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
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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.
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Get your 401(k) company match
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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
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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.
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 $15 the first year with auto-renewal.
Open an HSA
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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
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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
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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
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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
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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
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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.
In 2023 Americans lost over $10 billion to identity theft and fraud
That's right. According to the FTC, Americans lost over $10 Billion to fraud and identity theft in 2023.
But you can safeguard your data with all-in-one identity theft protection services from Aura which comes with $1,000,000.00 in identity theft insurance1 <p>Identity Theft Insurance underwritten by insurance company subsidiaries or affiliates of American International Group‚ Inc. The description herein is a summary and intended for informational purposes only and does not include all terms‚ conditions and exclusions of the policies described. Please refer to the actual policies for terms‚ conditions‚ and exclusions of coverage. Coverage may not be available in all jurisdictions.</p> per adult, to cover you should you have eligible identity theft-related losses.
An individual plan starts at $9 per month, and you can choose a family plan that outmatches most others - includes Dark Web monitoring to scour data breaches and leaks for your sensitive personal data — such as Social Security numbers (SSN), Medicare information, and phone numbers.
Before you make your next online purchase, protect what you’ve built for a fraction of what it could cost you if your data were compromised.
Contribute to a 529 plan
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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
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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
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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
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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
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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
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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
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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
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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.
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Earn 1% cash back on up to $3,000 in debit card purchases each month.2 <p>See website for details.</p> No minimum deposit or balance. FDIC Insured.
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