‘Tis the season for sharing, gift-giving and holiday bonuses. For those employees who are fortunate enough to receive a year-end bonus, many may be tempted to spend it immediately. But I advise you to resist the urge to spend the money on frivolous items and instead think about putting your hard-earned bonus to work for you.
If you’ve made your employer’s “nice list” this year and are expecting a holiday bonus this month, here are a few ways to wisely invest that extra money.
1. Fun money
You probably weren’t expecting this from me, but I do recognize the importance of fun money and rewarding yourself for a job well done. My advice would be to follow the 10 per cent rule, which means only spending 10 per cent of your bonus on something fun of your choosing, but the remaining 90 per cent of your bonus should be spent on one or a combination of the items listed below.
2. Pay off debt
With all the shopping and spending that goes hand-in-hand with the holiday season, it’s no surprise that many families may feel the financial pinch during the holiday season. Instead of accumulating debt into the New Year, use your holiday bonus to try to pay down old debts allowing you to kick off the New Year more financially sound.
3. Invest in yourself
While your holiday bonus is meant to reward you for all your work accomplishment throughout the past year, the best reward you can truly give yourself is to invest in your future. Use all or a portion of your holiday bonus to contribute to your retirement nest egg through an RSP or TFSA contribution. Already maxed out your contribution for the year? Then play financial catch up and use your bonus to make up for missed contributions from previous years.
4. Put it against your mortgage
Many financial institutions allow you to make a lump-sum payment against your mortgage up to a certain percentage of your mortgage principal amount. Use your bonus to pay down your mortgage sooner, which will in turn save you money in interest costs.
5. Start an emergency fund
Another great way to make the most of your holiday bonus is to use it to start an emergency fund. An emergency fund should act as a financial cushion to help soften the blow of life’s unexpected and expensive surprises. As a rule of thumb, many financial advisors suggest saving at least three months’ worth of living expenses.
Not sure which option is best for you and your specific situation? Meet with a trusted financial advisor to determine the best way to get the most out of your holiday bonus.
In addition to year-end bonuses, many employers award their employees their yearly raises. Now that you have proven that you can live within your 2015 salary, find the discipline to automatically save the extra funds you receive in 2016 into a savings account.
While it may not sound as fun and exciting as buying the latest and greatest tech gadget or paying for the ultimate spa weekend with friends, wisely using your holiday bonus to pay down debts and invest in your future is one of the best ways people can get the most out of their holidays.
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