Bonus is a token of appreciation that your employer rewards you with in lieu of your significant contribution that results in the growth of the company. It is like an incentive that an employer pays to its employees in addition to their base salaries. It could be a holiday bonus, performance bonus or annual bonus – take your pick! This is a bonus season where many people get to see a lumpsum amount other than their salary credited into their bank accounts as annual or holiday bonus. A little extra makes us feel different since we’re already mentally allocated to use salary paycheck for living expenses – rent and food all come out of our paycheck. However, the bonus, on the other hand, feels exciting. The moment we get our hands on the bonus money, we start ways to spend it on our wishes and desires.
Some people desire to buy a new iPhone, some plan to go on a long-awaited vacation, and some desires to use it to do shopping. This is not to say that you shouldn’t use your bonus money for anything. Besides, there is no sense of earning a bonus if you don’t enjoy spending it. But, remember – “Moderation is key” and it’s important to distinguish between your needs and wishes.
There are many different ways to put your bonus money or at least part of it as an investment. One can carefully evaluate his/her financial situation and figure out which aspect needs financial help. There are the best ways to spend your bonus money or to be precise – Invest.
5 Best Ways to Invest your Bonus Money
Here we’ve enlisted some best ways to effectively spend/invest your bonus money:
If you have any lingering car loan, home loan, credit card loan, or any other sort of debt with astronomical interest rates, that is holding you from expanding your investment portfolio then you can use your bonus money to pay-off high-interest debt.
Think about it! If you are already paying 4-5 per cent interest on your credit card then you won’t be able to receive inflation-adjusted returns out of your investments. Some credit card has interest rates that go as high as 15-20 per cent. If you are paying that much interest then it makes no sense investing in the stock market and hopes to beat the interest rate of 15-20 per cent.
So, better use your bonus to ease off some burden out of your shoulders in paying-off your debt.
Fund your Retirement Plans
Paying off your debt is the very nice first move, and the next big move is to contribute to your retirement plans. It would be great to add some of your bonus money into your retirement accounts and plans. As with age, you will need money to fund your existing lifestyle, the added bonus will face pace your retirement goals and generate you a corpus that would help you maintain your lifestyle when you will be retired.
Build an Emergency Fund
Whether you believe it or not, but it is recommendable to have a 6 to 8 month of income as an emergency fund. In any unfortunate event in future, you will have a buffer to manage your expenses in case you need to switch jobs or any unforeseen event like car repair, air conditioner breakdown, medical expense or something else.
You can use your bonus money to boost your emergency funds to ensure your long-term investments won’t be disturbed and you have back up funds to cover any short-term emergency.
Make an Investment
You can also use that bonus money to make investments keeping present and future financial security. The bonus that you will use to make an investment will generate your returns. There are many investment options available in the market like stocks, mutual funds, ETFs, etc.
Unfortunately, young folks find it hard to look at the prospect of investment. But, truth is, it pays to start saving and investing early in life. The best part of investing in young age is that your money has ample time to grow and compounding works like a charm.
Invest in Yourself
Money isn’t everything! There are other things in life that hold great value and can be a great source of life satisfaction. If you desired to learn some skill like job-related skill, learning to play a musical instrument, becoming fluent in a foreign language, or developing some programming skill, you can put your bonus money to good use by allowing it to invest in yourself.
Not only you will experience great pleasure but will also learn an important skill that will benefit you at some point in your life as this bonus that you received and invested.