Got a Holiday Bonus? That's Awesome! Here's What to Do With It

Some companies show their appreciation for staff members at the end of the year in the form of real money. If you're fortunate enough to work for such a company, you might be gearing up to receive that holiday bonus. Here are a few ideas for the best places to put that money, to make your personal finances in the new year (and beyond) even better.

Pay down debt

If you want to give future you a gift, it's worth using at least some of your holiday bonus as a means to pay down current debt. If you're carrying a credit card balance, for example, you're likely coping with interest that is both high and variable. According to the Federal Reserve Bank of St. Louis, the average credit card interest rate was 21.19% in August 2023 -- a rate that high can keep you in debt longer. So paying down that debt will result in money saved on interest payments.

Even if the balance is on a card with a still-active 0% intro APR offer, putting some of your bonus toward it means you're more likely to pay it off entirely before you incur interest charges. It's generally not worth putting your holiday bonus toward your mortgage or another relatively low-interest debt, as you can probably get more out of the money by investing it instead (more on that option below).

Boost your emergency fund

Your emergency fund probably isn't the sexiest part of your financial picture, but it could be the one that helps you sleep at night. Having money in the bank to help you handle an unplanned expense (like a surprise car or home repair) can be good for your mental health. If you've ever lived without emergency savings, then you've likely experienced that feeling in the pit of your stomach when you have to put a big bill on a credit card and know it'll be ages before you can pay it off. Consider putting a chunk of your bonus into your savings account to bolster your emergency fund.

Invest it

Want to turn your holiday bonus into more money over time? The stock market's annual average return over the last five decades is 10%, and if you're willing to put part of your bonus cash into a brokerage account of some kind and leave it alone for a long period, you could end up with more money than you started with.

Investing this money doesn't have to be a complicated prospect. You could open a taxable investment account with one of the best brokers for ETF investing, and be able to easily diversify your portfolio by buying ETF shares across different market sectors. Or, if you're looking ahead to retirement, take that cash and open an IRA to benefit from the tax savings now.

Buy yourself a little something

You didn't honestly think I'd tell you that you're not allowed to have any fun with this money, did you? If your employer gave you a holiday bonus, that's a gift, and it indicates that you're appreciated. So you should spend some of it on something you deserve. That cash could help you cover the cost of a winter vacation, or it might buy you a new piece of technology to make your life easier (or more fun). Even spending some of it on a nice dinner out with a special person can be a great way to make the holiday season better. It's your money and you earned it.

If you get a holiday bonus this year, it's worth taking a little time to see where it could be put to the best use. If your emergency fund is a bit lacking, or you have some lingering credit card debt, that's a good start. Round it out by investing some of the cash, and don't forget to treat yourself too -- at least a little.