Turn Your Bonus into Long-Term Wealth-Here’s How

An unexpected bonus hitting your bank account might feel like found money—and your first instinct might be to book a vacation or splurge on something you’ve been eyeing for months.

However, certified financial planners we spoke to argue that might mean you’ve missed an opportunity that could cost you thousands over the long term. Below, we take you through their advice.

First, Congrats! Second, Pause and Breathe

The first thing to do when you receive a bonus, said Stoy Hall, a chartered financial planner and founder of Black Mammoth, is wait for the emotions and typical reactions like “I deserve something,” “I’ve been grinding,” I’ve had a rough year,” or “I’ve been underpaid,” to pass.

“Letting that emotional high dictate your financial choices is how you end up with $0 and nothing to show for it,” he said. “Instead—pause. Let it sit in your account for a week or two. Let the dopamine fade. Then come back and ask yourself: ‘What would I be proud I did with this 12 months from now?’”

While you wait, Harrison Kennard, a chartered financial planner based in Ann Arbor, Michigan, recommends putting the bonus into a separate account so it does not become part of your everyday spending.

Figuring Out Your Priorities

Once the emotions have eased, it’s time to figure out how to spend the money. A good starting point, Hall said, is to take an inventory of your finances, using the following checklist:

• Do I have three to six months of emergency savings?
• Am I carrying high-interest debt (with an interest rate over 6%)?
• Am I on track with my retirement contributions?
• Do I have any significant financial events coming up, such as a wedding, a baby, or a home renovation?

These questions, Hall said, can help you determine if you’re in a position to invest or “need to do some foundational work first.”

Debt, Emergency Fund, and Retirement Savings—In That Order

If you need to take care of any of the above, address them first. Kennard said the biggest priority should be paying off debt, followed by building an emergency fund covering three months of essential expenses.

“If you’ve got credit card debt or personal loans, that should be your priority,” he said. “Eliminating that interest with the bonus is better than almost any return you could get, especially if your regular income doesn’t allow for quick repayment.”

Split Strategy

Another approach, championed by Hall, is to split your bonus into “purpose-driven buckets.” Confused? Here’s a framework he uses with clients:

• Put 30% to 40% for wealth building in a brokerage account, Roth individual retirement account (IRA), or long-term investment
• Use 20% to 30% to pay down high-interest debt or top off your emergency fund
• Take 10% to 15% for something joyful or a lifestyle realignment. This is your guilt-free “treat yourself” money
• Put 10% to 15% toward your savings for bigger life goals

How To Invest Your Bonus Wisely

Most advisors agree that any money not needed immediately or within at least five years should ideally be invested to maximize its return.

Hall recommends using an IRA for retirement savings and a brokerage account for funds you need to access before retiring. He also advises using a low-cost, diversified exchange-traded fund strategy or direct indexing and, once you’ve decided where to invest, automating your payments.

The Bottom Line

How you spend a bonus depends a lot on your finances. If you have high-interest debt, it may be wise to focus on that first, followed by building an emergency fund, and then saving for retirement or other major goals.

Spending the funds this way isn’t as exciting or fun as, say, planning to take a holiday. However, it should leave you better placed financially and make it easier to treat yourself in the future without running into financial trouble.