The holiday season is about giving, and if your company has done exceptionally well for the year, it’s also about earning a Christmas bonus. While a new flat screen TV may be tempting, there are other ways to put your money to good use.
Consider these 6 insanely smart ways to spend your Christmas bonus that will set you up for success, and maybe secure you something even bigger and better than a new toy.
For perspective homeowners: Pay down your debts
Personal loans and credit card debt have high interest rates, which means you should keep close to zero if possible. So your first priority is to take that bonus and pay off any of these types of outstanding debt you have. If there are still funds left, make lump-sum payment on student or car loans to shrink your principal and reduce the total amount of interest you pay.
Paying down your debts is the smartest thing to do with your Christmas bonus because it will set you up for success in the future. It will raise your credit score, lower your debt-to-income ratio, and make it easier to secure a mortgage loan in the future if you have real estate aspirations for the near future. Speaking of which…
Put it towards a down payment
If you’ve got a nice lump sum to play around with, consider putting it toward a down payment on a new home. A bigger down payment helps you minimize borrowing, i.e. the more you pay up front, the smaller your loan will be and the less interest you’ll pay over the life of your loan.
Start your home search now and consider the fact that you can afford more home with a bigger down payment. A larger down payment with the help of your Christmas bonus opens up more options on the real estate market. Here’s an example from bankrate.com:
Save for retirement by purchasing a home
Interest rates are up and that is good for conservative investors that invest in money market funds - and believe it or not it can be good for buying a home. Establishing equity lines of credit is a great way to earn interest on 100% of your funds while borrowing against the funds for a home purchase.
For example: Say you have a brokerage account with $500,000 in it and it's all in a money market fund and its earning 5% a year. Many banks and financial institutions will allow you to keep earning interest on that $500,000 but they will also allow you to borrow up to 80% of the $500,000 as an equity line of credit. This could potentially free up $400,000 that you can invest into a couple properties. You will pay an interest rate on that line of credit but that will offset with the interest you are getting on that money market instrument.
For homeowners: Pay down your mortgage
Paying down your mortgage can save tens of thousands of dollars in interest and shave years off your loan. Also, savers who make extra payments to pay off their mortgages earlier increase their potential for a comfortable retirement because they simply spent less during their working years.
Invest in home upgrades
Investing in your home is always a good idea. Whether it’s new hardwood floors, plantation shutters, or a backyard update, your money will be put to good use. Now is a great time to pick up your home wish list and choose a project you’ve been waiting on.
Any upgrade you make is also an investment in your future because when the time comes to sell, a larger kitchen or built-in outdoor fire pit will add value to your home. Just remember that you will get a better return on upgrades with mass appeal instead of niche, custom updates. A built-in cappuccino maker doesn’t have the mass appeal of an oversized kitchen island when it comes time to sell.
Buy a new home
If you’re ready to trade up or right size to a smaller home, this could be the perfect opportunity to do so with a little extra money in your pocket. Perhaps you’re interested in keeping your current home and investing in an investment property, or upsizing to your dream home and keeping your current home as the investment. With the help of a Christmas bonus put towards down payment, your dream of becoming a real estate investor just became that much more attainable.
There are tons of smart ways to spend your Christmas bonus, but the most important thing to think about is your future goals. A long-term scope is crucial to make sure you’re putting your money where it matters most.
The information provided in this post by First Team Real Estate is for informational purposes only. It should not be considered legal or financial advice. You should consult with an financial advisor or other professional to determine what may be best for your individual needs.