A financial consultant at Fidelity, Ellen O'Connell, CFP® recently answered one of your money questions.
The end of the year is near and I'm expecting a bonus from work this month. I'm not sure if I should pay off debt, save, or what ... can you help?
Congratulations on a successful 2019 at work! I believe in moderation in all things; you can spend a little now, save a little for the near future, AND invest a little for your future.
You've worked hard all year, so you should absolutely splurge a little. But anytime you get a bonus (or a raise), it's a great opportunity to commit some of it toward your financial goals. Here are some practical ideas on how to put that money to use.
- Pay off that annoying high-interest debt. Generally, whenever you have debt such as a credit card balance with high variable interest rate (one that can change from time to time), you should try to pay it off as soon as you can.
- Create an emergency fund. If you don't have one already, now's a great time to build one. It should be enough to cover at least 3 to 6 months of your living expenses. And put it in a money market account or a higher yielding cash account so it's earning a bit too.
- Revisit your retirement. Consider adding to your tax-advantaged retirement account like a 401(k)/403(b) or an IRA. For example, if you withheld 3% of your salary this year for your retirement savings, up it to 4% next year. Just be mindful of IRS limits. In 2019, you can save up to $19,000 in your 401(k)/403(b); the limit for IRA is $6,000. If you are 50 and over and looking to make up for lost time, catch-up contributions are an option. For 401(k)s and other employee plans, you can put in an additional $6,000 in 2019. For IRAs, you can put in an additional $1,000.
- Give to charity—and feel good too. If there are charitable causes that are important to you, you may wish to donate to them. Your gifts can also reduce your tax bill if you choose to itemize your taxes. Beyond simply writing a check, you can also donate stock or mutual fund holdings, or consider a donor-advised fund. Lastly, check with your employer to see if they offer a matching gift program.
- Review investments outside of retirement. If you aren't already investing outside of your retirement plan at work, consider putting money to work in a new way. Sometimes it's not about saving more but helping to ensure your money is working as hard as you are. It doesn't take a lot of money or know-how to get started. There are no-fee, no-minimum options available and you can add to your account over time by setting up an automated amount each month.
Happy Holidays! Ellen
Ellen O'Connell is a financial consultant at Fidelity's Investor Center on Congress Street in Boston. Throughout her 20 years with Fidelity, Ellen has helped clients develop financial plans to achieve their individual goals and improve their financial wellbeing. Most recently, Ellen worked on the Women Investors squad, focusing on empowering women to become more engaged with their finances.
Ellen holds a bachelor of science in business administration from Merrimack College in North Andover, Massachusetts, and is a CERTIFIED FINANCIAL PLANNER®.
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