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:
- 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).
- 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.
- Fund your retirement accounts. (IRA deadline for 2006 is tax day.)
- 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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