Year-end bonuses bring a much-awaited financial boost. As you prepare for a season packed with celebrations and gift-giving, you may start to think of ways to avoid overspending and make your money last.
Investing is one way to put your bonus to good use. Before you jump in, there are things to consider to make sure you’re maximizing your money.
1. Check your financial health
It can be exciting to finally start investing if you waited a long time to cross this milestone off your list. Before you rush into it, take a step back and look at your overall financial situation.
If you have debt, especially high-interest ones, it’s ideal to prioritize repayment. This approach is called the avalanche method.
By paying off high-interest debts first, you’ll save on the cost of interest in the long run. These interest payments can drain what you might earn from investing and so you should have zero or minimal debt before you begin.
Then, consider your savings. There will be ups and downs when you begin your investing journey, and there’s always a risk of losing money.
For your peace of mind and financial security, it’s ideal to build an emergency fund with 3 to 6 months’ worth of your daily expenses.
With enough emergency savings, you’ll have money to cover unexpected expenses without withdrawing from your investments too soon.
A bonus can be an opportunity to strengthen your financial standing so you can eventually invest with no worries.
2. Make investing a habit
If you’re ready to invest, it’s ideal to make it a habit that continues well past the holiday season. When investing is a regular part of your life, even small contributions can help you reach major goals over time.
Little by little, you can also sharpen your skills and shape up your strategy for better potential results.
The practice of investing regular amounts in a certain asset is also called peso-cost averaging. It can help you manage risks by smoothing out volatility.
3. Consider different options
Diversification is something to consider if you’re already an investor and simply want to use your bonus to grow your portfolio.
It can seem like a no-brainer to add money to a product that you already know and has performed well for you so far. However, putting all your money into a single investment may expose you to unnecessary risk.
When you diversify, you spread your money across different types of assets. This can lessen the impact of an underperforming investment on your overall portfolio.
It's wise to give your portfolio a check-up once in a while to see how you might improve it. A regular review can tell you whether there are other products you can consider to help lessen risk or boost your earning potential.
Once your bonus comes, how you’ll handle the extra money is ultimately up to you. Just remember to consider opportunities that can set you up for success that lasts even when the season is over.
