December is bonus season. Whether you just got a year-end bonus from work, a generous check from a relative, or you’re cashing out unused vacation time, you’ve got some decisions to make.
The good news? You’re already ahead of most people by thinking about this strategically instead of letting the money disappear into your regular spending.
Here’s how to make the most of that extra cash.
First: Enjoy Some of It
Money expert Clark Howard recommends taking 10% of any windfall and spending it on whatever you want. No guilt.
Got a $5,000 bonus? That’s $500 for a nice dinner out, a splurge purchase, or padding your holiday gift budget. This prevents the slow bleed of “just this one thing” decisions that can drain the whole amount over time.
Now let’s put the other 90% to work.
The Year-End Money Checklist
Work through these in order. Stop when you run out of money.
1. Kill High-Interest Debt
Credit card debt averaging 20%+ interest? That’s an emergency. Every dollar you throw at it earns you a guaranteed 20% back. No investment can promise that.
If your bonus can wipe out a credit card balance completely, do it. The psychological win of eliminating a bill is real.
2. Build Your Emergency Fund
If you don’t have at least one month of expenses saved, start here. Clark recommends working toward six months, but something is better than nothing.
Stash it in a high-yield savings account earning 4-5% while you figure out the rest.
3. Max Out Your Roth IRA (Deadline: April 15)
You can contribute up to $7,000 to a Roth IRA for 2025 ($8,000 if you’re 50+). If you haven’t maxed it out yet, this is one of the best moves you can make.
A $5,000 bonus dropped into a Roth IRA now could be worth $50,000+ in 30 years, and you’ll never pay taxes on that growth.
Don’t have a Roth IRA? You can open one in about 15 minutes.
4. Boost Your 401(k) for Remaining Paychecks
Here’s a power move if you get paid in December: Increase your 401(k) contribution percentage for your remaining paychecks. Use your bonus money to cover living expenses while funneling more of your regular paycheck into your 401(k).
This is especially valuable if you’re not getting your full company match. That match is free money.
5. Fund Next Year’s Goals
Already debt-free with a solid emergency fund and retirement savings on track? Consider earmarking the money for upcoming big expenses:
- Annual insurance premiums (often cheaper than monthly)
- Planned home repairs or car maintenance
- Next year’s vacation fund
- Kids’ education savings
Keeping this money separate in a high-yield savings account prevents it from getting absorbed into daily spending.
What About Investing It?
If you’ve checked every box above, congratulations. You’re in great shape.
For extra money beyond retirement accounts, a simple approach is to open a taxable brokerage account and invest in a low-cost total market index fund. For money inside retirement accounts, Clark is a fan of target date funds for their simplicity.
For a few thousand dollars, you don’t need a financial advisor. The math is simple: Pay a $300 consultation fee on a $3,000 bonus and you’ve already lost 10%.
A Note on Taxes
Your bonus is taxed as regular income. If it feels like a huge chunk disappeared before it hit your account, that’s because your employer withheld taxes at a higher rate. You may get some of that back when you file your taxes, or you may not, depending on your overall income for the year.
Cash gifts from family members aren’t taxable income to you. Grandma already handled any gift tax implications on her end. That $2,000 check is yours free and clear.
Final Thoughts
A year-end bonus or gift isn’t life-changing money for most people, but it’s a real opportunity. The difference between someone who builds wealth and someone who doesn’t often comes down to what they do with these small windfalls over time.
Put this one to work, and future you will be grateful.
