Being gifted with a decent-sized bonus for the first time in life is like reaching a new level in a game you did not realize you were playing. The balance in one’s bank account has started looking… substantial.
The thing no one tells you during a corporate orientation is that the money can vanish quite quickly if there is no plan in place. You have earned it. Do not let the fruits of your labor drain into the sink.
First of all, pause. Give the gift of forty-eight hours of breathing space. There will be an urge to “do something productive.” The psychological pressure of action is huge, and making decisions driven by adrenaline is how people find themselves the owners of three drones and a timeshare in Florida.
After the hype has died off, assess the mundane things before the exciting ones. If there is any credit card debt or student loans on your books, paying it back will be the best investment decision you can make. Although it might not seem as exciting as purchasing Bitcoin, guaranteed ROI is always hard to come by. People never regret being debt-free, even though it has no fancy ticker symbol.
Next is securing the emergency fund. One should ideally have three to six months’ worth of expenses stored in a high-yield savings account like Marcus or Ally. This way, it becomes possible to quit any toxic or stressful job at any moment. The “quit the toxic job” fund will cover situations when your car’s engine blows up and needs repair.
Then, it is time to get down to the markets. If one has 401(k) matching option at their workplace, one better make sure that they use it in full capacity. Free money should be used without fail because not using it is simply stupid math. Next up, open a Roth IRA if the person qualifies. In 2023, one can deposit up to $7,000 in the account and have tax-free earnings forever.
In terms of investing, keep things simple. One does not need to attempt to pick stocks and beat the market like the next Warren Buffett. It is more than enough to put money in a low-cost index fund like the Vanguard S&P 500 ETF (VOO), or the Total Market Fund like VTI.
Now for the fun part. One should definitely invest some of the bonus in rewarding oneself. Set aside a portion of the money, say 10% or 15%, to spend on oneself freely. Buy that expensive watch or go to Tokyo or renovate one’s home office.