A windfall such as an end-of-the-year bonus or a large tax return can be an excuse to spend more money, or you can use it as a springboard to build wealth and financial stability.
Here are a few ways to make the most of your bonus and use it to generate income outside your regular paycheck.
Steal this billionaire wealth-building technique
The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.
A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.
If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)
Pay off credit card debt
While it might be painful to send your bonus to your credit card company, the return you get via savings on interest and peace of mind knowing you have less debt to deal with is well worth it.
Working to eliminate high-interest debt makes more money available each month for other wants and needs.
Get your 401(k) company match
If you have a company that matches 401(k) contributions, this one is a no-brainer. When you put enough money into your retirement account to get matching company dollars, you get a 100% return on your investment.
It’s not as sexy as starting your own business or buying real estate, but your company 401(k) match may be the best return on investment you can get on your bonus.
Contribute to an IRA
If a 401(k) match isn’t an option, you can contribute to an IRA without going through your employer.
If your income qualifies you for a Roth IRA, your money grows tax-free until you withdraw it during retirement. That won’t put money in your wallet this year, but it could represent decades of tax savings.
Earn $200 cash rewards bonus with this incredible card
There's a credit card that's making waves with its amazing bonus and benefits. The Wells Fargo Active Cash® Card(Rates and fees) has no annual fee and you can earn $200 after spending $500 in purchases in the first 3 months.
The Active Cash Card puts cash back into your wallet. Cardholders can earn unlimited 2% cash rewards on purchases — easy! That's one of the best cash rewards options available.
This card also offers an intro APR of 0% for 12 months from account opening on purchases and qualifying balance transfers (then 19.49%, 24.49%, or 29.49% Variable). Which is great for someone who wants a break from high interest rates, while still earning rewards.
The best part? There's no annual fee.
Open an HSA
If your insurance plan is compatible with a health savings account (HSA), you can reduce your taxable income by the amount you save for future medical needs.
You may also be able to invest your HSA contributions, and like a Roth IRA, they grow tax-free.
Start a side hustle
Many savvy folks use a windfall to start a side hustle or a small business. This investment can be a huge benefit, earning you cash outside of your 9-to-5 job.
If you’re considering monetizing a hobby or dipping your toe into a different industry to make extra money, a side business is a smart way to do so.
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Hire a financial advisor
Sometimes, good advice is worth paying for. If you have a complex financial situation, using your bonus to pay a fiduciary financial advisor could be a savvy move.
These professionals can see the big financial picture and help you plan your investments, savings, taxes, and other factors in your life to best position you for the future.
Invest in your education
Often, the best investment is in yourself. If you can use a bonus to pursue a degree, certificate, or course to up your skillset and marketability, the return on investment is your increased ability to earn income over your working years.
Beef up your emergency fund
If the last few years have taught us anything, it’s that the economic winds are unpredictable. Prepare your finances for the inevitable rainy day by adding to (or starting) your emergency fund.
An end-of-the-year bonus will get you quick traction on this goal without dedicating any of your regular paychecks to it.
Open a brokerage account
If your retirement savings is already well in hand, consider using your holiday windfall to open a brokerage account. Yes, you’ll probably have to pay taxes on the gains when you sell, but you can invest your money in whatever assets your account allows.
If you’re over 50, take advantage of massive discounts and financial resources
Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.
How to become a member today:
- Go here, select your free gift, and click “Join Today”
- Create your account (important!) by answering a few simple questions
- Start enjoying your discounts and perks!
You’ll also get insider info on social security, job listings, caregiving, and retirement planning. And you’ll get access to AARP’s Fraud Watch Network to help you protect your money, as well as tools to help you plan for retirement.
Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.
Contribute to a 529 plan
If you want to put your bonus toward your child or other relative’s education, consider a tax-sheltered 529 plan — particularly if the child is young. Assets in these accounts can be invested and grow to compound your savings.
Buy back your time
If you’re time-poor, consider using your bonus to delegate low-impact tasks such as chores, errands, or yard work to free up more of your time.
Unlike money, you can’t make more time with hustle and grit. Using your bonus this way can give you more time to relax or spend with those you care about.
Buy in bulk
Getting a good deal on nonperishable items you use regularly can be worth shelling out for. Ironically, the more you spend on things like toilet paper and canned foods in bulk packaging, the cheaper per item.
If you have the cash available, stocking up on necessities at Costco and other warehouse clubs can stretch your dollars further.
Save for the holidays
It’s never too early to save for the next holiday season. By doing so, you can avoid the trap that a third of Americans fall into: going into debt for holiday purchases.
Saving your bonus for next year’s gift-giving will allow you to enjoy the season without paying interest on it afterward.
Budget for a large purchase
When you know you'll need to buy a new car or water heater soon, squirrel away your windfall to make that purchase easier.
This strategy isn't just for needs — if you're planning a big summer vacation this year, do yourself a favor and budget your bonus for that now.
Reward yourself for hard work
It’s your bonus — you’ve earned it. And while paying off debt and buying beans in bulk are great financial strategies, it’s important to reward yourself for working hard.
Positive reinforcement encourages you to keep up the behaviors that got you your bonus in the first place, so give yourself permission to get yourself a little something.
Open a high-yield savings account
As a silver lining of the Federal Reserve’s rate hikes, the best high-yield savings accounts now offer interest rates of 5% or more. Saving your bonus is a better idea than ever, as you can earn a respectable amount of interest by socking it away.
Bottom line
Your bonus isn't just a reward for your hard work; it's a powerful tool to shape your financial future.
Identify your money's biggest pain point, whether it's credit card debt, retirement anxiety, or a nagging car, and use this windfall to transform it into a strength.
By strategically choosing how to invest your bonus, you can set yourself on a path towards lasting wealth and financial fitness, one mindful move at a time.
Lucrative, Flat-Rate Cash Rewards
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Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
- Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Cell phone protection benefit (subject to a $25 deductible)
- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.49%, 24.49%, or 29.49% 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.
- $0 annual fee.
- No categories to track or remember and cash rewards don’t expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
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