The end-of-year bonus can be just as dangerous as it is exciting — a few wrong turns and your hard earned money could be spent recklessly or invested poorly.
We’ve already told you the smartest ways to use your bonus check in order to get the most out of it — here are seven of the worst things you could do with it:
2. Spend it all, immediately.
Receiving a bonus, especially your first one, is exciting and liberating, but it can disappear in the blink of an eye. As people earn more, they tend to purchase more as well -- and bonuses typically come over the holiday season, a notoriously expensive time of the year.
While it's OK to reward yourself and spend a little bit of your bonus, you don't want to get in the habit of blowing through cash quickly just because you can. Overspending habits can be tricky to break once they're formed, making it even more important to be a mindful spender when you receive a large sum of money.
If you're trying to break the habit -- or keep it from developing -- read up on the most common psychological overspending triggers, how stores trick you into parting from your cash, and what you can do to keep from overspending.
3. Spend on the wrong things.
When you do spend your bonus, you want to make sure you're spending wisely. It's tempting to try to 'save money' by buying inexpensive, low quality things, but oftentimes those cheap products will cost you in the long run.
While it's good to be aware of pricing, sales, and discounts, it's also important to recognise when you're being cheap, rather than frugal. Being cheap means using price as a bottom line, while frugality means using value as a bottom line.
Invest in things that have value. They don't have to be big purchases, either. There are several everyday items that can pay for themselves, and you'll want to be careful of skimping on things like mattresses, computers, and more.
4. Not get a head start on investing.
While it's tempting the hit the stores as soon as your bonus check comes in, remember to pay yourself first. This means taking a portion of your earnings and putting it to work in savings, retirement accounts, or other investments.
Even if you're young and retirement seems too far off to prioritise, understand that a head start can pay off exponentially in the long run, thanks to the power of compound interest.
If you have a head start on investing already, you'll want to revisit those investments when you get a bonus. As your money grows, the original portfolio you created may no longer suit your needs. Get in the habit of revisiting it every year and adjusting it to fit your current situation, which is known as 'rebalancing.'
5. Not increase your super contributions.
It can be easy to set and forget your investments. Starting a retirement account with your employer is a great first step when it comes to investing, but if you never increase your contributions, you won't be maximizing your retirement savings.
An easy, yet highly effective, money habit to establish is upping your contribution as soon as you get a bonus. The more you can set aside today, the better off you'll be in the long run.
Check online to see if you can set up 'auto-increase,' which will automatically increase your contributions every year. That way, you'll never even see the extra money you're diverting to savings and you'll learn to live without it.
7. Not set aside money for big upcoming purchases.
There are bound to be big expenses in your future -- a home, car, vacation, or kids, to name a few -- that require diligent savings.
It's important to contribute money toward a retirement fund, but don't forget about and neglect other major expenses. You'll want to have savings if you're planning on having kids -- the USDA estimates the average cost of raising a child to be nearly $250,000, and that doesn't include college. It also doesn't take into account looking to buy a home, which often requires significant savings just for the down payment.
The best way to prepare for these expenses is to create savings goals, and then set aside money as early as possible. Use your bonus to jump start these goals, or add to previously established ones.
Business Insider Emails & Alerts
Site highlights each day to your inbox.