What to do with that bonus or raise

It’s a quality problem to have, but if you are in the position of having received a year-end bonus or you are expecting a raise, you may be wondering what you should do with the extra cash. If you find yourself already a month or two into the year and wondering where the extra money went, keep this information in mind for the next time you’re blessed with a financial windfall.

First things first: If you don’t have an emergency fund, this is your top priority. Yes, before investments, and even before paying down debt. A shocking 62% of Americans have less than $1,000 saved for an emergency, and frankly, if you have anything less than three months worth of living expenses, this is where your bonus NEEDS to go. If anything were to happen, say a medical emergency, this cushion could save you from financial ruin.

Okay, if you’ve got that squared away, consider these options and determine what is best for you right now.

Option 1: Invest in your Freedom Fund

Let’s face it, words like ‘budget’ and ‘savings account’ aren’t particularly sexy and don’t usually evoke a passion to allocate our funds accordingly. However, it’s easier to save when you know you are saving with a purpose – to buy your freedom (now, and in the future) from worry and indentured servitude to your bills.

Choosing this option allows you to reach your short-term goals faster. Maybe your goal is to become debt-free this year – now that’s a sense of freedom! Or perhaps the focus of your Freedom Fund is absolute financial freedom, having built the money machine necessary to passively finance your life whether you choose to continue to work or not.

Whatever your goal is, pull that bonus out of your checking account immediately and put it into your savings until you decide how to allocate it, so that you don’t wake up one morning to find that it’s all gone and you received no enjoyment from it.