What To Do With Your Raise or Bonus

It’s that time of year—bonus and raise season is here, and if you’re lucky enough to be feeling more flush with cash than usual, you’ll need a plan. It’s exciting to see your hard work rewarded with additional compensation. But once you’ve spent a small portion of your bonus or raise on something fun (you earned it, after all!) it’s important to think through how you can put some of your newfound wealth to work so it supports your long-term financial health. You might assume that having more money means you don’t need to worry as much, but you should still watch out for common pitfalls like lifestyle creep and cash drag. 

In this post, we’ll walk you through some dos and don’ts for handling a bonus or raise (or any other windfall, because the same logic applies).

What to do with your bonus or raise

After you’ve celebrated your raise or bonus a little (whether it’s buying something you’ve had your eye on, or making a charitable donation to a cause you find meaningful), here are some suggestions for putting your extra cash to work.

• Max out your IRA for the 2025 tax year if you haven’t already: It’s counterintuitive, but the deadline to fund your IRA for the 2025 tax year is actually in 2026—on tax day (Wednesday, April 15). If you’ve been meaning to set aside money for retirement but haven’t gotten around to it, there’s still time to do so. IRAs are one of the most powerful ways to save for retirement, thanks to their numerous benefits: tax advantages, many investment options, and in some cases, a surprising amount of flexibility (although it’s important to note that there are still restrictions on your ability to withdraw funds early). Wealthfront offers traditional, Roth, and SEP IRAs that are automated, customizable, and personalized to your risk tolerance. For more information about which type of IRA could be right for you, check out our IRA calculator.
• Add to your emergency fund: An emergency fund is important for a variety of reasons — it gives you peace of mind and a good financial buffer in case of job loss or large unforeseen expenses. Even if you set up your emergency fund a long time ago, now’s a good time to revisit it and make sure it still reflects three to six months’ worth of your current expenses. We’ve all experienced inflation over the last couple of years, and it’s possible some of your costs have risen enough to justify revisiting the total sum you need. Once you’ve done that, we think it’s smart to ensure you’re keeping that emergency fund in a high-yield savings account, as they often offer an APY (annual percentage yield) that’s many times higher than the national average. Wealthfront’s high-yield Cash Account offers an industry-leading APY of 3.25% and up to $8 million of FDIC insurance through our program banks.
• Invest it for your long-term goals: Investing your bonus or raise can pay dividends both literally and figuratively for years to come, and can help you avoid cash drag (more on that below). If you received a bonus and have already completed the steps above, consider adding it to your investments, either all at once or by dollar-cost averaging it into the market over time. If you get a raise, consider increasing the amount that you invest on a regular basis. If you previously invested $1,000 a month but got a raise, maybe you up your recurring investment to $1,200 instead.

What to avoid with your bonus or raise

You should be intentional about what you do with your bonus or raise. That means you would ideally avoid the following:

• Lifestyle creep: Over time, as you earn more money, it’s easy to unintentionally start spending it on slightly nicer things and small upgrades. For example, maybe booking an economy plus airplane seat used to be a big splurge for you—then you got a raise, and you started doing it every time you traveled. Or maybe you used to order takeout once a week, but bumped that up to twice a week after you got your annual bonus. These are just examples, but you can imagine how making a bunch of these changes over time could quietly eat up a big chunk of your additional income. The key, we believe, is to be intentional about increasing your spending. It’s natural to spend more as you earn more, but it’s wise to keep an eye on the details so you can also direct additional money towards your long-term goals. In practice, one way to do this is to set new savings goals as soon as you receive additional income and set aside money for those goals first. Then, you can increase your spending (intentionally!) with what’s left. 
• Earning too little on your cash: Cash can be very useful, but it’s possible to have too much—leading to what’s known as “cash drag.” If you let excess cash pile up in your checking, savings, or cash management account because you’re not sure what else to do with it, you could miss out on valuable opportunities to turn that cash into long-term wealth by investing it. The interest rate you can earn on cash often isn’t enough to keep up with the rate of inflation—and that means over time, your cash can actually lose buying power. Investing your money can help you keep up with inflation and avoid this loss of buying power.

Build wealth on your own terms

At Wealthfront, we offer a variety of products across the risk spectrum—ranging from a high-yield Cash Account to globally diversified Automated Investing Accounts and no-commission Stock Investing Accounts—all designed to help you grow your wealth. No matter what you decide to do with your raise or bonus, we’re here to help you put it to work for the long term. Congratulations!