If your employer, clients or customers gave you a bonus or tip, congratulations! Whether it was an annual or holiday bonus, a gracious tip, or a little something to recognize your hard work, you now have a little extra income to utilize. Consider exploring these four options to put that money to use.
1. Use Your Extra Income to Build Your Savings
Whether you’re a traditional employee or a gig worker, it’s important to prepare for the future. Save your extra income in one or more of the following ways.
- Emergency fund – Save three to six months of living expenses in a dedicated account you can access if you experience an illness, lay-off or slow season.
- Annual bills – Set aside your bonus into a sinking fund, a tool that helps you save monthly for big annual expenses like your auto or homeowners insurance premium, professional conference or tax bill.
- Retirement – Contribute up to $19,500 (the max allowable contribution in 2020) for your future.
- College – Invest in a child or grandchild’s education.
2. Pay Off Debt With Your Bonus or Tips
The average American consumer’s credit card debt ranges from a high of $10,685 in Alaska to a low of $6,726 in Iowa. It’s also common to charge holiday gifts, and you may have student, auto and/or mortgage loans, too. Reduce your debt load and boost your credit score when you use your extra income to repay the principal on your debt.
To pay off debt faster, follow a proven repayment method.
- Snowball – Repay your smallest debt first, then apply that debt’s minimum payment toward the next smallest debt.
- Avalanche – Repay the debt with the highest interest rate first, then apply that debt’s minimum payment toward the debt with the next highest interest rate.
- Lasso – Repay high-interest debts with a low-interest loan or credit card.
3. Invest in Yourself and Your Future
Use your extra income to make a positive impact in your life and future. You can invest in your professional career or personal life when you:
- Take an online course through Skillshare, Udemy or another resource.
- Learn a new hard or soft skill.
- Attend a professional conference.
- Start a business or become an independent worker in the gig economy.
- Upgrade your home gym or home office.
In these and other ways, your bonus and tips can work for you well beyond today.
4. Donate or Spend Your Extra Income
Consider donating some of your extra income to a charitable organization. Your money makes a difference and supports worthy causes. As a bonus (pun intended), giving to charity can improve your mood and health. You may even receive a tax deduction for your donation.
You can also let yourself spend some of the extra money. Frugal fatigue, a condition that can stem from chronic savings, may lead to overspending and short-circuit your financial plans. Give yourself permission to splurge.
Consider spending 15-20% of your bonus or tips on something you want. A vacation, computer upgrade or massage can be a fun and wise way to spend your bonus and protect your finances.
Invest in your financial portfolio, plan for your future and gain peace of mind throughout the new year when you wisely spend your holiday bonus.
About the Author: Jennifer Turner writes web content for a variety of clients. As a gig worker, she understands the benefits and challenges of the industry, which is why she prioritizes professional networking and daily self-care. Find her at WriterAccess.