Whether it’s a scheduled (year-end, mid-year) bonus, a performance incentive, or an unexpected cash compensation from work, a bonus is definitely a much-welcomed thing to see in your bank account. However, many people end up getting way too excited to spend their bonus on gifts, personal wish list items, and expensive trips. While it is important to treat yourself, spending all (if not most) of your money for comfort and luxury isn’t exactly a smart move. More practical and financially-adept employees would use their bonus to invest and save, leaving no to little money left to splurge.

It’s All About Priority (And Sticking to the Plan)

However, there is a way for you to do both, and it’s all about prioritizing. It goes without saying that splurging should be at the bottom of your list. Once you receive your bonus, list down the “smart” things you can do with the amount (this includes saving part of it for emergencies). Do your research and have a rough estimate as to how much you’re willing to allocate for each “smart” item, the amount you’re willing to save, which should leave you with a reasonable amount left for you to splurge on. You can go visit sites such as Money Wise to get advice on investments and savings and help you determine where you’d want to spend your bonus on.

In other words, the order of priority and allocation should be as follows: invest, save, splurge — and make sure that you stick to your plan. That said, let’s take a look at some of the “smart” things you can spend your bonus on.

Pay Off Debt

The first thing you should spend your bonus on is paying off your debts. Allocate a substantial portion (around 30-40%) of your bonus to your debt. Putting a huge chunk of your hard-and-well-earned bonus to pay off debt may not be that appealing, but your future self will definitely thank you for it. Prioritize short-term debts such as personal loans and credit card balances as they’re usually more expensive. If your short-term loans have been paid up, don’t re-allocate the amount to your “splurge allowance”, but use it to pay off long-term debts (mortgage, car loans), or have part of it re-allocated for savings or investments.

Retirement Plan and Life Insurances

A retirement plan and retirement savings account is different from your “short-term or emergency savings” allocation. Investing a reasonable amount for your retirement plan and savings account is always a smart financial decision. While you’re at it, you may want to get life insurance, as well, in order to provide financial protection to your family should something unfortunate happen.

Investing

coins stacked liked stairs with fingers of person in a climbing motion

As the saying goes, you’ll need to spend money to get money, and that’s basically how investing works. You can do your own research through financial advice sites such as Money Wise, take advantage of stock investment apps and guides, or visit a financial advisor to help you pick safe and profitable stock investment options. You can also try investing in local businesses and companies, or even startups (if you’re willing to risk it).

Invest In Yourself

Part of your bonus should be allocated to improving yourself. You can do this by using part of your bonus to (fully or partially) pay for an online course, a gym membership, or even just a few educational and motivational books.

Emergency Savings

Lastly, before you finally allocate an amount for splurging, make sure that you put enough money aside for emergency purposes, to be used in case of an accident, or any emergency (medical or otherwise).

Conclusion

It may be an unpopular opinion, but treating yourself with your bonus is quite important — it helps you motivate and recharge, and provide you with an immediate boost to your work productivity and attitude. But, as mentioned earlier, it’s important to prioritize your bonus on “smarter” things and use what remains to splurge —- not the other way around.