As another year comes to a close, I hope you have an opportunity to look back on 2022 and reflect on your goals met, mistakes made, accomplishments earned, and everything in between.
For many of you, the end of the year is also a time when you may receive a bonus from your employer for a strong individual or firm performance.
If you’re lucky enough to receive one of these year-end bonuses, it’s important to enjoy some of that money guilt-free — but also to use it wisely to accomplish your long-term financial goals. Here are three ways you can optimize your bonus heading into the new year:
Invest in your future
If your employer provides the option to defer a portion of your bonus to your 401(k) or another retirement plan, do it!
Simply elect to have your employer defer the same percentage (or more, if possible) as you normally contribute from each paycheck, and then let compounding do the rest of the work — your future self will thank you.
Treat yourself
You earned this bonus, after all, so take a portion of that money and splurge on something you want.
This could be anything: a new driver to improve your golf game, a five-star dinner with your significant other, front row seats to see your favorite artist in concert, that leather jacket you’ve been eyeing for months, anything!
Spend that portion freely and enjoy the fruits of your labor.
Prioritize your financial goals
Where you currently are in your financial life might dictate how this looks for you, but you can put that extra money toward reaching your financial and investment goals — whatever they may be.
The experts at First National Wealth Management advise the following hierarchy when it comes to accumulating long-term wealth:
- Replenish your emergency fund.
- Pay down high-interest debt (credit cards, personal loans, etc.).
- Make contributions to other savings for short- or medium-term expenses (a down payment for a house, a new car, a vacation, etc.).
- Contribute to or open an IRA for long-term tax-advantaged investing (starting in 2023, the IRS will increase contribution limits for IRAs from $6,000 to $6,500).
- Contribute to or open a taxable investment account for long-term investing.
Although these tips are centered around annual bonuses, the same options can be utilized if you receive a larger windfall like an unexpected tax refund, sale of a business, or inheritance.
If you’d like more information on what to do with excess bonus funds, send us a note; our experienced Wealth Advisors would be happy to discuss which investment options are right for you!
