I Asked 2 Financial Advisors How To Avoid Blowing Your Year-End Bonus
A year-end bonus is both a major win and also something you need to be careful with.
Daniel Shahmoradian, wealth management advisor at Northwestern Mutual in San Diego, said the first question isn't where the money should go but how much of it you actually have to spend.
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Jeffrey Goodrich, wealth advisor at JCG Private Wealth Management and author of "Surviving the Retirement Crisis," added a few fourth-quarter moves that can turn the same check into a smaller tax bill in April.
Look at January Before December
Holiday spending and travel tend to grab the first claim on extra money. Shahmoradian recommended looking several months ahead instead. Insurance premiums, property taxes, tuition and annual membership renewals often land early in the year, and because they only show up once or twice a year, they're easy to forget.
"If you already know of a larger expense coming up, setting aside the money now can give you greater flexibility later," he said.
Watch for Temporary Money Turning Into a Permanent Bill
A bonus can make a bigger purchase feel affordable in the moment. Shahmoradian pointed to a common example.
"A bonus might make the down payment on a more expensive car feel manageable. But the bonus is temporary; the monthly car payment is not," he said.
The same thing happens on a smaller scale with new subscriptions, more frequent delivery food or a home upgrade. None of them feel big alone, but together they can raise your cost of living.
His suggestion is to imagine your finances six months out. Paying down a high-interest credit card could free up room each month. Adding to an emergency fund could bring peace of mind, and a longer-term goal might be ready for a boost.
Leave Room for What Matters Now
Planning ahead doesn't mean saving every dollar. A family trip or a purchase you've worked hard for can be a worthwhile use of part of the check, according to Shahmoradian.
"The key is making intentional decisions," he said.
For some people, that means sending most of the money toward a financial goal. Others may split it between savings, an upcoming bill and something fun.
Use Part of It To Shrink Your Tax Bill
Goodrich's list focused on moves to make before Dec. 31. Topping off retirement plan contributions lowers taxable income for the year, and a year-end check is an easy source for that money. If your bonus hasn't been paid yet, pushing it into January may help too.
"If possible, defer income to 2027," he said.
Goodrich also recommended confirming that estimated tax payments are on target and keeping an eye on the Net Investment Income Tax threshold. Harvesting capital losses before year-end can help keep investment income below it.
Anyone who switched jobs this year has one more item to check. Goodrich said to make sure neither employer withheld Social Security tax past the 2026 wage limit of $184,500. With two employers, combined withholding can top that limit, and the extra comes back as a credit when you file.
Decide What the Money Should Do
Look at what's coming in the months ahead, consider the expenses you've been putting off and think about what would make life easier down the road. Then split the check between saving, spending and the things that matter most to you.
"You don't have to make every dollar productive, but you should know what you want your money to accomplish," Shahmoradian said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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