How to Spend Your Christmas Bonus

Written by
Kara Johnson
Read Time: 3 minutes

If you're fortunate enough to receive a hefty Christmas bonus, here are some tips on spending it that embraces the true holiday spirit.

Did your employer reward you for another year of hard work with a generous holiday bonus? Way to go! Extra money in your pocket never hurts. Where should you spend it to bring some joy to your financial life?

Go ahead and treat yourself to something nice that you couldn't afford without this extra cash infusion. But use a modicum of control, and don't spend it all in one place. Set aside a predetermined portion of the bonus for your personal indulgences. Then, stick to that plan through rain, sleet, or driving snow.

The remainder of the bonus-which is hopefully the majority of it-should be spent on something responsible. Here are a few ideas for your windfall.

Pay off debt

Almost everyone has some debt hidden away, somewhere. Start with high-interest credit card balances, then look at your student loans, extra car payments, or putting more equity into your home. Begin with the highest interest rates, and work your way down the list. You'll thank yourself for many holidays to come.

Make some investments

For the gift that keeps on giving and giving and giving again, put some extra cash into your retirement accounts or the kids' college savings plans. If you're not taking full advantage of an employer-matched 401(k), investing here is a wise way to "increase" that bonus. IRA plans or Coverdells are good, too. It's like giving your bonus check a raise, and then sending it to your future self, who needs it the most.

Build your emergency fund

For some more immediate satisfaction, set aside some of the stash in a high-interest savings or money market account, where you should be keeping three-to-six months worth of emergency cash. If something unexpected and expensive were to happen, that's the cushion that'll soften your blow. It's not good enough to stuff dollar bills in a mattress-you should at least try to stay ahead of inflation.

Give to charity

If you're already debt-free, have fully funded your investment accounts, and have your emergency funds in order, you've got it made. There are plenty of deserving, but under-funded, charitable causes that could use some support. In fact, think about handing some cheer over to the needy, even if you aren't completely unburdened yet. You're making the world a better place, one dollar at a time. Meanwhile, the contributions are usually tax-deductible, and it may do wonders to balance your karma.

Go ahead and enjoy that bonus. Have a nice dinner and get the Christmas shopping done early (and without credit cards). Then, feel great about making your hard-earned bonus work for the greater good. It's beginning to look a lot like Christmas.

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