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What is the best thing to do with a Christmas Bonus? It depends on your current financial situation.

There are only three things you can do with money:

Spend it, save it or give it.

We need to do a little of all three.

Let us use an example of a $10,000 bonus check.

While everyone’s situation is different, I would recommend some of the following smart moves :

Scenario #1: You have NO debt (other than a mortgage) and a HIGH income

Spend a bunch, save a bunch, give a bunch (3/3/3)

• Spending: It might be a good time to get new tires or replace that old suit you are just about to outgrow from all the Christmas cookies you are about to eat. You have no debt so you should already have some fun built into your budget. Making a smart move with the bonus will keep you from having to save for new tires and increases your cash-flow for the up-coming months.
• Saving: Invest for retirement or, to a lesser degree, put it towards one of your savings goals if it will finish it off.
• Giving: I would at least tithe on it and like the idea of giving the rest to a favorite charity. Better yet, give it to someone in need. That’s a wonderful Christmas gift!

Scenario #2: You have NO debt and an AVERAGE/LOW income

Spend some, save a bunch, give some (20/70/10)

• Spending: Blow it on fun. $2,000 is just under what the average American spends on a summer vacation. I think you can have some responsible fun with two grand. Maybe this will help get your house down to 80% of value and get rid of the PMI or help to refi the house at a better interest rate.
• Saving: What could you put $7,000 towards? A down-payment on a house? Kid’s college? Retirement is always a good idea. At least make sure you have 3-6 months worth of living expenses in the bank for emergencies.
• Giving: The minimum I would recommend is that you tithe (if you are a believer). Giving is good for the soul. Oh, and don’t forget to be smart about it and take the tax deduction.

Scenario #3: You have HIGH and a HIGH income

Use a bunch, save some, and give some (80/10/10)

• Spending: You could take 80% and blow it but I would recommend using it to kill off some debt! $8,000 will go a long way in car loans or credit card debt. I would recommend using the Debt Snowball method of paying off the lowest balance debts first. However, I wouldn’t call you stupid if you were to use it on a higher interest rate debt if it could knock it out completely. Merry Christmas
• Saving: Make sure you have at least $1,000 in the bank. Because you are a high-income earner you may want to have a little bit more in there, just in case the fiscal cliff hits your household.
• Giving: Again, I would recommend tithing. Whether it’s better to do it this year or next year to take advantage of the tax deduction depends on how big of an income you earn next year as deductions phase out as earning levels increase.

Scenario #4: You have HIGH debt with an AVERAGE/LOW income

Save enough, give some, use the rest (First $1,000, then 10%, then the rest)

• Saving: This should be a priority. Save $1,000 for emergencies. You might already have ten $100 bills in your sock drawer but I would recommend taking another $1,000 and putting it away for those unexpected expenses. Reevaluate the extra emergency savings amount after April 15th. Why did I pick that day? The date is a great mental reminder to review your financial situation and you will make a smarter decision with the money after the holidays have passed and you aren’t suffering from a Visa headache.
• Giving: Don’t forget to tithe.
• Spending: Same as a high-income earner with tons of debt: Budget 80% of this blessing towards getting some debt off your balance sheet!

Overall, you want NO REGRETS with your Christmas bonus

Before you make your move, ask yourself “How will I feel next Christmas about what I did with this year’s bonus?”

Knowing what your future self would want makes the decision for today much easier.

What are some of the smart moves you’ve made with your Christmas Bonus?