via @genevadiva for @shopbando
It’s not every day that I read a book that changes my life. But, when I do experience that feeling of being so inspired and motivated to make positive changes, the result is undeniably powerful. This was the case for me after recently finishing The Millionaire Next Door by Thomas J. Stanley and William D. Danko. This book isn’t a brand new bestseller—it was published in 2010, and has been read and analyzed by millions over the years. However, I felt like I had stumbled up on a golden nugget of wisdom every time I turned a page. Among other things, this book inspired me to be more thoughtful with my money, cut down a bit on my shopping habit (a hard thing to do in our industry!), and make wiser investments with my savings. Which brings me to today’s topic…
For all of your who might have received that tax refund or bonus check—or, if you’re just looking for a smarter way to make use of your paychecks—this post is for you. After some careful thought and research, I’ve come up with five wise ways to make the most of your bonus check (and no, it doesn’t involve scooping up the latest style of Jimmy Choo shoes, although it’s tempting)…
1. Invest in your retirement.
What could be a better use of your bonus check than to put it into a tax-exempt savings account for your future? The great thing about adding to your retirement fund each year is that those dollars are non-taxable—meaning, you are basically saving money that you would otherwise have to be shelling out for taxes. The other great thing is of course the fact that a retirement fund is in place so that you may live comfortably when you working years are over. There really couldn’t be a better way to spend your bonus check, in my opinion. If you don’t have a retirement fund set up yet, talk to your employer about your options or look into starting a 401(k), Roth IRA or SEP account.
2. Make smart improvements.
If you’ve already been contributing to your retirement fund annually, then your bonus check may present you with a great opportunity to invest in a well thought out life improvement. This may include renovations that will add value to your home, upgrading to a car model that saves you money on gas or maintenance costs, or buying a new computer or software that will improve your career and communications–the list is endless. This does not, however, involve making impulsive buys. A good rule to keep in mind that will help you differentiate what is a smart improvement and what might be an unnecessary expense is this: If it’s something you have been thinking about for months, and doing your research and making a game plan, then it’s probably a wise way to spend your money. On the other hand, walking into Barney’s and coming out with a brand new designer bag would be considered more of an impulsive buy than thought-through purchase.
3. Add to your rainy day fund.
What is a rainy day fund, you might ask? It’s basically an emergency fund or a reserved amount of money that will come in handy if there is ever a change in your normal income. It’s a fund you can tap into if, say, you lose your job, have to take a sudden unpaid leave of absence, or become subjected to any other emergency that could be out of your control. If you don’t have one of these, using your bonus check to start one is a great idea. Emergencies are out of our control, and there’s never a good way to predict when you’ll need some extra cash to fall back on. And, if you don’t end up using it, you can always add it to your retirement fund later down the line.
4. Save for something big.
Similar to spending your bonus check on major life improvements (as outlined in No. 2), it’s also worth it to put your bonus check towards saving for major life milestones you’ve been really wanting, like a home. I recommend putting a bonus check into a savings account, then starting up a small weekly transfer from your checking to your savings in order to accumulate more cash. This is such a simple way to add to your savings, and if it’s a small amount, you won’t really notice that it’s being transferred. I also have found it helpful to create a spreadsheet with my monthly expenses itemized out in columns and rows. This helps me to see what categories my money is going to each month and shows me where I can do a better job of saving up for something bigger down the line. Spending your savings on something major like a home is worth it—just remember to do the proper research before buying to make sure it’s a good investment.
5. Invest in your health or education.
Aside from saving for the big things in life (home, retirement, etc.), my parents raised me to believe that there is no better way to spend your money than on your health or education. This can mean anything that betters you as a person physically and mentally—from yoga classes to gym memberships to buying organic, locally sourced food… To taking educational classes that enrich your career, meditation workshops, even simply buying great books. If there’s a gym you’ve been wanting to join or a college course you’ve been wanting to take, using your bonus check to make these purchases is as good as investing in a better you.
And there you have it. Those are my recommendations, but I’d love to hear your thoughts as well…
Do you have any ideas for smart ways to make the most of your bonus check?
If you haven’t already, be sure to order The Millionaire Next Door ASAP by clicking here. It’s also a good one to listen to on tape in the car. I promise that this purchase is a wise use of your money as well!