This year's National Football League draft got in gear even before its official April 26 kickoff.
That is because the Miami Dolphins, who have the number one pick, have successfully signed their newest baller, University of Michigan offensive tackle Jake Long. And unlike most first jobs out of college, Long, 22, will be making bank. He signed a $57.75 million, five-year contract this week, $30 million of which is guaranteed and will be paid out to Long in the first three-years of his contract, according to ESPN (DIS). Not bad.
Of course not every grad's paycheck and bonus will be in the sextuple-digits. But receiving a hiring bonus is still a milestone for any young person and enthusiasm over newfound financial freedom understandably fuels the urge to splurge. But, what should you really do with that bonus money?
The most important thing is to have a plan for your bonus, says Alexandra Levit, author of career advice book for recent graduates: How’d You Score That Gig? "When you get the bonus, don’t depend on spontaneity," says Levit. "I hear about people spending their bonus, going to Vegas, but you have to plan in advance."
One part of your plan should be paying off debt, according to Beth Guerard, a spokeswoman for student loan provider Sallie Mae (SLM). "Your best bet is to pay off your debt first rather than spend it on something frivolous," says Guerard. "Pay off your highest interest debt first – if you have credit cards at 13% interest that are racked up, pay that off."
Putting a bonus towards paying off student loan debt is a smart move as well. According to the nonprofit Institute for College Access & Success's Project on Student Debt, seniors graduating with student loans carried an average of $19,000 in student loan debt in 2004, a 58% increase over the past decade, when accounting for inflation. One-fourth of seniors graduating in 2004 carried $25,000 in overall student debt, not including money their parents borrowed.
Levit advises paying off debts early, lest debt spiral out of control throughout your 20s, which is a time when you may try to purchase your first home or become a parent. "The average 20-something is unfortunately in a lot of debt—credit cards and student loan debt." But there's good news, according Guerard: "There’s not penalty for early repayment for either federal or private loans."
Debts all in order? There are other ways to make your bonus work that are not a trip to Sin City. Levit suggests putting part of a bonus into a high-interest savings account. One example is Bank of America's (BOA) High Yield CD. Socking away money for a rainy day, is always a smart move. Or if you think your Abercrombie & Fitch (ANF) duds might not cut it in a Wall Street office, you can use your bonus for a new Ralph Lauren suit (RL).
And actually a small splurge isn’t totally out of the picture, Levit says. Just be sure to celebrate your new job in a reasonable way. “I recommend doing something small for yourself to celebrate [your bonus] – taking your friends out for a drink, getting a massage.”