I have some cool friends. Recently two of my girlfriends received $14,000 and $10,000 as their yearly bonus check. I thought to myself, wow! I can think of so many ways to use this money. My frugal tendencies will tell me to save until I need it. I thought about the many different places I can visit. As I had a conversation with both friends, I asked myself, should I use my yearly bonus/compensation towards the payment of a debt or an investment? The answer varies for each individual.
Treat Yourself?
First of all, there is nothing wrong with treating yourself to a nice vacation or splurging on the latest items. After all, isn’t that part of the reason we work? Part of the reason we go to work is to be able to spend when needed. If you are like me, the first thing you will probably think of is to invest the money or put it into a high yield savings account.
Whether the money is less, or more than 10k, the goal is to always have a plan (think future), for any extra money you receive. The topic of paying down debt is controversial, depending on who you ask. Dave Ramsey talks about the Debt snowball.
Debt Snow Ball
The debt snowball is when you pay your smallest debt first and then move on to the next debt. Depending on the kind of debt you have, credit card, student loan, and mortgage, you should determine which one is accruing more interest, and which to contribute more money.
Credit cards usually have a high-interest rate, compare to the other examples I mentioned above. If I have any debts, best believe I am paying that credit card debt first with my bonus check.
Here is a shocking statistic that I found, 78% of Americans live paycheck to paycheck. It means the majority of Americans are using their paychecks for bills every time with nothing left to save. If you are one of the 78%, and you are receiving a bonus check from work, you should get rid of some debts.
As of today, I owe zero dollars in credit cards. The only debt I have so far is my student loans. (which no amount of bonus can pay for haha). So, if I had that 10k or 14k, I will use it to open an investment account. There are so many ways to do this. You can either max out on your 401k, buy more shares from a company you like, or open an IRA (Individual Retirement Account)-I will talk more about this in my next post.
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So should you use your yearly bonus/compensation towards the payment of a debt or an investment? The answer is both! You should pay your debt, and while doing so, don’t forget to invest. Time wasted in the stock market can never be gained!
Yearly Bonus Towards Debt or Investment
Now, I know everyone does not have a job that pays such a bonus. This approach can be applied whenever you receive extra cash. While you are thinking about splurging, think about the other ways you can grow your money for the future. I know it is tempting to buy that brand new car or the trending designer clothes. Create a plan for today, tomorrow and for as long as you are capable.
Let me know your thoughts in the comments below.
Until Next Time 🙂
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