Now that 2007 is behind us and we’re a little ways into the new year, many people will be receiving year end bonuses and the like from their employers. Some of these bonuses could be considered enormous (if you look at some Wall Street firms) and others are a little more modest. Whatever the size of the bonus, there are smart things to do with it, and there are some not so smart things. I’ll explore both sides of the coin here.

Smart Bonus Moves

1. Start or enhance your emergency fund. I know, how boring. You just got a chunk of change and all you do is transfer it into an account where it’s going to just sit there. Well, sometimes boring is what’s best. And once you start to see the balance of your emergency fund continue to grow, it will get more exciting I promise.

2. Beef up your retirement accounts. This is a little more eventful since you’ll most likely be investing the balance in some sort of fund or possibly even stocks. Even if the bonus is paid out to you before being able to put it into your 401k, you can change your contribution amount that is deducted from your paycheck until the balance has been fully transferred. Keep in mind that you can contribute $15,500 to your 401k, $4k to an IRA for 2007, and $5k to an IRA in 2008. If you’re over 50 you can make catch-up contributions, but all that is for another post. Your Retirement accounts would be a great place to stash this extra windfall.

3. Pay down/off your debts. Here we go with another boring idea. It can also seem as if you never even got a bonus since it all went to pay off what you already have. So use this as the opportunity to rid yourself of the debt millstone and remember what it was like when you could keep your entire paycheck for yourself instead of handing a portion of it over to [insert favorite bank/lender here].

4. Invest in something. I’m not going to specify what sort of investment since we all have our preferences and different risk tolerances. I wouldn’t have a problem using it as a down payment or partial down payment on an investment property. Others may prefer to throw it in the stock market or try their hand at forex trading. Whatever your inclination is, give it a shot and put the money to work for you.

5. Start your own business. If you’ve ever thought about starting a business, there’s no better time than the present as they say. All you’ve got to do is check out Inc. Magazine to see how many businesses have been started with almost nothing. This isn’t the right thing for everyone, but I know there are some out there that have always wanted to and are just trigger shy. Give it a go.

Stupid Bonus Moves

1. Buying a new big screen TV. You could also substitute whatever gadget or toy you’d like, but the point is the same. Why would you go blow this extra money right out of the gate when you have the opportunity to greatly improve your financial situation? I see this one happen all the time and I always just have to shake my head.

2. Going for broke at the casino. I actually heard of someone that was going to take their bonus and head to Vegas for a weekend and just blow it all. There weren’t even any hopes of winning; he just wanted to blow it. I hope he takes a lot of pictures since the memory will be all he has after he loses the camera in a poker game. Unbelievable.

3. Splurging on some fancy restaurant. I wouldn’t mind if you wanted to treat yourself to something like the Big Deal from Jack in the Box, but going all out at some swanky place where you pay more and more for less and less food is something I don’t understand. There are much better ways to utilize your bonus money. If you just have to celebrate by going out to eat though, at least be savvy about it and use Restaurant.com to get a great discount.

4. Making a down payment on a new car. You might say that it’s good to put the money down on a car so that you don’t have to finance it 100%. But what’s wrong with your current car? If you actually need to get a new car (and I don’t actually mean new) there might be an exception here, but I would seriously evaluate the supposed inability of your current car to get you from point A to point B.

5. Doing anything that does give you actual value. This is kind of a catch all for thoughtless consumer spending. Does any of it add to your bottom line and increase your net worth? Will it help you reach your financial goals and ultimately allow you to spend more time with friends and family or doing what you love? These are just some of the questions you should ask yourself before hastily going out and spending that bonus.

So there you have it. 5 smart things and 5 stupid things to do with your bonus (or any lump sum payment for that matter). If you’ve got any other suggestions or something to add, let us hear about it in the comments.

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