If you receive a bonus, let’s say $5,000, at work as a result of your hard work, you might be tempted to spend it on things you don’t really need. My advice to you is, “Don’t!” There are better ways to use that extra money.
For example some or all of that money can go into paying off your debt, loan, it can go into a high interest online savings account, it can into a traditional IRA or a Roth IRA. You can even invest that money in riskier investment such as stocks.
1. Pay Off Your Debts, Especially Those With High Interests
Because credit cards tend to have higher interest rates than other forms of credit, it makes more sense to pay off those debts first. Also, if you have a small private loan or a mortgage loan, use that money to pay it down.
2. Put Some or All of That Bonus in a High Interest Online Savings Account.
That way you earn interest on the principal ($5000), which get reinvested, which in turn generate more earnings, which are again reinvested and so on. Other places you can put that money include certificates of deposit (CD) and money market funds.
3. Put Your Bonus in an Emergency Fund for Unexpected Costs Like Car Repair or Medical Bills.
4. Contribute to a Roth or traditional IRA (Individual Retirement Account)
If you have a taxable income, you can contribute a total of $5,500 to either one or both. If you are 50 years old or older, your contribution limit is $6,500.
5. Invest Your Bonus
Consider investing your bonus in a mutual fund, or consider buying individual stocks. Money invested in stocks is very risky. Before you decide to do so, learn and know the risk involved and make sure you have the stomach to absorb the losses.
6. If you have a child,
A 1 year-old for example, save that money to help pay for his or her college education. $5000 invested for 18 years, assuming you earn 5 to 8 percent annually on it, can turn to a lot of money after 18 years.
7. Use that Bonus to Invest in Yourself
Use that money to buy books and magazines about personal finances. The more you learn about personal finances, the more you will be able to take control of your money and eventually achieve financial success.
8. Join a Gym
Use some of that money to join a gym. Exercising is a really important way to stay healthy.
Use that money to travel overseas. You might think spending money on traveling is wasting money, think again. Traveling can expose you to people with different cultures and background.
10. Other Ways to Use Your Bonus Include Purchasing an Engagement Ring.