10 Things You Can Do with Your Holiday Bonus

You’ve just received news that you’ll actually be getting your year-end bonus check. You might be tempted to run out and spend your holiday bonus right away, but you might not be making the most out of this new found wealth!

Before you go out and spend your year end bonus on treat, consider these top 10 things you can do with it.

1. Purchase a Life Insurance Policy

If you don’t already have coverage for your family, now is the time to think for the long term.

While your year end bonus could provide some short-term financial solutions, life insurance offers financial security in the event of your premature death. Using part of your bonus to finance a policy is a great investment for the future.

Instead of having a few thousand now, your family could have a few hundred thousand down the line.

2. Reduce Your Credit Card Debt

Another great way to take advantage of your bonus is to pay down some of your credit card debt.

If your card has held a balance dangerously close to its limit for some time, it’s good to pay it down; however, keep in mind that credit card issuers often penalize customers for paying off their entire balance.

So, before you commit to using your bonus for this purpose, it’s good to learn more about ways to eliminate your debt.

3. Cut Down Your Annual Expenses

Receiving an annual bonus provides an excellent opportunity for you to set aside money for your annual expenses – things that are not a part of your monthly budget.

For instance, you could set some of the money aside to pay for your personal property taxes and vehicle registration renewal. Or you might save some for your child’s school clothes, shoes and supplies.

4. Save for an Emergency

This is a great time to set aside some of your money for emergencies (ex. if the car breaks down or your hours get cut on the job). You never know what type of emergency could pop up, which is why it’s a good idea to always be prepared. If you’re not sure of how you can save for an emergency, take time to review ways building an emergency fund.

5. Pay Your Taxes Early

If you think you’ll owe taxes for the tax year you receive your holiday bonus, you may want to dedicate some of the money to paying your taxes down or off, this way less will have to come out of your paycheck.

If your taxes are complicated and you’re worried getting audited could spell trouble for you, you might invest some of the money in hiring a tax professional who could prepare your tax forms properly and save you money down the line.

6. Set Aside Money for Your Nest Egg

Investing in your retirement is more important now than ever.

With the financial crisis affecting millions of 401k plans and IRAs, now is the time to create a diversified portfolio that will grow in the coming years. Whether you’re looking to rebuild your nest egg after losing some of it, or you’re starting to save for the first time, it’s a great idea to designate some of your holiday bonus to this crucial investment.

Finding out how much you need for retirement is a great way to start.

7. Hire Professional Assistance to Increase Your Credit Score

In addition to paying down your credit card debt, you could consider designating some of your year end bonus to work with a debt consolidation or settlement company.

Depending on who you work with, you will likely have to pay a fee for their services, but the payoff would be reducing your overall debt and increasing your credit score with the help of professional assistance.

8. Open a Health Savings Account

With Medicare in danger of bankruptcy not even a decade down the line, it’s a good idea to set aside money in a health savings account (HSA) for retirement health expenses.

Even with Medicare, current retirees have to pay as much as $6,500 a year in health care costs. To avoid health care cost issues down the line, it’s good to begin investing in an interest-bearing health savings account from your local bank or credit union today.

9. Invest in Your Children’s College Savings

In 2009, four-year public college tuition costs averaged $7,020, while private institutions averaged $26,273.

According to FinAid.org, college tuition is increasing at an average rate of 8 percent per year, so if you have young children, it’s a good idea to invest some of your bonus money in their future education. You could place money in an interest-bearing savings account or save for college in these other ways.

If you’re not sure how much to set aside, take advantage of our handy college savings calculator to help you decide.

10. Buy Your First Home or Upgrade the One You Have

With the First-Time Home Buyer Credit being extended until July 1, 2010, this is a good time to use some of your holiday bonus toward a down payment on your home. If you close on your home before the end of the year, you have the opportunity to obtain up to an $8,000 credit for the 2009 tax year – or up to $6,500 if you’re trading up from your current home to a newer one.

While it’s important to make sure you use your bonus in responsible ways, it also doesn’t hurt to spend a little for pleasure (shopping, family outing, etc.).  After all, you’ve worked hard to earn your money, so unless you’re in a stressful financial situation, you might designate some of the bonus for you as well to help maintain your worker morale for another year.