It was just announced that Ford UAW workers are going to receive a $7,600 bonus- Congratulations- the bonus was well earned. Of course, whenever you receive a bonus, the big question is what should you do with the money? Unfortunately, most people will be thinking about whether they should buy a new phone or a big screen television. Although, there is nothing wrong with rewarding yourself for a job well done, as adults, we need to be smart with our money. Therefore, I would suggest before rushing out to buy a new phone or big screen television, take a hard look at your personal finances to determine if you shouldn’t do something smarter with your bonus. After all, the money should be used to improve the quality of your life, and by being in better shape financially, it will enhance your life in many different ways.

Here are a few ideas that you should consider with your bonus money. The first is for those of you who have charge card debt. If you do carry a balance on your charge card, you should consider using the bonus to pay down your debt. The average American pays over 18 ½% interest on their charge card. That interest is not tax deductible, therefore, when you use your bonus to pay down charge card debt, you are getting a guaranteed 18 ½ percent on your money. I can assure you there is no investment out there that will pay a guaranteed 18 ½ percent. Therefore, paying down charge card debt is a great financial move.

There is another benefit to paying down debt, particularly charge card debt, and that is to your health. There is no doubt that when people are in debt it causes anxiety and other health issues. Paying down debt is liberating and its’s something you should consider doing with your bonus.

We have all heard about the problems that government employees have had as a result of missing a paycheck. If you don’t want to be in that situation if something unfortunate happens to you, you need to make sure you have an emergency fund of money. I would suggest that if you don’t have an emergency fund of money, at least three to six months of living expenses, a great use of your bonus is to establish an emergency fund. If the government employees who have missed a paycheck had an emergency fund of money, they would be in much better shape than they are today.

Remember, your emergency fund of money shouldn’t be invested in stocks or other long-term investments, but rather kept in the bank so you can tap into it in case of emergencies. Liquidity is the key for emergency money.

For those of you who have an emergency fund of money and are not in debt, one thing you may wish to consider is investing the money in something like a Roth IRA. A Roth IRA is a great vehicle, in the fact that you can let the money grow tax free for as long as you choose. I have always been a believer that you cannot save too much for retirement, and investing your bonus in a retirement saving vehicle will bring you benefits well into the future.

Receiving a bonus is great, but what’s even greater is when you use that money wisely. Therefore, if you receive a bonus, before you rush out and spend it, take some time to look at your personal finances to see if the money can be better spent. Of course, you are entitled to reward yourself; however, I think you’ll find being in better shape financially is a great reward.

Good luck!

Rick is a fee-only financial advisor.  If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.