Should You Save, Spend or Invest Your Holiday Bonus? Here’s What Experts Say
Written by
Cindy Lamothe
Edited by
Amber Barkley
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It’s that time of year when everyone is looking forward to receiving their holiday bonus. There’s nothing like having extra money fall into your lap to make you want to buy ALL the things.
Sure, splurging feels like the right option — but there’s that nagging, mature side of you telling you to not blow it. Should you save, spend or invest your bonus? Here’s what the experts recommend.
Also, if your bonus isn’t quite enough this year, check out some quick and easy ways to make some extra money this holiday season.
Try the 50/30/20 Rule With a Twist
“I recommend using the 50/30/20 rule when handling a holiday bonus, but with a strategic twist,” said Abid Salahi, finance expert and co-founder of FinlyWealth.
He suggested allocating 50% towards financial security — this means putting it toward high-interest debt, if you have any, or into your emergency fund if it’s not fully funded. “I’ve seen this approach work particularly well with my clients who received bonuses ranging from $2,000 to $10,000.”
Recently, he worked with a marketing professional who received a $5,000 holiday bonus. “We mapped out a plan where she allocated $2,500 — 50% — to pay off her credit card debt, which carried an 18% interest rate.”
He said this decision alone saved her nearly $450 in interest charges over the following year.
Invest 30% of Your Bonus
“When it comes to investing your bonus, I recommend my clients look at their retirement accounts first,” Salahi said. “If you haven’t maxed out your 401(k) for the year, consider using 30% of your bonus to boost your retirement savings.”
You can contribute up to $23,000 in your 401(k) for 2024, and if you’re 50 or older, that limit increases to $30,500.
Use 20% of Your Bonus for Personal Use
For the spending portion, Salahi said he’s developed a unique approach with his clients. “I suggest taking 20% of your bonus for personal use, but with a twist — split this amount between immediate enjoyment and future experiences.”
For example, if you have $1,000 for spending, use $500 for something you want now and set aside $500 for a planned experience in the next six months.
“I’ve found this creates both immediate satisfaction and extended happiness,” he added.
Salahi said he’s noticed a common mistake among bonus recipients: They often rush to invest without considering their complete financial picture.
“Through my work with clients, I’ve learned that paying off high-interest debt should always come before investing, unless you have an employer match you haven’t maxed out,” he explained. “A guaranteed 18% return from paying off credit card debt beats most investment returns you might get in the market.”
Another Approach: Spend on Holiday Expenses and Debt
Adam Garcia, certified financial planner and founder of The Stock Dork, shared a different strategy: Instead of investing your bonus, he suggested using it to cover your holiday expenses first. Then, anything left over should go toward paying off your high-interested debt.
“Only once these priorities are addressed should you consider saving or investing your bonus,” he said.
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