Smart ways to use your bonus to get ahead

  • The average bonus this year is expected to be $1,797.
  • How you use that extra cash could help improve your financial health and set you up to achieve your long-term goals.

You may want to rethink how to spend your annual bonus.

Financial experts agree that using that year-end windfall toward long-term big-picture expenses will make you happier than if you use those funds for so-called retail therapy.

The average holiday bonus is expected to be $1,797 this year, a 66 percent increase from $1,081 in 2016 and $858 in 2015, according to staffing company Accounting Principals.

At the same time, fewer companies plan to pay bonuses this year. Sixty-three percent of firms intend to give bonuses this year, versus 75 percent in 2016, Accounting Principals found.

AT&T, Comcast and Bank of America made headlines last week after each company decided to give $1,000 bonuses to hundreds of thousands of employees after passage of the tax overhaul legislation.

If you happen to be lucky enough to see a boost in your paycheck, you want to prioritize how you spend it.

Two goals you should keep in mind as you look at how to use the money are catching up and getting ahead, according to financial advisor Lazetta Rainey Braxton, founder and CEO of Financial Fountains in Baltimore.

Holiday tip
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First, start with the basics.

Use that extra cash to pay down part or all of outstanding debt.

Braxton said she usually has clients consolidate their debt with a credit union. The result is often lower interest rates and regularly scheduled payments to knock down that expense.

"If you do have high-interest credit card debt, that's one of the first priorities to tackle," said financial advisor Roger Ma, founder of Lifelaidout in New York.

Next, focus on your emergency fund.

You want to save up three to six months' worth of expenses. How much you need to save will depend on your personal situation, Ma said.

If you're single or are self-employed, you may want to consider saving beyond six months.

"You might feel more comfortable with a year's worth in cash," Ma said.

Once you have covered your high-interest debt and emergency stash, look at your retirement savings.

The maximum contribution limit to retirement plans — including 401(k) plans, 403(b) plans, the Thrift Savings Plan and most 457 plans — will increase by $500 to $18,500, in 2018.

You may want to increase what you are contributing to your plan before the end of the year, Ma said.

Once you have looked at those three areas of your budget — debt, emergency and retirement savings — you then want to plan for long-term goals such as saving for a down payment on a house or putting money in a 529 plan for your child's college tuition.

Overall, be sure to balance your current consumption and future goals, Ma said he advises clients.

By limiting what you spend on your current lifestyle, you will have more for those long-term goals.

"If you increase your annual spending now and need $100,000 or $200,000 to live, that's going to cost more for you to maintain in retirement," Ma said.

If all of your goals and necessities are provided for, it is OK to think about using that extra cash for other goals that you get satisfaction from, like travel, said Braxton at Financial Fountains. The key is balance.

"There's something about enjoying the fruits of your labor," Braxton said.

More from Personal Finance:

The best way to use those AT&T, Comcast & Bank of America $1,000 tax bill bonuses

If you have debt, avoid this big mistake many borrowers make

Find your new tax brackets under the GOP tax plan

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.