A really great day for your finances can start just like any other day. Yawn, brush your teeth, have a cup of coffee and drive to work. But today, there’s an envelope on your desk that’s sure to put a smile on your face: a bonus.
While many employers offer bonuses around the holidays as a yearly “thank you,” bonuses are doled out throughout the year as praise for a job well done. And while that stack of cash may look pretty nice sitting in your checking account right now, you’re more likely to enjoy it when you really need that money.
Here’s the best way to fiscally handle a bonus from work. Even if you don’t have a bonus — or your credit straightened out — that doesn’t mean you’re outright rejected from a VA home loan.
Get it Out
First things first: get that bonus out of your checking account, and do it fast. If you’re the type of person where available cash burns a hole into your pocket and drives you to spend on a whim, the safest thing to do is just push it to your savings account.
You can always pull it out later if you really need it, but, for safety’s sake, keep it out of harm’s way. You may want to consider a credit union as well, since their users are spared a lot of the fees and hassles big bank customers often face. They tend to offer terms and options that are more customer-friendly than other banks.
If you don’t have an emergency fund started (or if a recent emergency left your savings drained), now’s an excellent time to get one started. Depending on your lifestyle and debts, you should have enough money in your emergency fund to cover three or six months of living expenses, including your mortgage, bills, car payment and other recurring fees.
Having an emergency fund is imperative for reasons outside the ordinary — the loss of a job. Medical crises, car problems, natural disasters and other crushing blows can trounce your finances, so it’s important to have some money squirreled away.
“Emergency savings remains a problem area for many Americans, which leaves them only one unplanned expense away from having high-cost debt,” Greg McBride, Bankrate.com’s senior financial analyst, said on Bankrate.com in 2012.
“Long-term unemployment, stagnant wage growth and rising household expenses are all contributing to this trend. As difficult as it may be to boost savings, having an adequate emergency savings cushion is critical to maintaining financial stability, and Americans need to find ways to sock away more cash for a rainy day.”
Savings and Investments
There’s three types of savings you need to think about: short-term, long-term and retirement. If you’ve got your emergency fund comfortably padded, it’s time to think about your savings.
Got your eye on a fancy new gadget or want to get the kids a new video game system for Christmas? Short-term goals like this might not be an enormous financial drain, but putting your bonus aside in anticipation would make the hit that much less hard. Similarly, if you’re thinking of something larger, such as a house, you’re going to need some cash floating around for expenses.
Having an extra chunk of change around would be a great time to focus on your retirement account. Look into starting up a Roth IRA or a Traditional IRA with your bonus, and you’ll get it back in spades when it comes time to retire.
Pay Off Debt
The average American household has $15,112 in credit card debt alone — and that doesn’t include car payments, mortgages or the whopping $31,240 average American student loan debt.
If you’re like the majority of Americans, you’ve got some pretty substantial debt. With that added spike in your finances, pay off some of your debt. Try focusing on the smallest debt you have first if the largest one seems too daunting, or research how to prioritize your debt payments before they get further out of hand.
If you’ve got your finances straight, don’t forget to take some time out for yourself. Go out for a nice dinner or buy that latte without a tinge of guilt — you earned your bonus, after all, and you can spend it on you or whatever you’d like.