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Getting The Most Out Of Your Bonus

Lucky you if your employer gave you a cash year-end bonus – and not a stuffed turkey. Ideally you haven’t frittered it away on toys you don’t really need.

But one of the things you definitely should do is spend part of it on something memorable – dinner out with friends, a weekend getaway with your spouse or partner, time at a sporting event, museum, concert or theme park--perhaps Disney (DIS) or Six Flags (SIX) with your kids or grandkids. So the first step to take is to designate a percentage of the bonus for having fun. After all, theoretically you worked hard at your job during 2012!

Four additional recommendations:

1 Pay off a credit card. Or at least reduce the amount due on one of them. For most people, it makes sense to pay off your higher rate cards first. If you haven’t saved your latest monthly statement, call your credit card issuer, such as American Express (NYSE:AXP), Visa (NYSE:V) or MasterCard (NYSE:MA) --or go onto the company’s website) to find out what interest rate you’re paying and what your outstanding balance is.

Then, to determine out how much you'll save by doing paying off a card, use one of the helpful calculators at: www.dinkytown.net. Click on “Loan Calculators.”

Here’s another school of thought to consider: that you should first pay off in full the card with the smallest balance, in part to give you a boost – both psychological and financial. Again, run the numbers at dinkytown.

2 Add to your emergency fund. The rule of thumb here is to save six, or better yet, nine months of living expenses. Then if you lose your job, become ill or for some other reason are not working, you have money to tide you over. Or to do household repairs, such as getting a new roof or fixing your hot water system. So take a look at what you have in savings accounts, bank CDs and money market funds. Then, add what you can to reach the six or nine month nest egg goal.

3 Refinance your mortgage. Especially if you have difficult-to-make high monthly payments. This is an ideal time to refinance as interest rates are low. If you don’t think you’ll be staying in your house for several more years, then refinancing doesn’t make sense but it does make sense to use some of your bonus to pay down the loan.

Compare what your mortgage interest rate is with those offered by some of the larger banks, such as JPMorgan Chase (NYSE:JPM), Bank of America (BAC) and Citibank ©.

4 Fund your retirement account. At dinkytown you’ll find all the details you need about investing in a traditional IRA, a Roth IRA, an IRA SEP, a Keogh, a 401(k) plan and other retirement options.

Aim to make the maximum contribution allowed regardless of your age. As Billie Burke, the actress and radio personality who died in 1970 said, “Age doesn’t matter, unless you’re a cheese.”

Find the right mix of model portfolios today at PortfolioChannel.com

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