus or a raise? Read these tips before you start Googling timeshares in Cancun
If you’ve got an annual bonus or a well-deserved raise coming, it’s easy to think of it as “extra money” you can use to splurge on a trip to Mexico, a new phone, or a serious visit to the outlet stores. It’s particularly easy if you’ve been sticking to your budget and feel you deserve a little fun after behaving so responsibly all year!
Before you blow it all on a phone upgrade or a cruise, though, consider these smart ways to really reward yourself with the extra infusion of resources.
1. Upgrade Your Budget Instead of Your Phone
Still rocking a flip phone from the 90s? If so, yes, maybe you should invest in something smarter. But for most of us, it’s smarter to spread the extra cash across several budget items. Go ahead and add a little to your entertainment or entertaining budget, but consider allocating the rest of it to these smart
2. Make a Bigger Dent in your Debt
Are you feeling the weight of college loans, a mortgage, or, even worse, high interest credit card debt? You can lighten that load by using your bonus to make a larger payment than usual. It lowers your balance so it reduces some of those high interest charges moving forward. Increasing this budget category when you get that raise can also add up to a significant reduction of interest in the long run.
3. Invest to Watch it Grow
Setting aside money when you have large expenses to deal with now can be daunting. But the earlier you start investing the more time your money has to grow. If you haven’t already, create an investment account and put that bonus money to work for you, instead of leaving it in a checking account.
4. Kickstart Retiring
If you’ve kicked your tires and they need to be replaced, by all means, safety first! Use some of the rest of the money, though, to max out your company’s 401(k) contribution limits. If you qualify for an employer match, your bonus just got bigger!
5. Recalibrate Your Portfolios
If you’re already an investor, consider adding some of those extra funds to your investment portfolios. While you’re at it, take a look and see what’s working and what’s not. Your financial advisor can help you evaluate whether your allocations should be adjusted based on your risk tolerance and your long and short-term financial goals.
6. Start a College Savings Plan
It’s never too early to start saving for a child’s college education. By starting early, you can get a good head start and maximize compounded interest. Your financial advisor can help you choose a plan that works with your life, you goals your timeline, and, most importantly, your bonus!
7. Save for a Rainy Day
Those emergency funds may seem like low priority, until you suddenly need them. If you haven’t already, create an account with funds for unexepected expenses like job loss, emergency repairs, medical bills for you, your family, or your pets, and even weather emergencies (remember Hurricane Sandy?) A good rule of thumb is to have three to six months of expenses saved up just in case.
There’s nothing wrong with treating yourself a little. You worked hard and you deserve it! Remember though, that by keeping the splurging and celebrating to a minimum, and letting that bonus or raise work for you, chances are you’ll have much more to celebrate when next year’s bonus comes around!
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