So you just got a bonus or a sizable tax refund. Congratulations! Before you run off and blow the whole lot celebrating, take a look at some things you can do to help make sure you have something to show for it – months or even years down the line.
Settle your debt
According to NerdWallet.com, the average household with credit card debt pays a total of $1,292 in credit card interest per year. Using your bonus to pay off a credit card could be one of the smartest moves you make.
Get your house in order
Your year-end bonus could make a difference getting your current mortgage into the black, if you’re currently in the red. Which means you could take advantage of some of the lowest mortgage rates on record by refinancing. It’s the best of both worlds — you get to put the money toward your home’s equity, and it gives back to you in the form of interest savings.
Get your accounts in order
Most banks will waive your checking account fee if you meet a minimum balance requirement. If the money from your bonus beefs up your account enough to meet it, those savings could amount to more than you’d earn in interest on the same amount of money if it were in a savings account.
You’ve thought about investing it, right? Depending on your comfort with risk, there may be many investment vehicles with the potential to help make your bonus grow over the years. Purchasing instead of selling may be one of the best methods of rebalancing the portfolio. Speak to a financial professional to find out more.
Spend it on retirement
If you haven’t reached the contribution limits on your 401k or traditional IRA, putting your bonus into one of these plans can be a really smart move. You’ll defer taxes on your contributions, build up your savings and possibly compound them with future earnings. And depending on your employer’s 401k matching contribution policy, you could effectively double the money you put in.
Start saving for college
College fees are now more than most people can comfortably afford. If college is in your future - whether it’s for you, your spouse or your kids - then contributing to something like a 529 plan is a great move. Saving for college in advance can make the expenses much more manageable.
Of course, it’s important to enjoy it now, too. So budget some of your bonus for something fun. Once that’s out of your system, take the rest and put it to good, long-term use.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal advisor or financial professional for specific advice about your individual situation.
The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
Securities offered through Voya Financial Advisors, Inc. member SIPC.
Neither Voya nor its affiliated companies provide tax or legal advice. Please consult with your tax and legal advisors regarding your individual situation.