End of Year Bonuses: Smart Ways to Use Your Extra Cash

With the end of the year fast approaching, many workers anticipate receiving bonuses from their employers.

Robert Half said in early November that one of his surveys found that this year, more than half of American companies, 57%, said they had plans to give employees year-end bonuses. That marks a decline from 2021, when 77% indicated they intended to, according to the business consulting firm.

While there are many ways a person can use their year-end bonuses, some good things they can do with them they include the payment of debts, savings, investment and the creation of an emergency fund, according to experts.

money jar

A person holds a jar full of savings money. (iStock/iStock)

End-of-year bonuses can serve as a “great way to tackle” debt in an “aggressive” way. by Summit Wealth Management Group at Morgan Stanley.


In mid-November, the Federal Reserve Bank of New York said that by the end of the third quarter, total household debt it had reached $16.51 billion, an increase of $351 billion from the previous quarter.

“Determine how and when pay the debt depends on your income or overall cash flow, your risk tolerance, your goals and your time horizon for investing,” Emily Irwin, senior director of advisory and planning at Wells Fargo Wealth & Investment Management, said in a statement to FOX Business. .

According to Irwin, people who want to determine their risk tolerance while trying to figure out how to spend their bonds should ask themselves how they feel about their debt, the state of their emergency fund, and how much they can allocate for to invest or pay the debt. One must also “consider your goals,” he said.

“You don’t have to choose between using your bond to invest or paying down debt, you can do both,” Irwin also said.

Saving some or all of your year-end bonus can benefit annual savings goals. It can also help people move closer to their long-term plans, according to Morgan Stanley’s Summit Wealth Management Group.

If feasible, Irwin recommended saving 10% of paychecks as a starting point for creating annual savings goals and gradually increasing the amount until you “ideally” reach the 20% that is allocated to Retirement and investments.


“If you are an employee participating in a 401(K) Planit is likely that a portion of your bonus will be allocated to your retirement account (unless you make a timely change in your election),” Irwin said in the statement. “This can be a great strategy because you are putting your bonus money towards for retirement. years.”

401(k) statement

401(k) plans ensure that Americans have enough money to live on after they retire and no longer receive an annual salary. (Getty/Getty Images)

The internal revenue service The IRS says that people under age 50 can contribute up to $20,500 annually to their 401(K) in 2022. In 2023, that limit get on in $1,000 to $22,500. People age 50 and older can contribute a maximum of $27,000 in 2022 and $30,000 next year. according to the IRS

By 2022, the contribution limit for GO TO it is $6,000 for people under 50 and $7,000 for people over that age. The limit for 2023 is slightly higher, with under 50s able to contribute $6,500 to IRAs and over 50s $7,500.

To invest in year-end bonds, new investors could choose index fundsElana Duré of JP Morgan Wealth Management wrote in an article In addition to index funds, some other potential options for investors could include individual stocks, exchange traded funds or investment companies, according to the article.


“The idea is to have the mindset of saving and investing with the motivation of empowerment and flexibility as rewards,” Irwin told FOX Business.

piggy bank

A coin is dropped into a piggy bank in this neat photograph taken with a tilt-shift lens to illustrate the theme of risk in Oradell, New Jersey, on June 18, 2015. (Photographer: Ron Antonelli/Bloomberg via Getty Images) (Photographer: Ron Antonelli/Bloomberg via Getty Images/Getty Images)

Another option is to save some extra money in your emergency fund, according to the JP Morgan Wealth Management and Irwin article. Irwin said it’s an “easy way to put yourself in a position to deal with fun and stressful unexpected events,” whether it’s an impromptu trip or your car needs repairs.

“I suggest that people put enough into an emergency fund to get to a point where they save between $1,000 and $5,000 — you may be able to fund all or most of your emergency fund with your bonus,” he said.

Other steps people can take to achieve their emergency savings goals, Irwin said fox businessincluding the elimination or reduction of some expenses.

Leave a Reply

Your email address will not be published. Required fields are marked *