1/29/2019 | Team United
Did you get a bonus this year? If so, then you aren’t alone. A recent survey showed that employers were expecting to pay slightly larger employee bonuses this year. So, what should you do with your bonus: save it or spend it? Here are some smart ways to use your bonus payment.
Your first impulse may be to go out and buy things with your bonus, but there might be some savings or investment options that make more sense. To make your bonus last well beyond this year, you might want to consider these options.
If you haven’t reached the contribution limits on tax-deferred plans such as an employer-sponsored 401(k) or a traditional IRA, then putting your bonus into one of these plans can have multiple benefits:
Remember, though, you can always put your funds in an accessible interest-bearing account such as a savings account, money market account, or certificate of deposit (share certificate) until you have time to plan and think things through.
One of the most important—and expensive—savings opportunities you have is to build a down payment for a new home. Your goal should be 20 percent of the list price, which would be $20,000 on a $100,000 home or $50,000 on a $250,000 home. An annual bonus can provide a boost to meeting this goal, especially if you are planning on buying a home over the next two or three years. There are different methods of long-term savings available like: a high-yield savings account, United’s Achiever savings account, and even a money market account. The key is to put your down payment savings in low-risk options that let you make regular deposits.
They say life comes at you fast, and it’s no different when it comes to your finances. Starting an emergency fund is a smart way to be prepared when the unexpected happens, like major car repairs, medical emergencies, or even a job loss. How much should go in your emergency fund? A good rule of thumb is between three and nine months of expenses. Your bonus can begin or add to building your safety net. To get the most out of this option, you want your money to both be accessible, but also grow when not being used. Consider putting your bonus into a money market account or a high-yield savings account. You could also look into a CD/Share Certificate—though this option could have early withdrawal fees.
It’s no surprise to anyone who’s looked at the cost of sending their kids to college that it’s expensive! According to US News & World Report, the average cost of tuition and fees for the 2018-2019 school year was $9,716 for state residents at public colleges and $21,629 for out-of-state students at state schools. It’s over $35,000 for private colleges. A 529 savings plan for your kids’ college education is a great way to use your bonus. Combined with monthly contributions to the 529 savings fund, bonus money can go a long way in helping you get your kids off to a good start.
Once you've taken care of any savings basics, consider setting aside some spending money to pay off bills or treat yourself to something you wouldn't have bought or done before—it’s okay to have fun with some of your new money!
If you want to tackle some nagging bills, using your bonus to payoff credit card debit is a good place to start. Consolidating is one of the best ways to pay off debt faster. Start by figuring out which of your credit cards have the highest interest rates, and then move those balances to a lower-interest card or personal loan. Not only will you have fewer payments to keep up with, you will be able to have more of your payments go towards the principal. Debt can cause stress in your life—so you want to manage it well.
Paying it forward is a philosophy that United believes in, and could be a great use of your bonus money if you’re looking for more ways to give back to others. There are a number of local and national charities that could use, and would appreciate, the donation. Need help finding a charity? Check out Charity Navigator.
There’s nothing wrong with spending your hard-earned bonus on yourself or your family. If you’ve got a savings plan and don’t need to pay off bills, it might do you some good to get a little R&R. But that doesn’t mean you have to spend a lot to take a vacation. There are lots of ways to vacation on a budget—including stay-cations, weekend getaways, or road trips to save on airfare.
Building your personal wealth starts with recognizing the best uses for your money, like a year-end bonus. The team at UFCU is always here to help answer any questions you might have.
Stop by a branch or give us a call at (888) 982-1400.
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