As end-of-the-year bonuses start to become as rare as pensions, it's always nice to know that someone up there is looking out for you. For example, Ropes Gray LLP, in a surprising display of largess, has decided to give its most junior attorneys the same year-end bonuses amounts as their cut-throat BigLaw competition. But this "gift" comes with a catch: bill "substantially more" than the annual target of 1,900 hours.
So, you're definitely working for that money, there's no mistake. But what do you do with it once it's in your hands? Spend it wisely.
Pay Off Credit Cards: Paying off your debts each month should be at the top of your priority list, assuming you don't have some catastrophic circumstance in your life to address. You credit rating will certainly affect what kind of loan you'll qualify for and some mortgages even contain clauses that trigger higher monthly payments if your credit dips too low. A good habit is to pay off your credit card bills -- all of them. But at the same time, this ironically doesn't mean you shouldn't spend any money at all.
Mortgage: Then comes the mortgage on the house. Some mortgages penalize the debtor if she attempts to repay her debt faster than originally agreed in the loan documents. Housing prices have rebounded and it is in your best interests to stay afloat in your mortgage as chances are you purchased the home back when prices were depressed. Also, refinancing is not a good idea -- particularly considering the Fed's recent hike in interest rates.
Start a College Savings Fund: College is usually the next largest expense after the home for most Americans. Everyone knows that tuition has been climbing recently -- and it doesn't look like it's going to fall ... ever. Find a tax expert who can guide you through the intricacies of the 529 plan which will give you significant tax advantages in saving money for future anticipated college expenses for your children or other family members.
Contribute to Retirement: Since retirement is a bit down the road, we've placed this near the bottom of the list. But since you're receiving bonuses, it's probably safe to assume that your firm has a company-sponsored retirement plan like a 401(k) or traditional IRA. Placing your money in these accounts has the effect of essentially building your retirement savings and all the gains on them tax free. Take advantage of your employer's 401(k) matching contributions.
Enjoy Yourself: Work before pleasure. Now that you've sensibly put some money aside, you can take a portion and enjoy yourself. By now, you're an adult and have been practicing for at least a year. Now is a good time to give yourself a pat on the back for a job well done. Just keep working hard so you can do it all over again next year.