Getting the Most Out of Your Year-End Bonus or Tax Refund

Expecting a year-end bonus or large tax refund?

While it's tempting to think of bonuses or tax refunds as "found money," a smarter move is to plan how to use the extra cash before you get it. Do you have debt to pay off? Do it! If not, take the opportunity to do something for your future.

Spend It or Save It?

If your debt is increasing, now is the time to do something about it. Take the time to examine your monthly income and average spending. Add in your mortgage, loans and credit card payments. Now you can assess your financial picture and set goals toward paying down that debt. Some possible steps you can take include: reducing credit card rates, shopping around for best rates on car and homeowner insurance, and tracking your spending. To save money, consider switching from premium to basic cable. Take a look at how much you spend on eating out, clothes, and entertainment. Now, contribute that bonus towards what you owe, and make a plan for paying down the rest.

Once you get into the habit of saving, you'll soon pay off your debt completely and begin saving towards what you really want.

Wachovia can help you manage your bills more efficiently with Online BillPay

Invest for the Future

According to the IRS, the average tax refund in 2004 was $2,126. Instead of spending your windfall, why not make an investment in your future instead?

Consider making a contribution to a tax-deferred IRA or a mutual fund. As an example, a 35-year-old who annually invests $4,000 (the maximum IRA contribution for 2005) at an average rate of return of 8% would have $335,207 after taxes at 65. (This hypothetical example is for informational purposes only. It does not take future inflation rates into account, it is not intended to represent any specific return, yield, or investment, nor is it indicative of future results.)

If you're not fond of these choices, consider investing in government or municipal bonds. The return potential is generally lower, but the risk is lower, too.

For information on how Wachovia Securities can help you plan for the future, visit our online investing center.

Whether paying off your debt or saving for a rainy day, keep the money out of your savings or checking account, and you won't have the temptation to spend it. After all, that's the beauty of “found money;” you'll never miss what you never had!