The temptation to blow your holiday bonus on an epic shopping haul is understandable—you worked hard for it, after all. But investing that money is the gift that keeps on giving.
If all the words in the dictionary were to get together and have a party, “bonus” would be the one that can do 19 champ bongs in a row and still give an eloquent toast without falling off the table. If you see her around town, “bonus” very often picks up the bar tab. “Bonus” is unequivocally likable.
And if you’ve had the good fortune of a bonus entering your life circa the end of last year or early this year, congratulations! You put in a lot of hard work to earn her company, and the possibilities for fun are endless. You guys could go shopping together and clean up at all those post-holiday sales. You could itch that travel bug and take a fun trip somewhere. Or…you could put her to work.
We get it. On the surface, that doesn’t sound like that much fun in comparison to Airbnb-ing an immaculately restored Airstream in Joshua Tree for a week. But especially when you’re in the early stages of your career, coming across an extra chunk of change can be a rarity. And if you play your cards right by investing that money rather than spending it, it’s a chance for you to get ahead of the game and take care of Future You.
Which is super important because, the gender pay gap factors in here in a way that’s largely flown under the radar in coverage of the issue: Investing platform Ellevest points out that if a 30-year-old woman and a 30-year-old man who are both making $85,000 are investing 10 percent of their salaries, over time, the gender pay gap will result in the woman retiring with $320,000 less than the man.
Which really, really sucks. But it underscores the necessity that women arm themselves with investing know-how, and the earlier the better. The question is, then: Huh? How? Where do I even start?
“It’s different for everyone, and depends on your unique situation,” says Sylvia Kwan, chief investment officer at Ellevest. And before you even get down to building a portfolio, your bonus may need to be put to work elsewhere.
First things first: Get out of debt
“The very first things you must, must, must do is pay down your credit card debt and pay down or refinance any other debt which holds interest rates in the double digits,” says Kwan. “Even better, pay it off entirely.”
If your holiday bonus needs to go towards debt, so it goes. It may feel less thrilling than investing, sure, but it simply doesn’t make sense to invest your money while you’re simultaneously paying interest, because the interest you’re paying is almost certainly more than the rate of returns. So, put that money where it’s needed most, and employ the “snowball” method to handle the rest.
Next, build an emergency fund
I know, I know: Squirreling your bonus away for a rainy day is alsonot a particularly sexy option. But it’s super necessary, “Because water heater, because refrigerator meltdown, because car transmission,” says Kwan. Life’s little surprises are expensive AF, in other words. And if the bigger-picture goal is to not go back into credit card debt after you’ve paid it off, having an emergency fund is a must-have.
“This can be in your checking account, or better yet, in a separate savings account. Three to six months of your take home pay is a good guideline here,” says Kwan.
Make those money moves
If you’re debt-free and have built up your lil’ safety net, it’s time to put that cash to work. But you’ve got a little more homework before you dive in: “In preparation for investing, identify a firm that’s a fiduciary,” says Kwan.
Financial advisors that adhere to the fiduciary standard means that the person handling your investments is legally and ethically obligated to put your interests firsts, rather than their own compensation.
“Seems like common sense that anyone charging you a fee should be required to do so, right?” says Kwan. But that’s not always the case. By the nature of the business at hand, your relationship with your financial planner needs to be built on trust. One of the most important tenets to keep in mind as you search for the right fit: Ask. All. The Questions.
Be committed to your investments, but not necessarily monogamous
Maximizing the performance of your investments relies largely on two things: How soon you start, and how regularly you’re contributing.
“Invest regularly, whether it’s with every paycheck, every week, month, or quarter,” says Kwan. “Make it a routine, like brushing your teeth or wine o’clock on Fridays. Over two-thirds of Ellevest clients invest this way, with recurring deposits set up.”
And don’t be afraid to spread out your money. Your financial advisor will help you craft a plan based on what your goals are, and as with most things in life, the more aggressive your approach is, the greater the risk is. But risk can be mitigated by keeping things diverse.
“You know instinctively that diversity is a good thing: A range of different personality types at work make a great team,” says Kwan. “Keeping a few irons in the fire is better than putting all your eggs in one basket. Similarly, diversify your investments helps lower your overall portfolio risk.”
Ready to inject that holiday bonus with some power? Ellevest, which is specifically geared towards helping women close the aforementioned “investment gap”; Stash, which is a new platform aimed at young people (you can start with $5!); and LearnVest are all aimed at accessibility for new investors.