Are you getting a Christmas bonus this year? You would be surprised how many Americans don’t get one or have no guarantee of getting one. What are five smart things to do with your Christmas bonus?
Five Smart Things To Do With Your Christmas Bonus
If you are getting a Christmas or end-of-year bonus, consider yourself lucky.
Only about 10% of American workers are absolutely sure that they will get a Christmas bonus. About 24% only think they will get a Christmas bonus.
The average Christmas bonus is less than $2,000. $2,000 in the United States is not a lot of money. That is especially true if you live in a high-cost-of-living state, have a large family, and have significant debt burdens all while contending with inflation.
So, what are five smart things to do with your Christmas bonus this year?
Contribute to a 529 Plan
Of the smart things to do with your Christmas bonus, starting or contributing to a 529 could be one of the best ones.
A 529 plan is basically a college savings account. It’s called a “529” plan because that is the same number designation of the federal tax code which details its function. You can open one via the official state website of your state of residence.
A 529 plan works similarly to a Roth IRA, 401(k), or a health savings account (HSA). It’s a personalized investment plan where every dollar you deposit grows incrementally and is tax-deferred. Unfortunately, any 529 plan contribution you make is not tax deductible.
But as long as you withdraw money for college, tuition, and education-related expenses, every withdrawal is tax-free. (Every 529 plan withdrawal is called a “distribution.”)
Even though 529 plans are commonly used for college expenses, you can open one the day your child is born. Then the plan can be used to pay for your child’s expenses from kindergarten through 12th grade. You can use a 529 to save for tuition, pay off student loan debt, and pay for education supplies like pens, pencils, notebooks, laptops, and much more.
Beef Up Your Emergency Fund
It took me a long time to truly appreciate the value of saving and stretching a dollar. It’s easy to forget that it’s better to have it and not need it than to need it and not have it when it comes to money. Especially if you want to splurge on yourself or your loved ones in these uncertain times of inflation.
And after the two years of sacrifices, we all endured during the worst of the pandemic, who doesn’t deserve a break from responsibility?
But adults must always be vigilant about their personal finances. Life is unfair and unpredictable.
You must always think of the dollars you have now, those coming in soon and any upcoming unpaid bills. You should also make contingencies for emergencies that may or may not occur.
Almost 20% of Americans have exhausted all of their savings since the pandemic ended. They are living check to check. And they are one emergency away from financial ruin and worse.
Consider making an emergency fund if you are looking for smart things to do with your Christmas bonus. Any amount is better than nothing. And an emergency fund is a great buffer against emergency financial emergencies.
Pay Off Your Debts
People generally have more of these four things than they truly appreciate as they live their lives: years to live, sins, unknown but personally close enemies, and debt.
Have you noticed that while the news never fails to mention that inflation is at a 40-year high with no signs of abating, no one is really mentioning how much crushing debt is burdening Americans?
Inflation in the United States currently stands at about 7.7%. However, the average American household is burdened with over $96,300 in debts.
You will never achieve future financial goals or true financial freedom until you pay off your debts. Of the smart things to do with your Christmas bonus, paying off your debts would be an excellent choice.
There are several methods you can use to start paying off your debts, no matter the amount. One popular method is the snowball method, which involves paying the smallest debts with the lowest interest rates first.
Or you can use the avalanche method. This involves paying off the highest debts with the highest interest rates first and then moving down to the lowest debts.
Rehab Your Credit Score
Credit scores range between 300 to 850, but the typical American credit score is 714, depending on who you ask.
If you are building a family, aspire to launch a business, want to buy a home, or make major purchases, then it is hard to through life without good credit.
Do you have bad credit?
Of the five smart things to do with your Christmas bonus on this list, consider rehabbing your credit score.
If you have bad credit, then one of the worst things you can do is just pay the minimum amount on your credit card debt. It could take forever to finally pay off your debt. And if you regularly miss payments or pay less than the minimum, then the penalty fees will perpetually extend the amount of time you need to pay off your debts.
Many individuals and families create their own perpetual debt quagmires in, life without realizing it. Or worse, believing being in perpetual debt is normal.
You can pay more than the owed balances on your credit cards. Consider using your Christmas bonus to overpay your outstanding credit card balances for a few weeks or months if it allows.
You’ll get ahead of your credit card bills and slowly rehab your credit score.
Secure Your Family Estate
Consider using your Christmas bonus to finance plans and actions that will protect your estate and family in the future.
Consult with a financial advisor or a lawyer to make realistic financial plans to protect your estate. These can include:
Acquiring life insurance to list your loved ones as beneficiaries
A will or living will
Rehabbing and renovating a home to increase its value
Liability insurance to cover coverage gaps between car, homeowners, and life insurance
Get an attorney to draft a trust
Assign a trusted attorney with the power of attorney
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.