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Personal Finance

Are you expecting a holiday bonus this year? Here's how to make the most of it

Considering investing in your career or saving for a house? Here are some other ways to use a bonus.

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Nikom Khotjan | Moment | Getty Images

If you're expecting a holiday bonus this year, you may already be looking forward to all the ways you can use this windfall of cash. Maybe you're considering going back to school, purchasing a home or taking that long-awaited vacation.

The bottom line is: there are lots of ways you can use your year-end bonus to get the things you want. Below, Select outlines just a few important ways you can put the money to good use. If you're unsure of how to prioritize or divide the money, it always helps to consult with a financial advisor before making a decision.

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Pad your emergency fund

If you don't yet have an emergency fund (or have one that isn't quite where you want it to be yet), consider using this windfall of cash to build your emergency savings. An emergency fund can help you avoid taking on too much debt to afford large, unexpected expenses like a home repair, medical bill or funeral.

Because of this, it's always important to make sure you have at least three to six months' worth of savings on the sidelines for these unforeseen expenses. It's also prudent, especially now, to have an emergency fund during uncertain economic times.

If you haven't started building your emergency fund yet, it's generally advised to put your money in a high-yield savings account. These accounts, like the Marcus by Goldman Sachs Online Savings Account or the Ally Bank Online Savings Account, typically offer higher interest rates compared to traditional banks, which means your balance grows a little quicker even when you don't contribute anything.

Marcus by Goldman Sachs High Yield Online Savings

Goldman Sachs Bank USA is a Member FDIC.
  • Annual Percentage Yield (APY)

    4.50% APY

  • Minimum balance

    None

  • Monthly fee

    None

  • Maximum transactions

    At this time, there is no limit to the number of withdrawals or transfers you can make from your online savings account

  • Excessive transactions fee

    None

  • Overdraft fee

    None

  • Offer checking account?

    No

  • Offer ATM card?

    No

Terms apply.

Ally Bank Savings Account

Ally Bank is a Member FDIC.
  • Annual Percentage Yield (APY)

    4.35% APY

  • Minimum balance

    None

  • Monthly fee

    None

  • Maximum transactions

    Unlimited withdrawals or transfers per statement cycle

  • Excessive transactions fee

    $10 per transaction

  • Overdraft fee

    None

  • Offer checking account?

    Yes

  • Offer ATM card?

    Yes, if have an Ally checking account

  • Terms apply.

Pay down high-interest debt

Having a credit card that lets you earn a lot of rewards, like cash back or free travel, is a great financial move if you can manage it. However, all of those savings are basically for nothing if you're carrying a balance and paying high interest fees. Plus, the longer it takes for you to pay off your balance, the more you'll accrue in interest — and the higher your balance might go. This can also lead to a higher credit utilization rate, which can result in a lower credit score.

So, it could be wise to use a portion of your holiday bonus to pay down some of that debt. To make it even easier to pay down your debt, you can also use a balance transfer card, which allows you to move debt from high interest credit card(s) to a new card that offers no interest for an introductory period.

The Citi Simplicity® Card with a 0% intro APR for 21 months on balance transfers from date of first transfer (after, 19.24% - 29.99% variable APR; balance transfers must be completed within four months of account opening).

Citi Simplicity® Card

On Citi's Secure Site
  • Rewards

    None

  • Welcome bonus

    None

  • Annual fee

    $0

  • Intro APR

    0% Intro APR for 21 months on balance transfers from date of first transfer and 0% Intro APR for 12 months on purchases from date of account opening.

  • Regular APR

    19.24% - 29.99% variable

  • Balance transfer fee

    There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, a balance transfer fee of 5% of each transfer ($5 minimum) applies.

  • Foreign transaction fee

    3%

  • Credit needed

    Excellent/Good

  • Terms apply.

The Wells Fargo Active Cash® Card offers a 0% intro APR for 15 months from account opening on purchases and qualifying balance transfers. 20.24%, 25.24%, or 29.99% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5. This card even offers a welcome bonus: you can earn $200 cash rewards bonus after spending $500 in purchases in the first three months.

Wells Fargo Active Cash® Card

On Wells Fargo's secure site
  • Rewards

    Unlimited 2% cash rewards on purchases

  • Welcome bonus

    Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months

  • Annual fee

    $0

  • Intro APR

    0% intro APR for 15 months from account opening on purchases and qualifying balance transfers; balance transfers made within 120 days qualify for the intro rate

  • Regular APR

    20.24%, 25.24%, or 29.99% Variable APR on purchases and balance transfers

  • Balance transfer fee

    3% intro for 120 days from account opening then BT fee of up to 5%, min: $5

  • Foreign transaction fee

    3%

  • Credit needed

    Excellent/Good

See rates and fees, terms apply.

Max out your retirement account

Financial advisors typically recommend doing your best to max out your retirement accounts. The idea is that every dollar you contribute today will grow into a lofty balance after being invested for 30-plus years.

And when you consider the fact that retirement accounts, like IRAs, have contribution limits that are use-it-or-lose-it, you won't have the chance to go back and contribute for all the past years you didn't max out your account. Because of this, it's important to try your best to max out your retirement accounts.

According to the IRS, you can contribute up to $22,500 to your 401(k) for 2023. For IRA's, the 2023 contribution limit is $6,500 for individuals under 50 and $7,500 for those 50 or older.

Save for other big goals

Consider any other big goals you're working toward — like buying a house, going on a vacation, paying for a wedding, etc. Depending on how far off these goals are, you may decide to save or invest the money. Every bit counts and can help you get closer to achieving what you want.

As a reminder, it's generally recommended that you save for big purchases you plan on making that are less than three years away (in a high-yield savings account) and invest for big purchases you plan on making more than three years down the line.

Bottom line

Receiving a year-end holiday bonus can be exciting but it's important to devise a plan for making the most of it. Such a large windfall of cash can be used to reach a variety of financial goals — it mostly depends on where you are in your financial journey and what you'd like to prioritize. If you aren't sure what you should be prioritizing, it always helps to speak with a financial planner.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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