Dedicating your bonus to something

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heanbean
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Dedicating your bonus to something

Postby heanbean » Wed Apr 19, 2017 6:53 pm

I work in a field where my bonus is not "guaranteed" so I approach planning, saving, etc. as if I won't receive it.

Anyone else do the same and buy something special, go somewhere or do something in particular ONLY if they get a bonus?

I'm thinking of putting half of all future bonuses directly towards paying down the mortgage faster, whether it's half a month's mortgage payment or a half a year's.

Interested in hearing how BHs handle their bonus!

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whodidntante
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Re: Dedicating your bonus to something

Postby whodidntante » Wed Apr 19, 2017 6:58 pm

*Saving the mods the effort.* :happy
Last edited by whodidntante on Wed Apr 19, 2017 7:09 pm, edited 1 time in total.

mortfree
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Re: Dedicating your bonus to something

Postby mortfree » Wed Apr 19, 2017 7:00 pm

I haven't achieved BH status but I'll reply.

I think putting the bonus towards the mortgage is a good idea. That's what I did and I paid my mortgage off a year ago. The bonuses helped but I really attacked the mortgage year round and had excess savings sitting in cash.

This year I invested my bonus.

heanbean
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Re: Dedicating your bonus to something

Postby heanbean » Wed Apr 19, 2017 7:05 pm

mortfree wrote:I haven't achieved BH status but I'll reply.

I think putting the bonus towards the mortgage is a good idea. That's what I did and I paid my mortgage off a year ago. The bonuses helped but I really attacked the mortgage year round and had excess savings sitting in cash.

This year I invested my bonus.


Haha the boring but extremely smart answer :D

Smorgasbord
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Re: Dedicating your bonus to something

Postby Smorgasbord » Wed Apr 19, 2017 8:02 pm

My most recent bonus moved up replacing the siding on my house. The siding would have been replaced in the next 12 months regardless, but the bonus definitely moved up the date.

randomguy
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Re: Dedicating your bonus to something

Postby randomguy » Wed Apr 19, 2017 8:23 pm

Bonuses are just money. Nothing special. Using them to buy things you wouldn't have normally doesn't seem like a great idea to me. Either decide something is worth the money and buy it or don't. Just try and justify it as "unexpected" money. Personally I just shove it all in the investment account. If you are one of the debt is evil crowd, then paying off the mortgage is the other way of going.

runner540
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Re: Dedicating your bonus to something

Postby runner540 » Wed Apr 19, 2017 8:54 pm

Also in a role where annual bonus can be significant part of comp but can't count on it.
Based on the net amount after taxes:
80% savings
10% giving
10% spending

This has worked for me for years. I'm careful that the 10% spending is truly one time, not increasing my ongoing costs.
Examples of what I've used it for: trips, clothing, replace big ticket items (mattress, computer, etc.).

It's also a lot of fun to choose good causes to write some fat donation checks!

JGoneRiding
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Re: Dedicating your bonus to something

Postby JGoneRiding » Wed Apr 19, 2017 9:11 pm

Sometimes I Save It SometimeS I Spend it. I do think it makes sense to have a plan. Like it could be the next year's vacation fund. Not enough go cheaper or splurge on Hawaii kind of thing.

lospecv
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Re: Dedicating your bonus to something

Postby lospecv » Wed Apr 19, 2017 10:57 pm

i usually get a bonus every Feb and couple weeks before i change my 401k contribution to 100% so that whole bonus go to it. I then change back to 10%. bonus gets taxed so much that it makes more sense to just let it go to 401k.

iamlucky13
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Re: Dedicating your bonus to something

Postby iamlucky13 » Thu Apr 20, 2017 1:34 am

No, I don't do anything special with mine.

So far, it has been pretty regular, but my budget does not depend on it.

However, since it means my savings levels periodically end up ahead of where I'd planned a year ago to be, that does mean I'm in a position to spend more than I'd planned, should compelling purchases arise. Currently the overwhelming majority still goes into savings/investing. I've thought about paying down more on the mortgage, but there's tradeoff of mortgage interest rate vs. investment gains and risks, and between assets that can be liquidated for major future expenses, vs. equity that can be accessed via a HELOC.

MikeG62
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Location: New Jersey

Re: Dedicating your bonus to something

Postby MikeG62 » Thu Apr 20, 2017 8:02 am

randomguy wrote:Bonuses are just money. Nothing special. Using them to buy things you wouldn't have normally doesn't seem like a great idea to me. Either decide something is worth the money and buy it or don't. Just try and justify it as "unexpected" money. Personally I just shove it all in the investment account. If you are one of the debt is evil crowd, then paying off the mortgage is the other way of going.


+1.

Psyayeayeduck
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Re: Dedicating your bonus to something

Postby Psyayeayeduck » Thu Apr 20, 2017 8:14 am

I got my first-ever bonus a month or so ago. I already budgeted to max out my 401k, HSA, and Roth this year so this bonus was truly a bonus. I figured that present me need some love that future me was already getting. So with the money, I spend on a few extras on myself and paid my mom's insurance deductible to get her roof fix. My philosophy is that if things were already taken care of before the bonus, it is okay to splurge. Keeping present me and future me happy is a sign of success.

