Your hard work has literally paid off, and you’ve finally scored that juicy bonus you’ve been eyeing. But before you succumb to that urge to splurge, here are four things you never want to do with a windfall, whether it’s a bonus, tax refund, or any other kind of unexpected sum.
Spend It All Right Away
Spending your bonus could be a good idea, provided you aren’t wasting it on luxury stuff for the high of instant gratification. That flavor of happiness fades fast, and you’re left with the sour flavor of having less cash and maybe some buyer’s remorse.
If you get swipe happy when you have some extra cash, do yourself a favor and split it first. Take half of it and put it in savings right away. That way, even if you do blow the rest on fun things, you were responsible with a decent portion of it.
Let It Tempt You Into Lifestyle Inflation
A bonus or tax refund should be treated like what it is: a temporary boost to your income, one that’s not guaranteed to be the same size or even exist a year from now. Lifestyle creep is sneaky, and if you let your spending ramp up every time you make more money, you’ll never get ahead.
The best thing is to enjoy your bonus, but don’t let it change your monthly habits. Maybe treat yourself to one nice thing—just don’t turn it into a new normal. Keep the windfall clear of your regular spending and relegate it to more specific savings or spending goals, like paying off debt or building your emergency fund.
Neglect Emergency Savings
Speaking of this kind of fun, way too many people have no financial safety net. If you count yourself among them, then it’s time to stop neglecting this and use your bonus to create one. You could arguably use all of it, because scrambling for cash mid-disaster is its own kind of disaster.
Emergency funds are usually considered to be three to six months’ worth of living expenses. Yet even if your bonus doesn’t cover that, something is always better than nothing. Start small if you have to, but if you ever needed a hint that you should start, consider your bonus that hint.
Ignore Outstanding Credit Card Balances
Even if you don’t want to save any of your bonus, spending it all without addressing paying down your credit cards is going to keep you in a vicious cycle. Interest can eat you alive. And the more you leave debt, the more you pay, especially if you have cards with higher APRs.
Use a sizable chunk of your bonus to knock out any high-interest balances. It’ll save you cash in the long run while lightening your debt load, which is more a gift to yourself than you realize. Remember, bonuses aren’t guaranteed income, so using them wisely for something like credit card debt ensures it has more of a lasting impact on your financial well-being.
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