For some lucky fellows, February may come in as bonus month. And some of these lucky ones might already be envisioning a vacation, a week of fun and entertainment, a house renovation, an iPad 4S or some other high-ticket item.
While these are valid and acceptable ways to spend your bonus, my friendly advice is this: Think a moment before you let go of that extra cash.
And now that you have that moment to think things through, consider the following uses for extra cash:
- Pay down debt. Bonus money is extra money, and paying down debt is probably the best use of this extra cash. Start with high-interest debt and loans first.
- Set up an emergency fund. If you don’t have an emergency fund yet, consider starting one. Some people argue that an emergency fund should at least be equal to three months worth of expenses, or three months worth of one’s salary. Some others assert that given the volatile economy, eight months to a year’s worth of salary is ideal.
- Retirement savings. It’s never too early to start saving for retirement. Remember, nobody will save for your own retirement but yourself.
- Get yourself insured. Life insurance is an insurance that protects a person, his earnings and his family. Health insurance, on the other hand, is a necessity that ensures a person gets the health care he deserves in the event of an illness.
- Start a business. Running a business may not be for everyone. But if you think you have the smarts, consider starting or saving for one. Remember, you don’t have to completely give up your employment to start your own business.
- Save to finance an education. If you’re planning to go back to school any time soon, your bonus money should help cover your expenses, if not all, at least in part.
- Grow your savings. A regular savings account nowadays might not yield enough to outrun the cost of inflation. Ask your bank for the best deal they can offer you.
- Invest. Investing can be tricky, especially if you don’t know what you’re doing. Know what you have to know. Ask around and see if a mutual fund might be suitable for you.
If you already have all of the above covered, then go ahead and spend your bonus as you please. Make sure to get the best value for your money.
Rule #1: Never lose money. Rule #2: Never forget Rule #1. – Warren Buffett
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