Silverado
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Re: Dedicating your bonus to something

Postby Silverado » Thu Apr 20, 2017 8:38 am

lospecv wrote:i usually get a bonus every Feb and couple weeks before i change my 401k contribution to 100% so that whole bonus go to it. I then change back to 10%. bonus gets taxed so much that it makes more sense to just let it go to 401k.


Hopefully you do know that a dollar of bonus is taxed just like any other dollar of compensation in the end. It just looks different on the pay statement when it is given.

heanbean
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Re: Dedicating your bonus to something

Postby heanbean » Thu Apr 20, 2017 2:20 pm

I posed this question to a group of friends and they all had their (potential) bonus earmarked for something (we're in our early 30s). It's funny (but understandable) how that differs from views here.

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serbeer
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Re: Dedicating your bonus to something

Postby serbeer » Thu Apr 20, 2017 2:23 pm

I put mine into kid's 529 account usually

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Fudgie
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Re: Dedicating your bonus to something

Postby Fudgie » Thu Apr 20, 2017 3:29 pm

I received a bonus last week. Used it to buy a few thousands bucks of Vanguard Total International Stock Index in taxable. :P
"That's entertainment!" - Vlad the Impaler

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Earl Lemongrab
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Re: Dedicating your bonus to something

Postby Earl Lemongrab » Thu Apr 20, 2017 3:33 pm

We get a sort of profit-sharing bonus. I have it all directed to my 401(k). That fills up my pretax contributions faster and starts Mega-Backdoor Roth sooner.
This week's fortune cookie: "You will enjoy doing something spontaneous this weekend." Apparently that meant working on a dead PC, but I didn't enjoy that much.

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JupiterJones
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Re: Dedicating your bonus to something

Postby JupiterJones » Thu Apr 20, 2017 4:46 pm

heanbean wrote:Interested in hearing how BHs handle their bonus!


We always have things we're saving for, and we keep track of our progress in a spreadsheet. There's a "replace the car" sinking fund for each of us, a property tax fund (we don't escrow), soon-to-be-IRA funds (built up by the end of the year so we can just lump sum each January), vacation funds, etc.

These aren't actual separate accounts, just "virtual funds" that represent how we're allocating what's in the real accounts. Each one has a goal amount and date. As we get income in, after paying the bills, we just spread it out appropriately over our savings goals.

It's no different when we get "extra" money such as bonuses, payouts, etc. It just means we knock out a goal or two more quickly than we otherwise would have. We don't really spend it on anything we otherwise wouldn't have bought.
Stay on target...

AllMostThere
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Re: Dedicating your bonus to something

Postby AllMostThere » Thu Apr 20, 2017 4:53 pm

Yes, I would agree that it's best to proceed as if bonus would not happen and LBYM. I have been doing this for past ten years, so bonus (20% of annual pay) is fully dedicated to a financial purpose rather than increase in lifestyle. After 401k & taxes are withheld it's usually only ~ 60% take home. I have been applying 50% of this amount to mortgage and 50% to kids 529 on top of regular monthly payments/investments. Now ten years later, house is paid off :beer , and kids have nearly fully funded 529. :moneybag

remomnyc
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Re: Dedicating your bonus to something

Postby remomnyc » Thu Apr 20, 2017 5:31 pm

The bonus is not part of my budget, but when I get it, I splurge on something. This year the splurge was Hamilton tickets. Then, 10% goes to charity and the rest is invested in taxable for early retirement.

lakpr
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Re: Dedicating your bonus to something

Postby lakpr » Thu Apr 20, 2017 5:57 pm

Silverado wrote:
lospecv wrote:i usually get a bonus every Feb and couple weeks before i change my 401k contribution to 100% so that whole bonus go to it. I then change back to 10%. bonus gets taxed so much that it makes more sense to just let it go to 401k.


Hopefully you do know that a dollar of bonus is taxed just like any other dollar of compensation in the end. It just looks different on the pay statement when it is given.


I disagree -- not with the statement that the bonus is like any other taxable compensation, but because of the mechanics of tax withholding involved with bonus, and the normal way of contributing to 401(k) plans. I view lospecv's plan as really genius. It has the simplicity of maxing out one's 401(k) contributions for the year early enough (assume no loss of company match if done this way), less amount of tax withheld from the paycheck upfront and almost all the amount going toward investing. Bonus checks have the nasty habit of making payroll software think you are suddenly in one or two levels higher tax bracket, causing them to withhold 40% (or more) of your paycheck for taxes, and you actually see only half the money you supposedly earn as "bonus" as net pay.

