Receiving a bonus is a good time to assess your financial situation, goals, and priorities.

It can provide the great opportunity to improve your current financial health or work toward long-term goals, if you:

  • Don’t spend it before it has been paid – and remember some tax will come off it before you receive it.
  • Use it thoughtfully – but don’t be paralysed looking for the perfect option

Here are 10 smart ways to make the most of your bonus:

1. Pay off high interest debt

  • Why: High-interest debt, like credit cards or personal loans, can drain finances due to compounding interest.
  • Action: Pay down or eliminate high-interest debt for immediate savings and relief from financial stress.

2. Build your emergency fund

  • Why: An emergency fund protects you from financial shocks, like medical emergencies or car repairs.
  • Action: Aim to save 3 – 6 months of living expenses in liquid, high-interest account for easy access.

3. Make a tax-deductible super contribution

  • Why: If you haven’t maximised your $30,000 annual concessional contribution cap, contributing to super allows you to claim a tax deduction, reducing your taxable income whilst boosting retirement savings.
  • Action: Check your employer contributions, contribute extra to your super and submit a Notice of Intent to Claim to get a personal tax deduction.

4. Make extra mortgage repayments

  • Why: Paying down your non-deductible debt offers a return equal to your mortgage interest rate.
  • Action: If you have a variable mortgage, you can make extra repayments or use an offset account. If you have a sufficient emergency fund and might be tempted to spend from your offset, it’s best to pay the principal.

5. Invest for long-term goals

  • Why: Investing in shares or other assets helps build wealth over time.
  • Action: If your mortgage is under control and you have a solid emergency fund, consider investing in super (with non-concessional contributions), or other personal investments considering accessibility and flexibility.

6. Home improvements or major purchases

  • Why: Home improvements or buying something practical or essential (e.g., new appliances) can enhance your living space.
  • Action: Use your bonus to help cover the costs without taking on debt.

7. Make a tax-deductible donation

  • Why: Supporting a cause can be personally fulfilling and provide a tax deduction if the charity is a deductible gift recipient (DGR).
  • Action: Choose a DGR charity that aligns with your values and keep your receipts for tax time.

8. Save for a specific goal

  • Why: A bonus can fast-track your financial goals, such as a home deposit, car, or holiday.
  • Action: Deposit your bonus into a high-yield savings account, separate from your everyday savings.

9. Invest in yourself

  • Why: Investing in your personal development can boost your career prospects and learning new skills can increase your mental wellbeing and in some instances be tax deductible.
  • Action: Consider any courses, certifications, or conferences you are interested in.

10. Splurge responsibly

Why: It’s okay to reward yourself for your hard work if you do so in moderation.
Action: Set aside a small portion of your bonus (e.g., 10-20%) for something fun or meaningful.

How to decide

To make the most out of your bonus, firstly consider your current financial health (high-interest debt, emergency fund needs), then your potential tax benefits (super contributions, donations) and long-term goals (retirement, home savings).

The key to making the most out of your bonus is to balance short-term enjoyment with your long-term financial goals.

Prue Cheeseman is a financial adviser of HLB Mann Judd Wealth Management (NSW) Pty Ltd (AFSL 526052) ABN 65 106 772 696. This article contains general advice which does not consider your particular circumstances. You should seek advice from HLB Mann Judd Wealth Management (NSW) who can consider if the strategies and products are right for you.