Getting a year end bonus is one of those things that the working class looks forward to at the end of the year. It is usually where they get their Christmas money from to buy the kids presents, set up the decorations at home and even hosting a get together with family and friends. The thing is that sometimes people do get the money at the end of the year but when business is bad, the prospect of getting bonuses becomes slim.
According to an article by ChicagoTribune.com, almost 80% of the companies that they surveyed did say that their employees are getting a year-end gift or bonus. This was a survey a year ago and if that was taken after the most recent financial crisis, things are surely looking up. Christmas is sure to be a good one this year for a lot of people.
Of course it is not enough that consumers rely on year end bonus to have a merry Christmas. They need to be financially mature enough to understand that they can start saving as early as January of the year. This is can be for a big gift, a grand vacation or any big expense for the year end. There are a lot of things that people can spend on that money now starts to be a problem.
Consumers need to know how to be smart with extra funds because this can either help them reach their objective of making their loved ones happy or it can be a fuse that can lead to problematic spending down the line. It can entice people to spend what they have and more getting them in debt and lead to a new year in the red.
Getting your year end bonus
For those people who are lucky enough that they received their year end bonus, here are some suggestions on how to best use the money. They need to have their long term goals in mind with whatever financial decisions they make.
- Put some of it in retirement money. Make compound interest work for you and not against you. This is one one of the early things consumers need to learn early in life. It is actually considered by some financial experts that missing out on compound interest is a sin against the retirement fund. This is a financial tool that is better to be a friend than an enemy. Think of your credit cards as a prime example of how compound interest works against you. As you miss out on payments, you need to pay interest on interest for as long as you keep missing payments. Now imagine using the same concept with your retirement money, The earlier you save, the more interest on interest you earn.
- Pay down high interest loans. This is why one of the things you need to do is pay down high interest rate loan like payday loans, signature loans and credit card debt. Time.com even came out with an article stating how $16 billion in credi card “gotcha” fees accumulated from 2011 to 2014 were avoided by consumers. Think of that amount for a second and mull over your card balance. This is why you need to prioritize high rate loans before any other payments because it is with them that you are losing a lot of interest payments on. Pay them off faster so you can make the most out of your money.
- Cut yourself some slack. Spend some of your hard earned money so you do not keep on living on the “what ifs.” The idea is to save within your capacity to spend and not go overboard. You might have received a few hundred dollars for a bonus and you start buying watches that are a few thousand dollars. Enjoy the fruits of your labor but not blow everything in one go. Leave some for emergencies and future needs.
- Save money for emergency. You might want to start the next year right with a safety or a financial cushion that you can back on to when the tough gets going anytime in the future. You can use your year end bonus to increase your reserve funds even more. This consists of your emergency fund and a rainy day fund that both acts as your financial safety net in case you meet some unexpected money problems down the line.
Spending troubles
Now that you have an idea how you can use your bonus accordingly, here are some blunders you need to keep an eye out for stay away from being a one day millionaire.
- Spending it even before you got it. There are times when you get wind that your company is preparing to credit some year end bonus and without having an idea how much it is or even if it is true. You proceed to charge numerous expensive gadgets confident that you can pay them off once you get your bonus. But what if your bonus does not materialize or it is not enough to pay for what you already bought?
- Spending more than what you received. One of the debt problems pulling you down is spending more than what you can afford and this is true even for those who are trying to manage their year end bonus. There is a tendency to spend more than what you have out of excitement or poor financial planning, Try to resist this urge and hold out on the purchases until you get your bonus. And when you do, try not blowing it all off on a few purchases.
- Using the money for quickly depreciating items. Depreciation is a decrease in the value of an asset according to Investopedia.com. This can mean any type of gadget or getting a car because as soon as you drive out that dealership, your vehicle is already losing value and getting old. There is nothing wrong with buying gadgets and even a car as long as there is a need for it. If you need to buy a new laptop for your web design projects then go ahead because then you get to use them to earn money and not just lie around the house collecting dust until you find the need to use it for some emails.
- Letting it stay in a non-interest bearing account. When you have a talent, use it otherwise it will just rot away. The same idea applies with your money and letting it stay in a non-interest bearing account. At least some savings account have interest that accrue over time. If you are going to use the money and would need it soon then it is fine but if you let it stay there for a long time then you are not making the most out of your money.
Getting a year end bonus is quite an exciting time for you as extra funds are suddenly on the palm of your hands. That pair of shoes or new dress that you have been eyeing for weeks is now within paying reach. Of course you need to take control and rein in your impulse to shoe off and buy everything you can get your hands on. Thinking about your next steps and making informed decisions are just some of the things you need to consider to make the most out of your extra holiday funds.