5 Best Ways To Use Your Holiday Bonus Before the End of the Year

Holiday bonuses usually amount to 5% to 10% of your earnings, according to Indeed. That can be a significant cash bonus, but the question is what to do with the money.

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As the end of the year approaches, here are a few of the best ways to use your holiday or end-of-year bonus.

Also see how to budget for holiday expenses, according to Grok.

1. Contribute to Your Retirement Accounts

Per the IRS, the current maximum employee contribution limit to an IRA is $7,000. It’s $8,000 if you’re 50 or older.

Maxing out your contributions is a great way to start the new year and take advantage of compounding interest. So if you’re expecting to get a holiday bonus, why not put it toward your retirement account limit?

Note that you can generally contribute to your IRA up until that year’s federal tax filing deadline in April. Say you wanted to max out your 2024 IRA contributions. You would have had until April 15, 2025, to do so.

Read More: Here’s How to Build an Emergency Fund Without Blowing Your Budget

2. Tuck Away Some Cash for a Rainy Day

Many experts — and the Federal Deposit Insurance Corporation — recommend having at least six months’ worth of living expenses tucked away in an emergency fund. While that’s a significant chunk of cash, you can always start small by saving your holiday bonus.

And if you’ve already got a fund started, even better. Simply add your bonus to it.

Here’s a tip: Put your emergency fund in a federally insured account, like a certificate of deposit (CD) or high-yield savings account. With a CD, your money won’t be easily accessible (unless you’re willing to pay an early withdrawal fee). But these options can be a great way to help your money grow.

3. Save Up for Something Big

Do you have a wedding planned for next year? Or what about a family vacation? Maybe your plan is to buy a new computer or sofa for the living room. Whatever the case, that extra holiday bonus can move you closer to your savings goals.

Here’s an example. The average cost of a wedding is $33,000, according to The Knot, and the average cost of wedding rings is $2,900. So if you’re making $60,000 and got a 5% bonus ($3,000), you could save the money for this expense.

4. Try Investing In Something New

Investing comes with some level of risk, so if you’re not sure what to invest in or if you don’t have a bunch of extra cash lying around, you might be reluctant to get started.

Assuming you don’t need your holiday bonus for regular bills or a big-ticket item, you could view it as something extra — rather than as something essential — and invest it instead. The risk of losing it is still there, but there’s much less stress.

As for what to invest in, you could always go with a more traditional option like stocks (often considered higher risk) or bonds (lower risk). Or you could open a mutual fund for a broader exposure to these types of assets.

Another option is to invest in yourself. Is getting fit part of your upcoming New Year’s resolutions? Use some of your holiday bonus on a gym membership. Do you want to take an online course that’ll help with your career advancement? Put the money toward that.

Ask yourself what matters most to you and go from there. Remember, the choice is yours.

5. Pay Off a Credit Card Balance

According to the Forbes, the average American owes $6,473 in credit card debt. For some, this debt is split across multiple cards. For others, it’s all on one.

If you’ve got credit card debt, you could use your holiday bonus to cut it down. Since this might not be the most fun strategy, you could also set aside a small portion — say, $100 — to treat yourself to something nice. It’s the best of both worlds — less debt and still a bit of fun.

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