If you’re scheduled for a work bonus this year, do you know what you’ll do with your extra chunk of cash? (After taxes, of course, which can be hefty.) Instead of blowing it right away on things you’ll forget about, try something that will make a meaningful impact on your financial picture.
Here are 10 smart things you can do with your windfall:
1. Make a dent in those home payments.
Aim to put all or part of your bonus toward paying down your mortgage debt, suggests Jacquette Timmons, financial behaviorist and author of Financial Intimacy: How to Create a Healthy Relationship With Your Money and Your Mate. This is especially true if you didn’t put down 20 percent when you bought your house: When you reach 20 percent equity on your home, you can cancel the private mortgage insurance premium you’re paying on top of your regular mortgage payments.
2. Pay a lawyer to draw up a will.
More than half of Americans aged 55 to 64 don’t have a will, according to a 2014 study, and without one, your assets won’t be distributed as you wish. While you’re at it, have the attorney set up an advance medical directive, or living will, that addresses end-of-life issues on your behalf. And make sure you have a durable power of attorney in place. (This document identifies who you’d like to manage your financial decisions in the event that you’re alive, but unable to handle them yourself.)
3. Fatten your emergency funds.
Life has too many unexpected expenses to be without an emergency fund (about 57 percent of Americans say they’re unprepared for a financial emergency, according to a recent Pew Charitable Trusts poll). So how much of a cushion do you need? In a perfect world, you’ll want up to have saved enough money to cover 12 months of expenses in case of an emergency, like a sudden job loss, recommends Kimberlee A. Barrett-Johnson, CFP®, CDFATM, an Ameriprise private wealth advisor and president of Barrett-Johnson & Associates. But if 12 months is out of your reach, anything helps.
4. Give it to charity.
Give the money to a charity that speaks to you personally, say University of Canada researchers, and you’ll be happier. Bonus: Giving can also offset your tax burden — as long as the charity is recognized by the IRS and doesn’t go above 50 percent of your adjusted gross income. Go to the IRS Exempt Organizations Select Check tool to verify before you sign that check.
5. Get more out of your company’s matching retirement program.
“Don't let ‘free money’ get away from you,” says Barrett-Johnson. If your employer offers matching on your retirement plan, make sure you are contributing enough to get the full match, she says. You may even be able to fill out a form in your benefits office to put 100 percent of your bonus right into your 401(k).
6. Enroll in a course.
Use your bonus to pay for a class, says Barrett-Johnson. It doesn’t matter if your goal is enhance your career with a course on corporate development or just to indulge your passion for painting. Lifelong learning is good for your well-being — and your mind.
7. Upgrade your home office.
Do you bring your work home at night or on weekends? If so, it may be a smart investment to update some of the old technology you’re struggling with in your home office. Eliminate those precious minutes spent with a frozen computer by spending your bonus on more hardware memory, for example, or an entirely new and faster system this year.
8. Splurge on a new membership or attend a work-related conference.
Put that cash toward networking — which can boost your career in myriad ways. Joining group organizations isn’t just for people poised to climb the corporate ladder: The power of maintaining social connections also motivates us to stay in the game.
9. Buy umbrella liability insurance.
Even if you have auto or home insurance, you may not be protected from a lawsuit, says Barrett-Johnson, so she recommends that you consider buying an umbrella liability policy with your bonus. This coverage will protect you in case of an accident beyond your normal liability limits. While the likelihood of being sued may seem low, “we live in a pretty litigious society,” she says. Adding a $1 to $2 million umbrella liability policy to your existing coverage often costs just a few hundred dollars per year. Check rates with a property casualty agent.
10. Fix up your home.
Sprucing up your house can boost its value, giving you a nice payoff if you decide to sell down the line. From updating kitchen cabinet hardware or bathroom fixtures to larger upgrades like a new dishwasher, your investment will depend on the size of your bonus. If you’re renting, invest in a temporary fix, like painting your walls. (Pro tip: Want a happier vibe? Go for a yellow hue. Need more harmony in your life? Pick a shade of green. Your trip to Home Depot is science backed.)