While there’s nothing wrong with lavishing your spare money on gifts for yourself or your loved ones, here are 5 other options you may want to consider.
Pay off high-interest rate debt
It is practically hard to get by without taking a loan of sorts – student loans, credit card, auto loans, or a mortgage. While credit has its many benefits, high-interest rate debts, when not properly managed could become a limiting factor on your finances. If you get a work bonus during this holiday season, paying off high-interest rate debts could save you significant money in the form of interest payments that you won’t be paying on the loan going forward.
Create/Expand your emergency savings fund
Many people are often a job loss, sickness, accident, or car transmission failure away from going broke. An emergency savings fund could be a life-saver to help you stay financially solvent in the event of an unexpected mishap. Many personal finance experts encouraging stashing away 3 to 6 months’ worth of living expenses. Most people have a non-existent emergency savings fund or a fund with just enough money to cover one month’s worth of expenses. Your bonus could help you increase the size of the pot.
Use your money for investment assets
If you’ve tucked away money in an emergency savings account, it is futile storing your excess cash in a savings account – you practically won’t get anything in return and your savings won’t catch up with inflation. You’ll be better off learning how to invest and then putting your money in assets that fit your risk appetite, age, and understanding of the markets. You may want to start with low-cost index funds or buy other assets such as stocks or real estate.
Increase the size of your retirement accounts
You’ll probably have a 401(k), 403(b), or other retirement accounts such as a Roth IRA. Beyond setting up a retirement account, you should be increasing the size of your contributions consistently. A holiday-bonus can be a perfect tool for increasing the size of your retirement portfolio significantly. It is also instructive to note that the tax advantages of retirement accounts could also help you earn benefits that you won’t access if you splurge the money on gift items.
Get a head start into saving for big expenses
A holiday bonus could also give you the initial momentum and push you to need to get started on saving for mid-term and long-term goals. If you’ve been thinking about buying a car/house, going back to school, or starting a business – the bonus might get you started on saving towards such big item expenses. Once, you’ve started saving towards the goal this year, you’ll find it much easier to set aside money towards that goal in the coming years.