What To Do With Your Bonus

If you were lucky enough to get a bonus this year, you are probably thinking about what you spend it on. I’d like to give a prioritized list of some smart ways to spend it:

1. Put it toward your emergency fund. Everyone should have at least 3 months of living expenses in their bank account (more if you have kids).
2. Pay down your debt. If you have any outstanding balances on credit cards, pay those down. You are most likely paying at least 17% on those and credit card debt silently and slowly puts many people in a financial hole.
3. Fund your retirement accounts. (IRA deadline for 2006 is tax day.)
4. Invest the remainder of your bonus.

What if you’re thinking, “But I worked hard this year and want to reward myself with a gift (ie: new flat panel tv, etc).” There is a lot of truth to this statement. Go ahead and reward yourself but I would not spend more than 10-20% of your bonus on toys. So take your first 10-20% and spend it on yourself; then check off numbers 1 – 4 on the list above.

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