How to use your Year End Bonus

Contributed by: Matt Trujillo, CFP® Matt Trujillo

It’s that time of year. The weather is getting cooler, family is in for the holidays, and yearend bonuses are about to be paid! For some the bonus might already be spent before it is paid, but for those of you that are still looking for something to do with that money consider the following:

Here are 5 things to consider in allocating your year-end bonus:

  1. Review your financial plan. Are there any changes since you last updated your financial goals? 
  2. Have you accumulated any additional revolving debt throughout the year? If so consider paying off some or all of it with your bonus.
  3. Are your emergency cash reserves at the appropriate level to provide for your comfort?  If not consider beefing them back up.
  4. Are your insurance coverages where they need to be to cover anything unexpected?  If not, consider re-evaluating these plans.
  5. Review your tax situation for the year.  Make an additional deposit to the IRS if you have income that has not yet been taxed so you don’t have to make that payment and potential penalties next April.   

If you can go through the list and don’t need to put your bonus to any of those purposes, here are some other ideas:

  • If you’re lucky enough to save your bonus consider maximizing your retirement plan at work ($18,000 for 2015), including the catch-up provision if you’re over 50 ($6,000 for 2015). 
  • Also, consider maximizing a ROTH IRA ($5,500 for 2015) if eligible or investing in a stock purchase program at work if one is offered. 
  • Another idea is a creating/or adding to an existing 529 plan, which is a good vehicle for savings for educational goals. 
  • If all of these are maximized, then consider saving in your after tax (non-retirement accounts) with diversified investments.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.


This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Matt Trujillo and not necessarily those of Raymond James.