Whether it’s a bonus from work, a gift, or even finding a $10 bill on the ground, unexpected money is always a pleasant surprise. So, how should you use that extra cash? Should it go toward paying off debt, or should you save it? Ask yourself these questions to help make a decision.
What do I want to achieve?
Do you want to get those student loans paid off, or maybe take a much-needed vacation? If you've already made some financial goals for yourself, you may have already determined what your priorities are. Stick to those priorities. If paying off debt is your primary goal, that’s what you should focus on.
Do I have enough emergency savings?
Whenever possible, it's best to have 3-6 months’ worth of expenses saved up in case of an unforeseen medical emergency, job loss, or other incident. If you don’t feel comfortable with the amount currently in your account, use your bonus cash to bulk up your savings.
How much will my debt cost in the long run?
When creating a payment schedule for your debts, you need to take a look at the bigger picture. For example, a $5,000 loan with a 3% interest rate will cost an additional $150 in interest payments. When deciding which debts to pay off first, prioritize those with the highest interest rates.
Am I taking advantage of my 401(k)?
If your employer offers a 401(k) with an employer-match program, this is great place to stash extra cash. You're guaranteed to receive a return on this money, getting way more out of it during retirement than you would now.
There are a lot of ways you can use bonus cash. Sometimes, the best option might even be to spend it immediately so you can buy groceries or pay the electric bill. Whatever the case, remember that you are in control of your money. Exercise that control wisely. If your primary goal is to pay off debt, stick to that goal. If you need to supplement your savings, deposit the extra cash into your account. Remember what your needs and wants are, and prioritize your needs.