Smart ways to spend your year-end bonus

More and more lucky workers have the opportunity to really brighten their financial pictures in 2016: They're getting year-end bonuses.

Three-quarters of companies plan to give employees a cash bonus this year, up from 67 percent last year, according to a report from staffing firm Accounting Principals.

While it may be tempting to treat yourself and blow it all on something fun, you can use the extra income in better ways to maximize the value of your bonus.

"Targeting a big whack of money towards a single goal — like paying down debt, a vacation, retirement — will be more gratifying than the drip, drip of steady saving," said Meg Bartelt, a financial planner and founder of Flow Financial Planning in Bellingham, Washington. "So don't squander the opportunity."

Bartelt recommends first using your windfall to tackle credit-card debt. Not only will you enjoy the budgetary and psychological relief of clearing or chipping away at a balance, you can also save big on interest-rate charges.

Next, Bartelt suggests fully stocking your emergency fund, which can prevent you from digging yourself into more debt, if an unexpected cost were to come up. You want to have at least three months' worth of cash to cover necessary expenses.

Depending on your personal situation and risk tolerance, you may want to save even more. For example, if you have an unsteady income or you're unsure of your employment status, having more money on hand — up to a year's worth of costs, if you can manage it — is a good idea.

You might also want to beef up your emergency fund if the current state of financial markets and the economy makes you queasy.

"More savings — and less spending — in general gives you more money, and money gives you power and flexibility," said Bartelt. "If you're feeling afraid and uncertain, power and flexibility are likely a good antidote."

Once you're square with those first two financial goals, you may want to use your bonus to increase savings for other goals, such as retirement, college funding or buying a house.

Where should you stash your cash? For any short-term goals — and your emergency fund — Ken Tumin, a banking expert at DepositAccounts.com, recommends online savings accounts, certificates of deposit and high-yield checking accounts to make the most of your money.

These types of deposit accounts offer relatively easy access, as well as generally higher yields than you'll find elsewhere. For example, Ally Bank's online savings account currently offers 1 percent interest. It also has no minimum balance requirement or monthly maintenance fee. By comparison, Wells Fargo's Way2Save Savings account yields 0.01 percent, requires a $25 minimum opening deposit and charges a $5 monthly service fee, unless certain requirements are met.

For your long-term goals, consider adding your bonus to your investment portfolio. Putting in a lump sum would net you more than entering the market bit by bit.

For all rolling 12-month periods starting each month between January 1926 and August 2014, a lump sum invested in a diversified portfolio performed better a majority of the time compared with dollar-cost averaging over three-, six- and 12-month periods, according to a study by financial services provider TIAA-CREF.

"When people get bonuses at the end of the year, there's a tendency to want to go slowly," said Richard Graziadei, managing director with the investment management group at TIAA. "But particularly for allocated portfolios, you simply tend to do better by putting your money in right away. The more time you spend in the markets, rather than keeping some money in cash, the more money you make."

Of course, going the financially responsible route is not the most fun you can have with your money.

"If you will feel deprived by being prudent with 100 percent of the bonus, and therefore more likely to sabotage your own efforts, then spend some, say 10 percent, on yourself," said Bartelt.

"If you put 90 percent to good financial use, you'll be way ahead of the curve."