8 Great Ways To Spend Your Holiday Bonus

There are two times a year when some workers can revel in a financial windfall: tax season (if their filings result in a refund), and the holiday season (if they can look forward to company bonuses).

Accounting Principles, a recruiting agency, estimated that hiring managers would give an average bonus of $1,081 to employees this year — a very welcome addition to people's personal coffers considering stagnant wages across the country. Not all workers can expect a holiday financial cushion, but for those who do, figuring out the best way to make use of the money will be a welcome question.

Here are some ideas to spend a holiday bonus, so that it really feels like a gift.

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Only 17% of workers in 2015 said they intended to spend pay bumps or holidays bonuses on Christmas gifts. A survey from Bankrate indicated that workers in the south were more likely to do so, 26% in that region compared to 15% in the west, 14% in the midwest, and 12% in the northeast.

Most people wanted to use that money for more everyday financial concerns, but gift-giving is a big concern for many people around this time of year, especially those with kids. So, why not direct that money toward a holiday treat for someone else? If you tend to charge holiday gift spending to a credit card with a revolving balance, paying cash will be a small relief.

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In the Bankrate survey, 35% of Americans receiving bonuses or pay raises planned on adding to their savings. To stretch out the impact of your bonus, look a few months ahead to tax season and beyond.

Jordan Sowhangar, CFP, a wealth advisor at Univest Investments, says tax efficient options for spending your bonus include maxing out accounts like your 401(k), IRA, or even a Health Savings Account. Those will "help lower your taxable income for the year, as well as allow that money to grow tax deferred," she explains. "Think of the long term and compounded growth opportunity of these accounts as the gift that keeps on giving."

Check IRS.gov for 2017 tax contribution limits to see how close you can get toward these goals.

Bills

Sowhangar says a good way to think of a holiday bonus is as a paycheck in and of itself, rather than as "found money," which "makes you more likely to allocate it to things you normally would, like your 401(k) or paying bills."

In this case, using this extra money to pay down bills will be a gift to yourself.

Focus On Debt

Similar to paying off bills, paying off debt is another good way to spend a bonus.

"It may not be as exciting as buying a new watch or a pair of shoes, but it will absolutely help you save money in interest over the long run," Sowhanger says, "especially on higher interest rate accounts like credit cards."

Think about it that way, and you'll be getting money back — and, hopefully, boosting your credit score.

Give Back

If you've already maxed out these aforementioned accounts and are still looking for ways to help your tax situation, Sowhanger adds that making a charitable donation is another great way to go.

Not sure where to start? Check out Refinery29's list of organizations you could donate to for Giving Tuesday for ideas about how to support the people and causes that matter to you. Or, start backwards with a cause you care about, and then research organizations that accept tax-deductible contributions.

Donating money won't result in an automatic tax benefit; your ability to lower your tax burden through this route also depends on the amount of money you spend and your income level. (And remember, donate what you can actually afford and not for a tax break.)

Build Your Nest

People often think about reinventing themselves (their careers, relationships, health) at the end of each year, but what about their surroundings? Revamping your space — especially if you own your own home — can be a gift for years to come.

"Perhaps the most enticing, yet still responsible option, is using a portion of your bonus to start on home improvements you’ve been wanting to do," Sowhanger says. "Not only are you adding value to your home for future resale, but you are reaping the benefits and enjoying those improvements while you are living there."

Invest

One of the difficult parts of investing is deciding when you are officially ready to start. If you've paid off your consumer debts (such as credit cards), have a solid emergency fund and other savings, vehicles, consider using your newfound check to invest in the stock market.

"If you invested a $1,000 bonus in the stock market every year during your 20s — at a historical market return rate of 9% — by the time you reached 70, that money would be worth more than $500,000," says Avi Lele, the founder and CEO of Stockpile.

Give To The (Your) Kids

"If you have kids, you might want to sock some of that bonus money away for their future," Lele suggests. He says one easy way to get started is by investing for them, through companies like his own, on which customers can purchase and gift stocks to others.

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