These Are the 5 Most Fiscally Responsible Ways to Spend Your Annual Bonus in 2024
Written by
Adam Palasciano
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T. Woods
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Most people get paid biweekly, bimonthly or monthly. For many, take-home pay is enough to cover bills and hopefully have a bit left over each month for savings and/or spending on fun activities. If you’re fortunate enough to also receive an annual bonus, kudos to you. Zippia recently reported that only 33% of companies in the U.S. offered year-end bonuses as of 2022.
If you fall into this category and receive a bonus worth thousands of dollars, the next step is deciding what to do with the excess cash. There are five ways to maximize a cash windfall to your advantage, according to CNBC.
1. Save For Retirement
Consistently saving for retirement is key when it comes to setting yourself up for a secure financial future. Putting at least part of your annual bonus into your 401(k) is a wise decision. The extra cash will give your account balance a boost beyond any monthly contribution or employer match you might already have set in place. Additionally, that extra bump will grow exponentially over time. Let’s say you put a $4,000 bonus into a mutual fund that has an average annual return of 7%. The bonus money alone would grow to a total of $30,449 in 30 years.
2. Pay Down Debt
If you’re sitting on a high interest loan or an even higher interest credit card balance, directing some or all of your annual bonus to eliminate or reduce your debt is a smart move. While you might be considering adding more funds to your retirement account or investing in more stocks, eliminating your debt matters more. Holding long term debt creates a drain on your finances and should be eliminated before making more investments.
3. Invest In Your Education
One of the most important investments you can make is in your education. Consider putting your annual bonus check towards a professional development class, an online certificate course for a new skill that might advance your career, or towards a higher degree. If plan to go to school a few years down the line or you’re planning for your children’s education, consider investing in a tax-advantaged 529 college savings plan. This type of investment account allows contributions to grow with compound interest like a retirement investment account except for one key difference. Withdrawals for education expenses won’t be taxed. These include education expenses including tuition, books, meal plans, computers and student housing.
4. Increase Your Emergency Savings
Having 3-6 months of emergency cash savings at all times should go without saying. If you’ve already achieved this, you’re on the right track. But, it can never hurt to increase your emergency savings when you receive this cash windfall. Apart from an unexpected job loss, you’ll want to add extra funds to your emergency savings so that you’ll always be prepared for any surprise medical bills, expensive home or auto repairs, or if you find yourself unable to work due to illness.
5. Spend Some Money On Something You Enjoy
While saving for the future, reducing your debt, pursuing further education, and building up your excess funds are all important, consider spending some of your annual bonus on yourself. This can be anything that you would enjoy from a dinner out to continuing your favorite hobby or maybe even a vacation if you can swing it.
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