The top ten things to do with your annual bonus

With the end of 2020 in sight, you might be anticipating a year-end bonus. (Yay!) While it may be tempting to upgrade to the newest iPhone, or buy a chic wool overcoat, before you hit “add to cart”, let’s explore some alternative options to invest, spend, or save your annual bonus.

Reframe your thinking A 2006 study examined the relationship between how money is described and how it is viewed. When money is described as a bonus or rebate, we are more likely to spend it frivolously. Regardless of your financial plan, it’s important to remember when that bonus hits your account to view it as part of your salary, and budget it accordingly.

Pay off debt Saving versus paying down debt is an ongoing debate in the financial community. Don’t get us wrong, we’re huge fans of saving, but it depends on your current financial situation which is the best option for you. If you’re carrying a balance on a credit card at an average 19% interest rate, paying that debt down, or off completely, is going to save you more money in the long run than the return you’re likely getting on your savings account.

In case of emergency If the year 2020 taught us anything, it was that having an emergency fund is essential. Many financial advisors suggest having six months’ salary on hand in case of an emergency. Unfortunately, only an estimated two-thirds of Canadians have enough emergency funds to cover three months of expenses. If you don’t have an emergency fund, there’s no time like the present to get started.

RRSP/TFSA Take advantage of the contribution room in your RRSP or TFSA. Not sure whether an RRSP or TFSA is right for you? Check out the major differences here. Bonus – if you work at a company who offers matching for your contributions, make sure you’re taking advantage of their offerings to maximize your return on investment. Talk to your HR rep to find out more.

Invest in your career What does your employment future look like? Are you hoping to build upon some current skills, learn something new, or planning to start over in a brand new industry? Now might be the time to invest in yourself by expanding or improving upon your skillset. Now that’s a new year’s resolution you’re more likely to keep!

Vacation fund Although travel restrictions are putting a damper on the idea of taking a sunny break this winter, many are finding a way to take a week or weekend away locally. Contributing to your vacation fund now can ensure you do so without racking up a sizeable credit card bill. Looking back at those vacation selfies is so much sweeter when you aren’t still paying off the trip.

Budget for big purchases Are you planning to renovate your home, purchase a large appliance, or maybe upgrade your mattress? Consider putting aside the funds now, instead of purchasing later with a line of credit or credit card. Borrowing for a large purchase may seem like a good idea at the time, and it’s an easy cycle to enter, but a hard one to break.

Donate to charity It’s been a tough year, and there are so many worthy charities who need our support. If you are in a position to give, consider supporting a charity in need. As an added bonus, registered charities will offer a tax receipt you can file at tax time.

Plan for the future Are you planning to buy a home, grow your family, or send a kid to college? If your upcoming years include any of these milestones, take some time to have a comprehensive look at your finances and explore what needs attention now. Now might be the time to set up an RESP, RRSP, or savings account to set yourself up for future financial success.

Divide and conquer Who says your bonus can’t do more? Think of it in percentages instead of a lump sum, and take advantage of a few of the above tips. And maybe save a little something to treat yourself.

The gist? No matter what your financial goals are, there are no wrong answers. (Unless your plan is to stash your cash in the freezer. Even then … we won’t judge.)

Any information provided in this article is for information purposes only and is not intended to constitute financial advice. You should seek the advice of a qualified professional or undertake your own research before making financial decisions.