For many employees, a Christmas or end-of-year bonus is a welcome additional source of income. But is there a sensible use for this money beyond simply spending it? Here are four simple ways to make clever use of bonuses:
Pay down debts
One excellent way to use extra money is to pay down any debt you might have – especially if the interest rate on the debt is high.
Tip: Pay back loans with the highest interest rates first. This is the quickest way to reduce your monthly spending and improve your financial situation over the long term.
Build up an emergency fund
It’s a good idea to have money set aside to deal with any unexpected expenses. Doing so can give you financial security. The standard recommendation is to have the equivalent of three-months pay in your savings account. A bonus is the perfect opportunity to start your emergency fund, or to expand it.
Use one-time payments for long-term investments
A bonus – at Christmas or any other time – is an excellent way to create wealth over the long term. Which investment opportunity is right for you will depend on your personal goals, your financial situation and how willing you are to take risks. Take advantage of your bank’s consultation services to find the best investment strategy for your goals. You can find some initial investing tips here.
Expand your private retirement provisions
Right now, the amount of money people receive from government pensions in Germany is sinking, making private retirement provisions increasingly important. So one good way to use your bonus is to add to your retirement savings. In addition to government-subsidised products, there are also flexible options available, such as investment savings schemes (Fonds-Sparpläne). In addition, you can also use a one-time payment to add to your occupational retirement provision (betriebliche Altersvorsorge).
Receiving a bonus is the perfect opportunity to discuss your financial situation. A bank advisor can support you as you decide what is best for your personal financial situation, whether you need to pay down debt, build up an emergency fund or start a long-term investment. It’s a great way to make sure you make optimal use of your bonus while keeping an eye on your financial goals for the next year.