With the alternative of a steady percentage or a steady amount per paycheck being deposited in 401(k) plan instead, one would have lost one year worth of market investing, and essentially be giving an interest-free loan to Uncle Sam. What's worse is that such loan is made with your after-tax dollars!

runner540
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Re: Dedicating your bonus to something

Postby runner540 » Thu Apr 20, 2017 6:04 pm

remomnyc wrote:The bonus is not part of my budget, but when I get it, I splurge on something. This year the splurge was Hamilton tickets. Then, 10% goes to charity and the rest is invested in taxable for early retirement.


+100%

balofagus
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Re: Dedicating your bonus to something

Postby balofagus » Thu Apr 20, 2017 6:25 pm

I keep 10% of bonuses for "Fun Money", which mostly translates to "vacations". The rest goes towards savings and gets divvied up between whichever savings goals are most important to me at the time I get the money.

heanbean
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Re: Dedicating your bonus to something

Postby heanbean » Thu Apr 20, 2017 6:33 pm

AllMostThere wrote:Yes, I would agree that it's best to proceed as if bonus would not happen and LBYM. I have been doing this for past ten years, so bonus (20% of annual pay) is fully dedicated to a financial purpose rather than increase in lifestyle. After 401k & taxes are withheld it's usually only ~ 60% take home. I have been applying 50% of this amount to mortgage and 50% to kids 529 on top of regular monthly payments/investments. Now ten years later, house is paid off :beer , and kids have nearly fully funded 529. :moneybag


Love hearing this!!

Carson
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Re: Dedicating your bonus to something

Postby Carson » Thu Apr 20, 2017 7:50 pm

We don't consider our bonuses in our regular annual budget. DH's is fairly small; mine swings wildly based on company performance. It was always fairly 'immaterial' to me, except last year when it was significantly higher than I would have expected. :shock:

We run a pretty tight ship and meet our savings/retirement goals within the known boundaries. Our bonuses then have been used for life enriching things - usually some split of couple or family travel, individual fun money. Because I don't change my payroll numbers, I end up sending a big portion to 401k/ESPP and fed withholding (which I get a portion back eventually). So even trying to be life enriching and fun, a portion ends up going somewhere boring and responsible.
30-something personal finance enthusiast, just get getting started on this whole portfolio thing.

PlayingLife
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Re: Dedicating your bonus to something

Postby PlayingLife » Thu Apr 20, 2017 9:38 pm

Retirement accounts are planned to be maxed with auto withdrawal, so with emergency fund and most things in order, we did the following....

10% towards child's 529
10% towards some personal purchases (handbag, fishing gear, clothes)
10% towards a savings account for home remodeling/upgrading
70% towards our home principal

If we didn't have retirement accounts maxed, I would have raised the 401K contribution rate for this one payment, to help us move towards hitting the max. Bonus was pretty good this year...could be bad next year, who knows! In the future I will likely try to put most of it towards principal until home is paid off....it was a great feeling making the payment this year.

J295
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Re: Dedicating your bonus to something

Postby J295 » Fri Apr 21, 2017 7:23 am

When I was younger we took my annual bonus and paid down on our home debt. One year I took it and opened up a new bank account so I could surprise my wife with a trip (but I made sure to tell my father in law, because I was thinking it would be a bit odd to die in a car crash and have my wife find this random bank account and wander what the heck???).

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midareff
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Re: Dedicating your bonus to something

Postby midareff » Fri Apr 21, 2017 7:48 am

heanbean wrote:
mortfree wrote:I haven't achieved BH status but I'll reply.

I think putting the bonus towards the mortgage is a good idea. That's what I did and I paid my mortgage off a year ago. The bonuses helped but I really attacked the mortgage year round and had excess savings sitting in cash.

This year I invested my bonus.


Haha the boring but extremely smart answer :D



Nothing boring about living in a paid for house IMHO.

The Wizard
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Re: Dedicating your bonus to something

Postby The Wizard » Fri Apr 21, 2017 8:34 am

I have a somewhat similar situation in retirement with occasional part-time employment income on top of a healthy retirement income.
Last year, I put 50% of that extra net income in my Roth IRA and the other 50% toward additional principal reduction on my HELOC, until I topped out my IRA contribution.

Unclear if I will have any part-time income this year, but will do similar if so...
Attempted new signature...

dcabler
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Re: Dedicating your bonus to something

Postby dcabler » Sat Apr 22, 2017 6:37 am

Like the OP, for planning purposes, I assume it isn't there. It's been a pretty good assumption for at least a couple of companies I've worked for. :D

Anyway, it depends.
1. If there are no "life events", then it goes into the taxable investments
2. Often times a bonus payout has lined up with...
- need for a new roof on the house
- time for a new car (my bonus from last year)
- etc.
3. When my daughter was 1 year old, I had a bonus payout that I used to buy a Texas Tomorrow Fund 5 year college contract.

JonFromDimensionC137
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Re: Dedicating your bonus to something

Postby JonFromDimensionC137 » Sat Apr 22, 2017 8:53 am

This year I spent 1% of my bonus on a nice gift to myself. The other 99% I spent on a different gift for myself: VTI :sharebeer
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