Some 39.7 percent of employees received bonuses from their job in 2024, according to the most recent data from payroll firm ADP. The average bonus amount was $1,786, and that figure rose 1.3 percent for employees who were at the same company for at least 12 months.
While it’s tempting to splurge on something you’ve had your eye on, personal finance experts point out that holding off on a purchase and finding smarter ways to use the money can boost a bonus’s value beyond the number on your paycheck.
“The most important thing is to try to make a plan for the money before it hits your accounts, so it can’t just evaporate into your general bills and cost of living expenses,” Emily Blain, a financial coach at Dream Big Financial Coaching told The Independent by email.
Create a buffer
Emergency funds are a popular topic in personal finance. They’re typically a set dollar amount stashed in a savings account that you tap into incase of a financial emergency. If an unexpected expense arises and you deplete the emergency fund, the general rule of thumb is to replenish it before tackling other goals.
For those who receive a bonus, but don’t have a buffer of cash for unexpected costs, building an emergency fund should be one of your first moves.
“This fund is meant to cover life’s unexpected black swans — like losing one’s job or a significant health setback,” Dr. Robert R. Johnson, professor of finance at Creighton University, told The Independent by email. “For instance, many people’s financial lives were devastated by the pandemic, many others are virtually unscathed. To those who have been unaffected, the pandemic should serve as a lesson to get their financial house in order. There may be another catastrophic event in the future that would affect them.”
A popular emergency fund goal is to save six months of income to sustain you if you lose a job. However, if you’re starting with no emergency fund, even a thousand dollars from a bonus can be a step in the right direction.
Get clever with your cash
For parents with young children, a bonus can be a great way to build a college fund for your future university students. A 529 Plan is solid option because it builds value over time and has tax advantages, said Jonathan Sparling, vice president of strategic partnerships at college fund firm, CollegeWell.
“Education remains one of the largest and fastest-rising expenses, and bonuses offer a chance to make meaningful progress without affecting monthly cash flow,” Sparling told The Independent by email.
“Contributing to a 529 plan allows that money to grow tax-free and can help reduce the contributor’s taxable estate.”
Go hybrid
Building an emergency fund is a basic principal of financial health, but if your fund only needs to be topped off and you’ve got extra money left from your bonus, take a hybrid approach, said Devin Miller, CEO of workplace emergency savings firm SecureSave.
The approach is simple: split your money between your short-term needs such as an emergency fund, and long-term needs like your retirement savings.
“One of the smartest ways to use a bonus is to split it between short-term security and long-term growth,” Miller told The Independent in an email. “Emergency savings protect [your] plan, and retirement savings help it grow. Together, they create real financial momentum.”
Treat yourself
While splurging your entire bonus isn’t recommended, setting aside some money for fun or a party isn’t out of the question. However, establishing boundaries for that spending is important, Blain said. She suggested a 10 percent limit.
Not only will that help keep spending under control, it could actually pave the way to spending the rest of your bonus wisely, said accredited financial counselor Brian Page, founder of marriage advice site Modern Husbands.
“As it pertains to bonuses, people tend to lose sight of their goals and relax the discipline needed to reach them, seeing their bonus as ‘found money’ they can spend outside their budget or financial plan,” Page said in an email to The Independent.
“Satisfy that desire to spend outside of your plan with a small portion of the bonus so you can apply most of the money as your rational self would prefer, toward your financial goal.”