Stumbling into some extra money is a chance you don’t want to squander. Whether it’s a year-end bonus from work or money left over in your monthly budget, with the right money tips you can correctly prioritize and pay for your goals.
Below are a few different ways you can use extra money to reduce stress, grow your savings, and improve your overall financial situation.
7 money tips to make the most of your bonus
1. Transfer extra funds to savings
Extra cash that sits in your checking account always seems to get spent on impulse buys or get absorbed into paying the bills, so remove the temptation by transferring the money into an account that’s harder to access.
Add any spare funds to a new or existing savings account until you finalize your plans for it.
2. Splurge a little on yourself
Where’s the reward in working all year if you don’t splurge a little when you receive a bonus? It’s okay to take a portion of your extra money and spend it on yourself. You work hard and deserve to indulge in some short-term gratification.
Give yourself a reasonable budget and then buy that special-something you’ve been eyeing. Have fun and splurge a little, but don’t go overboard. That way you feel rewarded for all your hard work without the guilt of overspending.
3. Cover the basics
This is one of the most obvious money tips, and for good reason. The wisest and most responsible thing to do with extra money is to allocate these funds to cover the basics. Catch up on any overdue bills, outstanding debts to family or friends, and then beef up your emergency fund.
Making sure the basics are covered isn’t quite as fun as spending the day at the mall, but it will help you finally get ahead and relieve some financial stress.
4. Pay off high-interest debt
In addition to paying overdue bills and outstanding debts, tackling high-interest credit card debt is also a priority when you have extra money. With credit card interest rates hovering at around 16.28%, paying off high-interest rate debt makes the most financial sense.
This allows you to keep more of your hard-earned money instead of wasting it on interest payments to banks and financial institutions.
5. Stash some cash for retirement
You’re never too young to start saving for retirement. Why? Because the younger you are, the more time you have to take advantage of compound interest on the money you contribute. If your employer offers to match retirement contributions, take advantage of it. It’s like getting free money.
If your job doesn’t offer a retirement plan, consider opening a Roth IRA and contributing $25 or $50 each month. You can increase this amount over time.
Business Insider calculated that at age 65 you could have $1 million saved up for retirement if you start stashing away just $500 per month starting at age 25.
Beginning with $50 contributions and increasing that amount over time will help you reach that $500 monthly contribution while you’re in your early twenties. Much like paying off high-interest debt, you can’t go wrong with socking away some extra money for your future.
6. Invest in your skills and talents
The next best financial move you can make after paying off debt and saving for retirement is to invest in your personal skills. Use some of the bonus money you receive to take an online class, enroll in a course, or sign up for a local conference.
The skills and contacts you make during this time will continue to pay off in the future, and you’ll learn valuable knowledge that could increase your money-earning ability. There are many inexpensive (or even free) classes to help increase job-related skills and other talents.
7. Look towards the future
What large purchases are you planning to make in the next year? Do you have a big move coming up? Are you thinking of buying a new car?
Make a list of large savings goals and other expenditures that you expect to make in the coming months. Set aside a portion of any extra money to help alleviate these future purchases.
In addition to large purchases, keep your net worth and financial security in mind. Look towards the future and keep your long-term goals in perspective to make the most of any extra money you receive. Consider investing part of your bonus in short-term CDs or bond funds.
As you considering the above investing-money tips, think about the next 10 years and ask yourself about the best money moves you can make now.
If you’re not sure of the next actions you should take, consult with a financial advisor for their best money-managing tips. In the future, you’ll be glad you took the time to invest in yourself and your skills.
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