In the Christmas classic “National Lampoon’s Christmas Vacation,” Clarke W. Griswold (played by Chevy Chase) guides his family through what can only be described as a disastrous Christmas.
The generous-but-inept Clarke goes all-in by placing a down-payment on a backyard pool — before he’s received his yearly bonus.
This error in judgment tortures Clarke as he waits day after day for his check. It finally arrives amid a Christmas Eve fail for the ages. Hoping his financial problems having been solved, he rips open the letter only to see that he’s been enrolled in a jelly-of-the-month club.
For those fortunate enough to get a yearly bonus — and wise enough not to spend what they haven’t received — the choice of what to do with a bonus can be overwhelming.
Should you spend it? Invest it? Pay down debt?
Let’s take some time to consider a few different options.
Pay Down Debt
The average American carries around $16,000 in credit card debt. With the current average interest rate for that debt at 19%, that’s $253 per month (over $3,000 per year!) in interest payments alone.
As if that weren’t bad enough, carrying a high balance (especially if it is close to your credit limit) has another drawback as well. Your credit score is negatively impacted if you have a high credit utilization rate. That is, if your credit cards are either a) maxed out or b) close to being maxed out.
So, if you have bonus money to spend, and you’re carrying a credit card balance, you can kill two birds with one stone.
Make a decent size payment, perhaps paying off a balance entirely. This will cut down on the interest payments you would have paid later in the year, while also improving your credit score.
If you do pay off a card entirely, consider keeping the card rather than canceling it. The zero balance will improve your credit score over time.
Ok, it’s not the most exciting option. Yet, savings and investment don’t mean that you can’t receive some instant gratification. One way to approach savings is that it is just spending delayed. Setting aside money today — for use when you’re retired — is still akin to you spending the money.
The other thing to consider is that investments can still be enjoyed — now and for years to come. Have you always wanted an upgraded kitchen, an addition to your home, or a collectible? Maybe now is the time to make the purchase.
Of course, for most people, saving means putting money away through a structured plan that also provides tax benefits. A 529 savings plan for your kids’ education, an IRA contribution for your retirement, perhaps a charitable donation are all possible ways to both invest the money and contribute to the things that matter to you.
Alas, for many, the Clarke W. Griswold approach is favored. Assuming you haven’t already earmarked the money for a backyard pool, how should you spend that cash?
Remember, a bonus is intended as a reward for your hard work. If you don’t have sizable credit card debt or personal loans to repay, a vacation can be a great way to spend a bonus. Just know that once the holiday is over, the money is gone. There’s no tangible asset once you’ve returned home.
On the other hand, new appliances or gadgets can be a hybrid way to spend and save at the same time. Has your dryer been costing you repair fees every couple of months? Now might be the time to upgrade to something more reliable. Have you been putting off getting a new computer, even though it’s painfully slow? Maybe now’s the time to bite the bullet and upgrade.
Whatever you decide, remember the vital lesson Clarke learned. A bonus is never to be counted on, but it’s always a blessing when it arrives.