The best ways to use your year-end tips or bonus, from the founder of the Sudden Money Institute


A doorman at a luxury building on Park Avenue in Manhattan, Freddie Alvarez, 58, collects packages, hails cabs, greets visitors, lets housekeepers in while residents are away, and generally assists wherever he's needed.

During the holiday season, he receives tips, mostly cards with cash in them, from just over 40 families. Ranging from $150 on the low end to up to $500 per family, Alvarez takes in about $6,000 total in year-end tips. Over the years, Alvarez, who now earns a $55,000 salary before tips, has used this extra cash to buy his four children "anything they wanted for Christmas," or towards vacations to the Dominican Republic or Puerto Rico.

Holiday tips, he says, are very important to his financial health: "Even though we make a good, decent salary ... with the salary we make, we can't just make ends meet, especially with the rent today. Some of us pay mortgages, car payments, so [tips] pretty much help out in the other areas."

Sometimes, those other areas are unexpected expenses. In 2011, Alvarez was diagnosed with colon cancer. His tips from the previous holiday season helped cover medication and other expenses during the full year he was unable to work, supplementing what he received from disability insurance.

Like Alvarez, millions of doormen, housekeepers, child-care providers, hairdressers, and other workers receive, and even depend on, year-end tips or bonuses.

While getting a lot of money all at once may seem like the answer to your prayers, there can be a "certain impulsivity" that comes with it, says Susan Bradley, a certified financial planner and founder of the Sudden Money Institute in Palm Beach Gardens, Florida. There are best practices to follow for using that additional income, or at least a portion of it, if some goes toward urgent needs like hospital bills.

And if you're a professional who receives a bonus of any kind, the same guidelines apply. In 2019, about 32% of larger employers offer incentive bonuses for nonexecutive employees, according to SHRM's 2019 Employee Benefits Investment and Retirement report, which surveyed 2,763 company human resource representatives in a variety of industries including nonprofits, government, and education & health services.

Here are Bradley's guidelines for making the most of your year-end tips or bonuses.

1. Fund your long-term goals

Whether you're saving for retirement, starting a rainy day fund, squirreling away money for a down payment on a home, or all of the above, at least part of what you take in above your salary should help you reach your financial goals.

"The one rule of thumb that I would encourage people to adhere to is always fund those important goals at least a little. So don't favor one 100% over the other," says Bradley. "Keep the momentum going."

How much you put toward each goal depends on your time horizon, says Bradley. If you're funding your children's 529 plans, for example, that might take priority if your kids are teenagers. If they're toddlers and you need more space, then you might focus on saving for a home and put a little less in their college funds.

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If you receive end-of-year tips in cash, Bradley says the envelope system can help you divvy up funds for each goal. Divide the money into separate envelopes, labeling each with a specific spending or saving category, such as Christmas presents, rainy day fund, or summer vacation.

"It's kind of empowering to see the labels," says Bradley. Otherwise, without a way to distinguish your holiday tips from your other income, "cash tends to just blow away."

2. Fix problems — and prevent them

When you get a lump sum, ask yourself, "What are the things in your life that need to be taken care of that you've been putting off?" says Bradley.

That might mean making upgrades or repairs on property or items you own, she adds: "When money comes in like that, maybe it's buying new tires for the car. It's nothing really sexy; there's no red ribbon. But you're safer."

Thinking about how spending the money can help you save down the line is another way to make good use of your bonus or tips. If you have any health issues, for example, you might want to see if there are elective surgeries or preventive care services that you can now afford. "Maybe that $800 medical procedure wasn't in the budget, [but] now it is," says Bradley.

Cash tends to just blow away.
Susan Bradley
founder of the Sudden Money Institute

3. Transform splurges into money lessons

When you get a lot of money at once, it's OK to splurge a little. But to make an indulgence more meaningful, "it might be something you share with the family," says Bradley.

If you have kids, including them in conversations about how you'll spend your extra money can be "pretty powerful," adds Bradley. Parents should structure those conversation, she says, to facilitate money lessons. You also want to strike a balance between giving kids options, without giving the impression that extra money equals a free-for-all.

"You say, 'We have a little bit of room here because of this money,' and you might give them a list of three or four things, including a trip to the beach, or a movie. ... You say, 'Let's think about which one we'll do this year,' so you give them a sense that [the experience] is ongoing."

Whether you're making decisions as part of a family, a couple, or with a group of friends, including people you care about in your splurge or indulgence creates a meaningful shared experience.

"Most of the research [on happiness and money] points to the lasting joy of an experience far outweighing the lasting joy of buying something," says Bradley. When you're thinking about how to use the money, she adds, ask yourself, "What can we do? Who do we want to be with? What can we do with this money that would make us all really happy?"

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4. Give back

Though some people really need those year-end tips to cover the cost of living, others may find the most satisfaction in giving that money away. There's a "deep pleasure in giving money to someone else who really needs it," says Bradley.

Edward Tricomi, a master stylist and the co-owner of Warren Tricomi, a chain of salons, started cutting hair in 1968, when the shag was popular and he charged $16 per cut at a unisex salon in Brooklyn. Back then, his tips mattered a lot. "I'd send my parents money every week. That money [tips] always came in handy for living expenses, dinners, things like that."

Today, Tricomi charges $400 per cut and, as a salon owner, he generally doesn't receive tips. He asks his clients to make a donation instead of giving him a gift.

"I donate anything anybody's giving me to St. Jude's, in memory of my sister who got breast cancer and passed away. I've been doing that for years. I have one client, a very wealthy client, who donates a huge amount of money for me every year," says.

Tricomi also puts on a benefit show each year, with proceeds going to St. Jude's, in his sister's memory.

Though he says tips are still important, especially for his stylists and their assistants, giving back is what he finds most satisfying. He's not alone. "If you're trying to get the most out of a bonus, or year-end gifting, see if you can put [giving] into the equation. It doesn't mean that you don't get to buy or have things, but add that in," says Bradley.

It's also important to know that goals shift over time. When he started out, Tricomi says he banked most of his salary, and lived off of tips. Somehow, everything worked out.

"The universe always gives you exactly what you need, when you need it," he says. "So say I had a bill, whatever, and I needed [money], a check would come in [for] exactly that amount of money, or my tips would come in for exactly that amount of money. It's really crazy sometimes the way that works."

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