Tips to Optimize Your Raise or Bonus: Pay-Off High-Interest Credit Debt
This is a valuable prospect to pay-off the credit-card debt you have that might be costing you thousands of dollars in interest payments each year. For instance, if you have $4,000 in credit-card debt at 18 percent, you can save higher than $5,600 by opting to pay-off the entire balance now instead of just paying the minimum awaiting the loan to get paid off.
Create an Emergency Account
Put-up three to six months' value of living expenses' in a detached fund; this shall help you in shunning a high-interest debt facing situation, it will also save you from paying penalties to get admittance into retirement money or looting your long-term savings in case you have unexpected bills, or in the worst case when you lose your job. It is highly advisable to pool the money in a reachable money-market account that grosses some interest.
Strengthen Your Retirement Fund
It's actually possible to extend the money by heightening your retirement savings. If your employer matches your 401k offerings, you'll get complimentary money; this shall increase your pay raise or bonus value more. Since this money is abstracted pre-tax, it won't lower your pay-check almost as much as you'd anticipate. For instance, if you're in the 25 percent tax bracket, and you get paid $5,000 per month and add $500 to your 401k, your pay-check will shrivel by just $375, and not by full $500. Also, if your employer matches your contributions by up to 3 percent of your salary, you'll receive an extra $150 per month or $1,800 per year of gratis money. Hence, you contribute $650 per month while decreasing your take-home pay by only $375, totalling $7,800 per year for only $4,500 from your pay-check. If you begin devoting that $650 per month in a 401k at the age of 37 and persist at the same level until retirement, you'll have more than $900,000 by the time you're 67, given that your investments return 8 percent per year.
Endow Fund in a Roth IRA
In regards to the 2010 tax returns, the utmost contribution to a Roth IRA is $5,000 if you're single or $6,000 in case you're 50 years of age or older. So, if you invest a $5,000 bonus in a Roth IRA per year and your investments' earn 8 percent annually, you'll have more than $566,416 in 30 years, and you will be allowed to extract it tax-free in retirement.
Don't Hesitate from A Little Fun
It is alright to keep to one side some money from your raise or bonus and finance a healthy vacation in a few years without much worry. Notably, cutting-back $300 per month in a money-market account earning 3 percent can add up to more than $7,400 in two years.
Remember Taxes
Many people who get a raise or bonus finally spend more than they're essentially getting. At times, people believe they're getting a $1,000 bonus and they end-up spending $1,000, but when in real terms they receive the check, it's mere $600 on account of taxes.
