Money

Wall Street bonuses are the highest they've been since 2006—here are the best ways to use extra cash

Wall Street bankers will be enjoying particularly large bonuses this year. According to data released by the New York state comptroller on Monday, the annual bonus for the average Wall Street worker jumped 17 percent in 2017 to an estimated $184,220. That's the highest it's been since before the financial crisis.

Bonuses likely spiked thanks to tax law changes that will eliminate the corporate deduction for performance-based pay starting in 2018, the comptroller's annual report found.

Whether you're receiving a six-figure check or any other corporate bonus, or you're just looking for something sensible to do with a smaller windfall like your tax refund, here are the smartest things to do with some extra money.

1. Beef up your 401(k)

Ideally you're already putting money into your 401(k) retirement account if you have the option, but, if possible, you also want to get in the habit of increasing your contributions consistently. A bonus is a great opportunity.

2. Invest in another retirement savings account

Enrolling in your employer's 401(k) plan is a good start, but experts say that it may not provide enough to fund your future. It's smart to consider alternate retirement savings accounts too, such as a Roth IRA, a traditional IRA and/or a health savings accounts (HSA). Direct some of your extra money towards one of those options. Bonus points if you set up automatic contributions so your account continues to grow over time.

Caveats: While anyone can contribute to a traditional IRA, your income may disqualify you from the tax benefits. If you contribute to an employer-sponsored retirement plan and your income exceeds certain levels, the amount you can deduct may be limited. And if you're interested in contributing to an HSA, keep in mind that, to do so, you have to have a high-deductible health care plan (HDHP).

3. Pay off any lingering debt

If you have student loans, car loans or credit card debt, a bonus can be a great way to get out of the red more quickly. Especially if the interest rate on your debt is high, getting rid of your loans as fast as possible will help you avoid having to pay thousands of dollars extra.

4. Build an emergency fund

Experts agree that it's smart to have three-to-six months' worth of savings tucked away, or even more, to help protect you in case of disaster.

5. Open a 529 savings plan

If you have kids, you may want to consider opening a 529 savings plan to start putting money away for their schooling. Education costs are out of control and are only getting more expensive.

A 529 plan allows a parent to contribute up to $14,000 a year — $28,000 for a couple — for certain types of schooling, including college and some K-12 costs.

6. Chip away at larger savings goals

Chances are, big purchases are in your future, such as a home, car, grad school or vacation. Use the extra money to get a head start on saving. Months or years from now, you'll be glad you did.

7. Consider other investment vehicles

Investing is one of the most effective ways to build wealth, and an unexpected bonus could be a good opportunity to jump in. Look into automated investing services known as robo-advisors, some of which have been shown to outperform actively managed funds and even index funds. That said, low-cost index funds, which investing legend Warren Buffett and billionaire Mark Cuban both recommend, are also a smart bet.

8. Invest in yourself

One of the best investments you can make is in yourself. Take your bonus and use it to further your education by enrolling in a course, attending a business conference or investing in books.

Additionally, invest in your health. Consider making room in your budget for a gym membership, exercise classes or a fitness-magazine subscription. Taking care of your future isn't the easiest thing to do, but your future self will thank you.

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Video by Jonathan Fazio