Looking for something worthwhile to do with your bonuses?

The time has finally come; you got the raise you have always wanted or an annual bonus that you felt you deserve. Now the question is what do you do with it? Should you invest all of it or spend a little bit? How do you determine what the right answer is? The answer will differ for everyone depending on their financial situation, but it is important to know how to spend the money wisely to ensure that you make the most of this valuable opportunity.

Spend a Little

Everyone needs to spend a little bit of their bonus as a way to celebrate this momentous occasion. This does not mean to go out and spend the entire amount. It is best to take a small fraction and reward yourself with something that you have really wanted, whether it is something physical or a relaxing massage or manicure. Remember that spending the money right away is only going to make you feel good temporarily. You should try to limit the amount you spend and save the rest for a more important purpose.

Pay off Debts

Now is a great time to view your credit score. Do you have a large amount of outstanding debts on your report? Even if you have just one debt, if it is large, now is a great time to get rid of it. If you have credit card debt, this is the best time to pay it off, especially if you are paying high interest rates. Paying off the balance will be like giving yourself another bonus because you will save a significant amount of money on interest and finance charges.

Save

Do you have a savings account? If you do not, this is the best time to start! What an easy way to set up a nest egg for yourself without causing you to have to sacrifice in other areas. Put the money in an account that you do not touch and let the money sit for a rainy day. If that rainy day ever comes, you will be very grateful that the money is available.

Set up a Retirement Account

Among the smart money investment ideas for your bonus or raise is to set up a retirement account. If you already have an account, now is a great time to contribute to it. Whether your retirement account is a 401K or an IRA, you can add funds to it, giving yourself a larger cushion when you retire. If it is an IRA, it is important to make sure that you are not over the annual maximum contribution that you can make without getting penalized on your taxes. If you are close, contribute as much as you can and invest the rest of the money elsewhere.

Save for a Large Purchase

If you have a large goal that you are trying to meet, such as a dream vacation, purchasing a new home or a new car, this lump sum bonus could help you get even closer to your dream. Put the money in an account, such as a CD or high interest savings account to allow it to gain interest until you need to use it. This allows you to increase the amount you have without doing anything. If you think you will need the money in the near future for your purchase, it is best to keep it in a savings account so that you can withdraw it without a penalty.

It can be really exciting to get a bonus or pay raise, but it is important to keep your wits about you. Spending all of the money you made at once might seem like a good idea at the time, but after the fact, you might regret not paying down your debts, investing it or putting it away for a rainy day. If you monitor your credit report often, you will know exactly what debts you need to pay off or what derogatory credit you need to take care of, which enables you to make the best use of your money.

Kedy is an active finance blogger who is fond of sharing interesting finance management tips to encourage people to manage their personal finances. More specifically, she advocates that people should check credit reports and scores regularly.