If you’re lucky enough to have received a holiday bonus from your employer, you may be tempted to celebrate your luck by spending all the money at once on a luxurious dinner or weekend getaway. This type of splurge can lead to regret after the fact, however, when the same old bills start arriving in the mail. Used wisely, a holiday bonus is an opportunity to get a head start on managing your money well in the new year. Here are three helpful uses for that windfall that can benefit your financial situation in the long term:
Pay Down High-Interest Debt
If you have credit card debt or other high-interest loans, paying off some of the principal is the single most effective use of extra money. Every dollar that you spend on paying down the balance will also lower the amount of interest that you owe, and will help you reach your goal of eliminating those bills altogether. If you’re in the early days of a mortgage, the majority of your payments consist of interest, and lowering the principal by even a small amount is always a good idea.
Build Your Savings
Do you have a “rainy day fund” yet? Too many people live day to day, hoping for good luck, and then fall into debt when a problem arises. If this sounds familiar, take a chunk of your holiday bonus and put it away in a savings account to cover possible emergencies.
Make Improvements on Your Assets
If you own your home, it represents a significant investment in numerous physical systems that require maintenance. Protect your home’s future value by spending some of your unexpected funds on new appliances or a maintenance task you’ve been postponing. A new hot water heater, perhaps, or freshly re-done floors. You’ll enjoy a sense of luxury and your home will retain its value for much longer.
Fiscal discipline is important, but it’s also a good idea to let yourself enjoy some immediate rewards from your hard work. You may get the most mileage out of your holiday bonus by dividing it up into several parts: One part can be directed towards your future needs, as mentioned above, while other parts can be channeled into charitable giving and pure fun. Making decisions about your holiday bonus helps you keep your ultimate life goals in clear view.