If you’ve recently gotten a nice bonus from your company, you may be dreaming of all the luxury items you can buy with it. However, there are smarter things to do with your bonus that can pave the way to a more secure financial future. Depending on your age and stage in life, a bonus can be used quite effectively to create an emergency fund, relieve some debt or build up your retirement.
Create An Emergency Fund
Financial emergencies happen all the time, and it’s very smart for you to have some money set aside for those rainy days. From home and car repairs to medical bills and unemployment, your emergency savings can help you stay out of further debt.
While it may not seem fun or exciting to put your bonus in the bank to sit, you’ll be glad you did when the next emergency comes along.
Pay Off High Interest Debt
If you are battling credit card debt with high interest rates, consider using the bonus to pay that off. Not only will you pay less on the debt in the long run, but you’ll also boost your credit and free up income for other things.
Financial experts recommend putting a year-end bonus on any debt you are carrying with an interest rate in double digits. Start with the highest interest rate debt and work down to the lower interest rates.
Contribute To Retirement
A smart way to effectively double your bonus is to invest it in your company’s retirement plan with matching contributions. When young adults put as much as they can into a retirement plan in their 20s and 30s, they will benefit from decades of interest, so they have a nice nest egg when it’s time to retire.