Beating Broke Rule: Spend your Bonuses wisely.
Every year, many of us are lucky enough to receive some sort of bonus from our employer. (If you’re self employed, that’s bonus enough. 😉 ) And when we do, the inevitable question arises. What do I do with the money? And then, how to budget for it?
The simple answer is to spend it wisely. In a more complex answer, it depends on what your goals are for your financial life. Using your bonus to buy Christmas presents may make you feel good for a month or two, but will you feel guilty afterward? You’ll feel much better, in the long run, if you spend the money wisely towards your goals.
Here’s the downside to that, though. You’ll also feel guilty if you use it all for debt repayment. Each of you will have a different situation, but here’s how we usually use our bonus here in Beating Broke.
Consider taking 10% of the bonus and blowing it. Buy some presents. Take your family out to dinner and a movie. Whatever you want. Give yourself 10% in cash and free rein to do whatever you want with it. You’ll feel better when you do.
With the remaining, take a look at your situation. Do you have a purchase that you’ve been saving up for, or putting off until you could afford it? I’m not talking about those gifts, or the television upgrade, but things that you really need. Maybe some costco eyeglasses? For example, a portion of my bonus (if I get it) will go towards buying new tires for one of our cars and paying for a repair that one of them needs. It won’t take the whole bonus, but a good portion of it. And it will be extremely relieving to not have to come up with that money out of my normal paycheck. If the bonus doesn’t come, I’ll still have to pay for those things, but it might take a little longer to pay for them.
Maybe your situation doesn’t have a purchase like that that you need to pay for. But, maybe you’ve got some debt that it could help retire. What we don’t spend on tires and repairs, will likely go towards paying off a debt. It won’t pay off any of them all by itself, but it will cut the payoff by several months. And, while that doesn’t give me the same feeling that just blowing the money on stuff does, it will leave me feeling much better for a far longer time.
The bottom line is this. Think about how you spend your bonus and spend it wisely. You’ll feel much better for it.
I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.
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Your points apply equally to tax refunds!
I’m looking forward to my Bonus at the end of January. Unfortunately, I will have to save this bonus for Tax day – April 15th. I’m pretty sure we’ll have to pay uncle Sam quite a bit this year. We sold some stocks and options and haven’t paid tax on those yet. My exception is also a bit high. 🙂
Yeah, that’s my one fear. With all the side stuff I do and my wife’s business that will be in the black this year, might just go all out and hire an accountant to straighten it all out.
We don’t get any bonuses becauseI work for a local government but even if they would pay me a bonus I’d save it for Arpil 15. Just like retireby40. We always owe no matter what I do with tax planning. I just recalled that we got once a $20 Visa card as a Chrismtas bonus. No kidding… It was an internal joke for the next year.
I am lucky in that I work for a place that is relatively generous. We get a gift card for $25 to a local grocer every year just before Christmas and a rather good performance bonus each year. Of course, the bonus is tied to company performance, but we’ve gotten 75% or more of the bonus every year that it’s been in place.
I have not enjoyed a bonus in the last 3 years as 24hr after entering my account they exit as I make a lump sum payment on my mortgage. The good thing about this is that I will be mortgage free in a relatively short time.
Good to hear you have a plan for it, Evan! So many don’t these days.
I am eagerly waiting for my bonus! I am going to split it up amoung liquid savings, auto loan payoff, dividend producing portfolio and maybe some back into my 401(K) if I haven’t hit my match yet this year.
We just found out our bonus information yesterday (it’s routine in my company for bonuses for the previous year to be paid in March…I’m sure it keeps people from thinking about leaving mid-way through the year). Anyways, this year, I’m planning on sticking all of my bonus in my 401(k) largely because my wife (who out-earns me by a significant margin) had offered to give me a little bit of her bonus, and we want to max out our retirement accounts as much as possible.