Good ways to spend holiday bonus

Your Money

January 14, 2007|By McClatchy-Tribune

End-of-year bonuses are often awarded in January, and while it may be tempting to spend the money on a new big-screen TV in time for the Super Bowl, there are better uses for the extra cash. Here's how to spend your bonus in a way that is best for your future:

Give yourself a reward.

Jim Hiles, a certified financial planner with CBIZ Wealth Management, says you should reward yourself with a special gift or a short vacation - just make sure it's small and reasonable.

Save what you can.

Put a portion of the bonus into a tax-advantaged retirement account or personal savings account. You could also increase your 401(k) contribution, even if it's just for one paycheck. Money magazine suggests maxing out an IRA. You can make 2006 contributions until tax day.

Pay down your debt.

Make reducing your high-interest debt your first priority. Start with your credit cards and move onto personal loans.

Firm up, or create, an emergency fund.

Money magazine recommends having at least three months of living expenses saved in a money-market fund or high-yield savings account. Have kids? Make that six months.

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