Putting Every Penny to Work

Question of the week:I was lucky enough to get a nice holiday bonus of $2,000 this year. Any suggestions on how to make the most of this extra cash? --J.S. Dear J.S., Lucky you are, given that most businesses these days do not give their employees holiday bonuses. In fact, according to a survey last year by American Express, just 43 percent of business owners planned to give bonuses. That's all the more reason to make the most of your extra cash. When we asked Armchair Millionaire community members about how they planned to use their holiday bonuses, we heard from some with generous--and not so generous--employers: Baby bucks. "I got a $100 bonus, or basically, one day's pay. Since I was getting new glasses the same week (I used my last pair for 6 years!), I just put the money toward those. After the way my stocks have performed lately, I'm ready to take a second job and can't afford to put any 'bonuses' toward luxuries." --Erin Big bucks. "I got a $15,000 (pre-tax) bonus. Breakdown of where it's going: $3,000 into an IRA, $4,000 to pay down personal debt (almost done!), $2,000 towards a new (used) car we need and the rest into a new PC and home repairs." --Bob Regardless of the amount of your bonus, you still want to leverage the money in the best ways possible. My checklist provides my top recommendations for putting your money to work. The Armchair Millionaire's Checklist for Turning Casual Cash into Serious Bucks Zap your consumer debt. Carrying a balance on your credit cards? Use that extra cash to get rid of it, or at least to put a big dent in it. If you have a $2,000 credit card debt charging 18 percent interest, it will take you more than seven years and over $1,700 in interest to pay if off if you just make the minimum payments. But pay it all off now, and that's like cash back in your pocket. Secure your retirement. Ready to get your retirement plan on track? Consider putting that cash into an Individual Retirement Account. You can put up to $3,000 into an IRA this year, money that will grow on a tax-advantaged basis right up until you withdraw it during retirement. If you put $2,000 each year into your IRA over the next 25 years, and it grows at an average annual rate of 10 percent, you'll end up with about $233,000. While most people are eligible to contribute to an IRA, check with your tax advisor to make sure you are. Save for college. Have a college-bound child? An annual contribution of $2,000 to a college fund earning an average return of 10 percent will grow to just over $36,000 in 10 years. There's a nice range of college savings programs now available, most of them offering substantial tax advantages. One of my favorite Web sites for learning about your college savings choices is www.savingforcollege.com. Pay off your mortgage early. Want to get out from under the mortgage burden? An extra $2,000 payment each year on a $200,000 30-year mortgage with seven percent interest will knock off more than eight years of payments--and save you nearly $90,000 in interest. THE BOTTOM LINE: Creating a real and positive difference future your financial future doesn't require you to be a money whiz or even to have a huge amount to begin. Just commit to a plan and get started.