The phrase “Happy Holidays” gets stale fast as January drags on and the hustle and bustle of a new year strikes millions of Americans. Chances are you’re back to the daily grind, juggling career and family. Even so, it’s still a great time to talk finances, and if a year-end bonus from your employer is sitting in your bank account, congratulations! According to a survey by Robert Half, 96% of professional service companies planned to give their employees a year-end bonus in 2023, with 54% of those organizations intending to increase the amounts from 2022. While every household operates in its own way, here are several ideas on how to deploy your year-end bonus that could help you improve your financial future.

Review your Emergency Fund

One rule of thumb for keeping an emergency fund is to save three months of living expenses for a household with both spouses working, and six months for individuals or a household where only one spouse works. As an example, if you have monthly expenses of $10,000, that would be either $30,000 or $60,000 to have set aside as a cash reserve for unplanned expenses, such as a car repair, or financial emergencies like unplanned medical expenses. If you have fallen below either the three- or six-month threshold, it might make sense to replenish this account. Other factors, such as the volatility of your job sector or the chance that both spouses could lose their jobs at the same time, could also influence how much you keep in your emergency fund. Your financial advisor can help you determine how much is right for you.

Pay off High-Interest Debt

Consumer debt comes in two forms: secured and unsecured. Secured debt is backed by an asset that is easy for the bank to repossess if the consumer defaults on it, such as a home or a car, while unsecured debt isn’t backed by an asset and generally has a higher interest rate tied to it. Examples of unsecured debt would be credit cards, personal loans, and private student loans that can have interest rates between 15% and 30% in today’s environment. It’s prudent to pay these debts off in a timely manner.

Review Retirement Accounts and Contribute to an IRA

Like many other pieces of financial housekeeping, the beginning of the year is a great time to review your retirement accounts and see where things stand. Adding funds to your IRA can be a good use of bonus money, just like funding your employer-sponsored retirement plan. You have until April 15, 2024, to make a 2023 IRA contribution. The maximum amount is $6,500 ($7,500 if you’re age 50 or older), or if less, your taxable compensation for the year. For 2024, that amount has been raised to $7,000 ($8,000 if 50 or older).

Prioritize Short-Term Goals

Did you declare New Year’s resolutions for 2024? Are you planning to join a health club? Is buying or leasing a new car on your radar for the year? Are you finally getting around to making some home improvements that you’ve put off? What about a major purchase, such as making a down payment on a home? Many of these tasks require some level of financing, and it would be prudent to make a list and prioritize instead of being spontaneous with your bonus funds.

Map Out Long-Term Goals

Just like short-term goals, we all have visions of longer-term goals, such as gaining financial independence, paying off our mortgage, creating a legacy for our loved ones, living a healthy retirement, or possibly even opening a business. These tend not to be achievable overnight. Take some time to decide what is important to you, and make efforts to complete these large goals in small steps.

2024 is already in full motion! Don’t put your ideal future on hold, and know that Team Savant is here to help you be proactive in pursuing your goals.

Author Jonathon D. Merickel Portfolio Advisor

Jonathon has been involved in the financial services industry since 2002. He earned a bachelor of science degree from Syracuse University and an MBA from Le Moyne College.

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