By Lucas Casarez
Certified Financial Planner®
“Take Your Financial Confidence To The Next Level”
The economy has been humming along, despite what some other news outlets want you to think. As a result, hopefully, the company you work for has had a great 2019. If it has, you may be expecting a year-end bonus. There are so many different things you can do with a small windfall of money, but what should you do with this present? (This article was recently requested by a reader on Twitter, thanks to Kathy!)
The best thing to do will vary by your current financial situation and future goals, but here are a few example scenarios.
If You Have High-Interest Debt
High-interest debt is typically connected to consumer debt, mainly credit cards and personal loans. Applying your bonus to high-interest credit card debt, although not glamorous will make a huge impact in changing your financial situation heading into 2020.
Example: Paying off a $3,000 Credit Card with a 22% Interest Rate, could potentially save $660 annually!
If You Don’t Have an Emergency Savings
After your high-interest debt is annihilated, it will be great to build up your financial defenses with an emergency savings account. An emergency savings helps prevent the possibility of you slipping back into high-interest debt when an unexpected event occurs. A target of 3 months of expenses if your household has two significant income sources or 6 months of expenses if you have one source of income.
This is where you can start to consider what many would consider some “fun stuff”. Do you have short-term goals with a big price tag within the next year or two? Rather than being caught off guard by those expenses and either stressing out or using debt to make ends meet, get ahead and start on your goal!
If You Are Behind with Retirement Planning
Do you feel like you are not on track to be “okay” in retirement? Here is your opportunity to have your bonus possibly grow to a larger amount in the future when you’ll need the funds to have a more comfortable and maybe even “awesome” retirement.
If You Feel Stuck
One overlooked investment is investing in yourself. Can you apply your bonus to “Level Up” in your career or launch into a new career altogether? Often, bonuses are calculated based on your salary, if you used your bonus this year to increase your salary in future years, your bonuses could be exponentially greater.
Lucas Casarez is a husband, father of two amazing kids, and a Certified Financial Planner™. He founded Level Up Financial Planning, which is one of the few fee-only financial planners in Northern Colorado. The mission of Level Up Financial Planning is to guide his clients in taking their financial confidence to the next level.
Have a personal finance question you would like me to answer in a future week?