A bonus is not something that you have won at a casino or luck favored you in a lottery, it is a reward for a job well done and hence needs to be treated similarly. The temptation to blow this money up on a cruise, or clothes, or accessories and jewelry is huge, but remember, these day pay raises are infrequent and do not keep up with inflation and these bonuses could help you cover both wants and needs. Plus there may be some debts that need to be cleared.
Although there are many guiding principles of how a bonus should be handled, the principal guiding principle is that you must use it to put yourself in a better position than you were before.
Make A Check List Of Financial Priorities:
1) Pay Taxes:
If there are taxes pending, or your bonus attracts any state or federal tax, then that should be your first priority. There is no investment that is more necessary than one that keeps you out of federal prison for unpaid taxes.
2) Savings For A Rainy Day:
There are many unforeseen and unexpected emergencies just waiting to happen. Then instead of paying for them through your credit card and entering into debt and paying a whopping 24 percent interest, you could pay for them through this little nest you had the foresight of creating. Keep at least three months income in the bank to avoid becoming a prisoner of the credit-card squeeze.
3) Clear All Debts:
Nothing eases your burdens more than being debt free. If you have credit-card debts, mortgage issues, or any other debt that is attracting high-interest rates, clear it off. A debt free life is invigorating and improves your jest for life. A cruise is a transitory vacation, but a debt-free life is like being permanently on vacation.
4) Add A Bit To Your Retirement Nest
If you are managing to pay your mortgage payments without hassles from your salary, then continue to do so. It would make more sense to put your bonus, at least a part of it into retirement. Your 401k, is very important and the bonus can be used to embellish it further.
5) Save for Your Children's Education:
Retirement should always take priority, but you can also use this money for furthering your education. Also think about your kids and the fact that they are going to grow and you'll need money for their education as well. Put a little money every year in a tax-advantaged vehicle, like the 529 plans. Money added regularly tends to amass into fairly large sums and be a blessing when you have to pay your kids college tuition.
6) Towards Fulfilling Your Ambition:
The reason why you took up this job was because you did not enough savings to start a business of your own and you are waiting for the day, when you will have saved enough to do so. Put some money in your ambition fund and wait for it to grow to enable you, to fulfill your ambitions.
7) Go For That Dinner:
Splurge a little. Take your family out for dinner or buy them something that they were looking forward to. These warm memories will motivate you to get an even bigger bonus the following year.
8) Don't Forget the Not So Fortunate:
Give a part of your bonus, to charity. Find a cause that appeals to you and give it to them. Sharing and caring is a great balm for the heart and you will be happy you have done something for those who are not as fortunate as you are.
I have told you about all the things that you should do, but I will end on a note of caution and briefly tell you what not to do with your bonus.
Never use it buy your family and friends oversized, overpriced gifts that cost a lot of money but give only fleeting pleasure. Don't spend it on electronics, (most people do), a fancy cellphone and other gadgets, that are good for flaunting but little else. You have clothes, you don't really need that extra suit do you? Don't start spending with your credit card, even before you have received your bonus. Until you have it in your hands, don't plan on how you are going to use it. Even of your boss has told you what your bonus amount is, after tax deductions it will not be what you presumed it will be.
Counting your chickens before they are hatched could leave you with undesired debt and turn a happy occasion into a sour one.
