7 Ideas for What to Do with Your Raise or Bonus


The changing of the calendar year can be an exciting time, and for a lot of people, one big reason is that it’s time for an annual pay increase or bonus payout.


Knowing you’ll have some extra money coming may be really exciting, but it can also be a little stressful. You’re considering what to do with your raise or bonus, and it could have tax implications that you’ll need to know about.


Your raise may push you into a new tax bracket, increasing your withholdings, and your bonus will definitely have taxes deducted. So how do you know what makes the most sense for your situation?


Let’s take a look at seven ideas for what to do with your raise or bonus this year.


1. Add to Your Retirement

While retirement may seem far in the future, it will be here sooner than you think. When funneled directly into your 401(k) or other retirement plan, even a small raise or bonus will have a significant positive impact on your retirement savings.


Tax implications for retirement contributions are dependent on how much you’re contributing, where the money is going, if you’ve already maxed out your contributions for the year, and more, so consulting with a financial advisor or accountant is a good idea.


Options for investing in retirement can include:

  • Your company pension plan

  • IRA (Traditional)

  • IRA (Roth)

  • Child IRA

  • Health Savings Account (HSA)

2. Pay Off Debt

It may not be the most exciting way to spend your money, but paying off debt quickly is one the smartest things you can do. When you carry debt you pay interest, and that interest can add up to thousands of extra dollars out of your pocket.


Whether it’s a student loan, credit card, car loan, or any other form of debt, making additional payments to pay off the debt sooner will leave you with more financial freedom—and disposable income—in the long run. While it may be tempting to funnel this money towards investments, your percentage of return will likely not cover all the interest you end up paying on your debts.


3. Create an Emergency Fund

Even if you have ample credit available in case something happens, how great would it be to have cash on hand should an emergency arise? If you don’t already have emergency savings, you’re not alone. It’s estimated that over half of American households have less than three months of emergency savings.


Emergencies come in all forms, from an unexpected car repair to a health crisis that leaves you temporarily out of work. By building a solid emergency fund, you will have the security of knowing that if something DOES go wrong you have the means to handle it without taking on massive amounts of debt.


4. Save it for Something BIG

Think of your long-term savings goals: is there something you’re slowly working towards and building your savings for?


A new car paid for in cash, tuition for your children’s education, a holiday home, a dream vacation for a milestone birthday? By directing your raise or bonus towards your next big purchase, you’ll be able to make your dream a reality that much sooner.


5. Pay Ahead on Your Bills

When considering what to do with your raise or bonus, think about the things you pay monthly or annually. Even with expenses that are already budgeted for, there are still likely some things you could pay ahead on. Streaming services, your gas bill, and annual homeowners insurance are just a few options.


The benefit of doing this is you can free up some of your monthly cash flow, which can then be directed towards other areas, be it savings or just something frivolous and fun you wouldn’t normally treat yourself to. It also gives you peace of mind that some of your recurring expenses are covered for a set period of time.


6. Spread the Wealth

If you’re someone who’s in the position that your raise or bonus isn’t essential to your budget, this year’s raise or bonus may represent an opportunity to give back.


When you’re thinking about what to do with your raise or bonus, consider where in your community your money could make a difference. Food banks, shelters, and community and drop-in centers are always in need of additional funding. Financial donations can also be tax-deductible, so do your homework before you donate—and don’t forget to get a receipt!


7. Reward Yourself

As much as being financially responsible is always wise, don’t forget to reward yourself for your hard work! Sometimes, what to do with your raise or bonus may just be to have a little fun with it. Go on that tropical vacation you’ve been dreaming of. Book that spa day at that swanky place you’ve been eyeing up. Buy those new golf clubs and an annual pass to the course. Whatever that thing is you’ve been waiting for, consider if this is the time to just do it.


Meet Your Goals AND Reward Yourself

Now that you’ve got some ideas about what to do with your raise or bonus, look at your overall financial goals to see how you’re tracking. If you don’t have any specific financial goals, now is the time to create them. Getting a raise or bonus is always a welcome event and having a plan for what to do with the extra money will ensure you get the most from it.


Brendan is the Managing Director for Waymark Wealth Management. He has extensive experience in comprehensive wealth management. His focus includes retirement planning, behavioral finance, investment portfolio construction, education funding, insurance & risk management, taxes, charitable giving, and estate planning. Brendan has an ability to take clients' complex visions and distill them down to simple action plans, helping them move from where they are today to where they want to be tomorrow.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.