What Should You Do With Your Christmas Bonus?
The economy is picking up and companies are paying bonuses again. You just peaked at your expected new windfall and that old question rears its ugly head, "should you spend it or save it"? Here are a few ideas for what to do with that little extra something in your check. (Not receiving a bonus this year? Check out 6 Dying Job Perks.)

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Be Generous
Everybody's been asking you for money: your alma mater, the local food pantry, large international charitable organizations and more. Now's the time to give. Show your appreciation for what you have by making a donation. According to authors Tom Rath and Jim Harter, Ph.D., it really is more fun to give than to receive. Their book, "Well Being: The Five Essential Elements," cites neurological evidence that giving money produces greater feelings of happiness than buying "things".

Prepare Yourself
According to a survey by the Investor Education Foundation of the Financial Industry Regulatory Authority (FINRA) only 49% of respondents have a rainy day fund. There's a place in every budget for unexpected expenses. It's called the "emergency fund" and it doesn't get nearly enough attention. When you have an urgent need like fixing the carburetor on your car or replacing the hot water heater, you need to be able to quickly pay for those items without adding to debt or incurring fees and penalties. Add your bonus to your emergency fund, because you just never know when you'll need some extra cash in the future.

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Pay Down Debt
Improve your financial status by paying down debt. Making a lump-sum payment on debts such as credit cards, mortgages and student loans can shrink your principal and reduce the total amount of interest you pay. For example: let's say you have a 48-month car loan for $20,000 charging 6% interest (annual percentage rate). The total interest paid would be $ $2,549. But, if you apply $1,000 of your bonus to the principal a year into your loan, you would save $192 in interest. In addition to reduced interest, it would take two fewer months to pay off the loan.

Relax
Management consulting firm, Right Management reported 46% of respondents in a recent survey than had not taken all of their vacation by December, 2010. You worked hard for your bonus, so instead of bringing home anymore shopping bags from the mall, invest in a vacation. Take the kids and maybe the grandparents too. There's no shortage of travel discount websites to help you make the most of your money. The resulting memories will last a lifetime, as opposed to right after the warranty runs out. (Learn more in our Healthy Survival Guide For Sandwiched Boomers.)

Be Bullish
The Dow Jones Industrial Average (DJIA) is up over 10% for 2010 and the Nasdaq Composite is up over 17%. Whether you've already taken advantage of the upswing or not, adding to your holdings could boost your portfolio value. Of course, carefully select investments based on your specific objectives and risk-tolerance levels.

The Bottom Line
Having extra cash sure feels good. Whether you decide to save your bonus or invest it (or maybe a little bit of both), chances are you'll be working hard to earn another one. So, enjoy it will it lasts.

For the latest financial news, see Water Cooler Finance: FBI Insider-Trading Bust.





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