The 5 smartest things to do with your end-of-year bonus

Peter Freeman | Twenty20

About two in three employers plan to give holiday bonuses or perks in 2019.

If you're lucky enough to be on the receiving end of a bonus, it's OK to treat yourself. You've earned it. But don't blow your entire check on something fun. Here are five smarter ways to use it.

1. Beef up your retirement savings

Ideally, you're already putting money into your 401(k) plan 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 to do so.

If you've already maxed out your 401(k) or your company doesn't offer one, use a chunk of your bonus to invest in another retirement savings account, such as a Roth IRA, a traditional IRA and/or a health savings account (HSA).

Keep in mind that 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, you need to have a high-deductible health care plan (HDHP).

2. Build an emergency fund

Nearly half of Americans don't have an emergency fund. If you fall into that category, use your bonus to prepare for an unexpected expense.

Money experts generally encourage you to set aside three to six months' worth of living expenses in a rainy day fund. Some even want you to stash away a year's worth.

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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 it as fast as possible will help you avoid having to pay thousands of dollars extra in interest.

4. Chip away at larger savings goals

Chances are, a big purchase is in your future, such as a home, car, grad school or education for your kids. Use at least some of the extra money to get a head start on saving. Months or years from now, you'll be glad you did.

If you have a goal to invest more, put your bonus money to work. Look into automated investing services known as robo-advisors or low-cost index funds, which investing legend Warren Buffett recommends.

5. Give back

Try donating a portion of your windfall to a cause you believe in. Besides helping others in need, you may find that it boosts your mood and overall life satisfaction.

Before giving away any money, do your research on the organization you're interested in contributing to and read up on tax-friendly ways to donate.

Don't miss: Finance expert Jean Chatzky: A simple strategy can help you build wealth in 2020

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