Smart Ways to Spend Your Year-End Bonus

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Perhaps you were fortunate enough to receive a year end bonus for all your hard work in 2012. How can you use those funds to most effectively improve your finances? It depends on your own unique circumstances, and it’s usually a matter of prioritizing multiple goals. I’ve come up with this checklist to get you started.

Credit Card Debt

First, you want to pay off credit card debt or other high interest rate or short term debt. If your bonus won’t cover your debt, it is important to create a plan to address your debt. Consider how the debt accumulated in the first place, and if there is anyway to prevent that in the future. Another resource is a webinar I created titled: Getting Out of Credit Card Debt. To view it, login to SaveUp and click “webinars” on the left.

Emergency Savings

Create or replenish your emergency savings account. This is a pool of money that is set aside for emergencies or unexpected expenses such as a job loss or medical expense. The rule of thumb is to dedicate three to six months of expenses for this purpose. Even with bonus money to get us started, most of us will have to build our emergency savings slowly but surely. Therefore, even having a few hundred dollars available to us in case of an emergency is a good place to start.

Retirement Account Contribution

This is an important financial action to take. Sometimes we don’t feel the urgency of saving for the future, but it is critical in order to prepare for a secure and comfortable retirement. Bonus money is one way to grow your retirement nest egg, but I also suggest pairing that with consistent contributions. Depending on the type of account you contribute to, you might also receive a tax benefit now and have more after tax income.

Short or Mid-term Savings Goals

Put your bonus towards one of your savings goals.  Maybe you want to start a business, buy a car, take a vacation or save for your kids’ college costs. Perhaps you have a different goal? Your bonus is a great opportunity to grow (or start) your savings towards this goal.

Something Fun!

You’ve been working hard all year to earn that bonus and you might want to spend some of it right now. That’s okay too! It’s important to strike a balance and not be too restrictive. My recommendation is that you designate a certain percent or a dollar amount that goes towards a new toy or activity while putting the rest towards savings.

This checklist could apply to any lump sum of money (eg. if grandma was extra generous this Christmas or if you expect to receive a tax refund this year). The idea is to have something to show for your bonus and spend it in a meaningful way that improves your life and your finances. Prioritize where your money goes so that you can work towards your goals, strike a balance, and of course, continue to SaveUp!

This post was written by SaveUp’s personal finance contributing writer, Catherine Hawley, CFP®.

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Written by Catherine Hawley

Catherine is a CERTIFIED FINANCIAL PLANNER (TM) who offers accessible and objective financial advice to individuals and families. Her aim is to help clients gain clarity and confidence so they can pursue their definition of financial success. You can find more information about her independent practice at She has worked at Rhodes & Fletcher, LLC as a Personal Benefits Specialist and at the firms of Bernstein Global Wealth Management and Barclayʼs Global Investors. Catherine has a bachelors degree in communication studies from the University of California, Los Angeles where she was a scholarship athlete and captain of the womenʼs tennis team.