Personal Finance

5 Ideas for Budgeting Your Holiday Bonus or Christmas Cash

The holidays can be a financially stressful time, but one bright spot in the darkness of winter is when you get gifted with cold, hard cash.

It could be the dollar bills your mom still stuffs in your Christmas card even though you’re past the fledgling adulthood stage. Or maybe it’s the holiday tips you’ll receive or the end-of-the-year work bonus you’ve been looking forward to.

However this monetary joy comes your way, we know you’ll really appreciate it. But before you frivolously spend that cash, here are five financially responsible suggestions for what to do with your holiday bonus.

1. Build Your Emergency Fund

If you’re among the millions of Americans who don’t have an emergency fund, it’d be wise to use save some of your bonus money for a rainy day. An unexpected expense, like a car repair or hospital bill, can have you turning to credit cards or loans if you don’t have any savings. 

While many financial experts recommend having three-to-six months worth of living expenses in an emergency fund, others suggest you don’t need as much. We won’t argue about the amount here. Just know that having something saved is always better than nothing.

2. Decrease Your Debt

With all the gift giving, it’s easy to take on additional consumer debt this time of year. Even if you’ve managed to avoid that (yay you!), your extra holiday cash could help knock down your existing debt load. We’re looking at you, student loans.

Use the money to pay down your smallest debt if you’re a fan of the snowball method, or pay down your debt with the highest interest rate if you follow the avalanche method.

3. Add to Your Retirement Savings

All too often, we don’t think about our retirement savings until we’re creeping closer to our 60s. But funding retirement accounts earlier means you’ll benefit more from compound interest.

Funnel your extra holiday earnings to your retirement accounts before you start dreaming of all the material stuff you want to buy that won’t mean a thing a decade from now.

If you’re trying to max out your retirement funds this year, the 401(k) contribution limits for 2019 are $19,000 for individuals under 50 or $25,000 for those 50 or older. The 2019 Roth IRA limits are $6,000 for individuals under 50 or $7,000 for those 50 or older.

4. Pay an Annual Bill

It’s crazy how paying off a large bill actually feels like a gift when you reach adulthood.

Earmarking the money for your annual car insurance bill, your kid’s summer camp tuition or another big, once-a-year expense means you don’t have to scramble to get the money together when it’s due.

If you don’t have enough to pay the entire bill, consider setting up a sinking fund — savings that you’ll periodically add to until you have all the money needed.

5. Invest in Yourself

If you’re searching for what to do with your holiday bonus that’s actually fun, here’s one: Use your extra cash to do something good for you — something that’ll have a positive impact in your life.

Maybe there’s an online course you’ve been wanting to take that’ll help with your career advancement. Perhaps you have a business idea you’ve been wanting to get off the ground. Or maybe you want to hire a personal trainer or fulfill another personal development goal.

Don’t wait until the new year to get started. Invest your holiday money into finally making it happen.

Nicole Dow is a senior writer at The Penny Hoarder.

This article originally appeared on The Penny Hoarder