Author Topic: What do you do with bonuses?  (Read 7328 times)

JohnGalt

  • Bristles
  • ***
  • Posts: 481
  • Age: 34
  • Location: TX
What do you do with bonuses?
« on: December 13, 2012, 09:03:33 AM »
My company had a solid year and bonuses were higher than expected.  I don't plan for bonuses at all in any of my planning, budgeting, or projecting.  So, it really does feel like a windfall.  I'm just curious what everyone else does with their bonuses (particularly those of us who are primarily salaried and the bonus truly is something "extra" and not part of your primary income).  I already save 60%-70% of my income, have no consumer debt, and have plenty of equity in the house I intend to sell this spring (at which point I'll go back to renting).

I'll probably end up just picking up some more stocks and having a particularly awesome savings rate this month - but am considering using a portion of it to take a trip, maybe to explore one of the areas I'm considering moving to after I sell the house.  I might also use it to contract out more of the work to finish renovating my house than I originally planned - just because I'm really tired of it and would just like it done so I can move on. 

What do you do with your bonuses?

jpo

  • Pencil Stache
  • ****
  • Posts: 518
  • Age: 32
  • Location: North Carolina
Re: What do you do with bonuses?
« Reply #1 on: December 13, 2012, 09:17:00 AM »
Rumor at work is our bonus can be put directly into the 401k, avoiding giving half of it to Uncle Sam.

Russ

  • Handlebar Stache
  • *****
  • Posts: 2213
  • Age: 28
  • Location: Boulder, CO
Re: What do you do with bonuses?
« Reply #2 on: December 13, 2012, 09:35:43 AM »
I would save/invest it all personally. If you really want to spend some of it maybe a reasonable compromise would be to apply your current savings rate to the bonus, so you'd save 70% and use the other 30% for a trip. Otherwise you'll actually be saving less, percentage-wise.

Be careful, lifestyle inflation is a sneaky bugger.

TheDude

  • Bristles
  • ***
  • Posts: 467
Re: What do you do with bonuses?
« Reply #3 on: December 13, 2012, 09:42:42 AM »
I just deposit mine like a normal paycheck. I already max out everything tax deferment I can so thats not available to me. Once my account its a certain cash threshold then anything above it goes to taxable accounts at vanguard. We dont really save for specific things like vacations.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8660
  • Registered member
Re: What do you do with bonuses?
« Reply #4 on: December 13, 2012, 10:03:28 AM »
The answer, of course, is to do whatever you usually do with saved income (stocks, whatever).  At your savings rate, I assume you are already spending as much as you care to.  Why inflate your lifestyle now?

Rumor at work is our bonus can be put directly into the 401k, avoiding giving half of it to Uncle Sam.

Somewhat hyperbolic.  If you are at a 50% marginal tax rate and haven't already maxed out your 401k, then it's face punching time.  If you can somehow bypass the 401k limits, then that's a sweet deal.  Either way, however, Uncle Sam will take his due (what will tax rates be like when you start withdrawing from your 401k?).


The_Dude

  • Stubble
  • **
  • Posts: 194
Re: What do you do with bonuses?
« Reply #5 on: December 13, 2012, 10:07:49 AM »
straight into savings

JohnGalt

  • Bristles
  • ***
  • Posts: 481
  • Age: 34
  • Location: TX
Re: What do you do with bonuses?
« Reply #6 on: December 13, 2012, 10:22:04 AM »
The answer, of course, is to do whatever you usually do with saved income (stocks, whatever).  At your savings rate, I assume you are already spending as much as you care to.  Why inflate your lifestyle now?

I suppose the excuse I would justify it with is that I've worked a lot of extra hours to earn that bonus this year (often neglecting other aspects of life) and do feel like I'm not spending on a few things I would like to to keep that savings rate high while I'm still dealing with my pre ERE/MMM housing choice expenses.  But... bottom line, I'm doing just fine with my current expense level and should probably avoid any lifestyle inflation and just kick the money straight into my brokerage. 

Good suggestions on the 401k - but I'm already maxed for the year on that and my IRA.  I'd be thrilled to have another tax deferral option to fund. 

BlueBeard

  • 5 O'Clock Shadow
  • *
  • Posts: 47
Re: What do you do with bonuses?
« Reply #7 on: December 13, 2012, 10:35:24 AM »
+1 for saving 60-70% and spending the rest.  You earned it.

icefr

  • Bristles
  • ***
  • Posts: 325
Re: What do you do with bonuses?
« Reply #8 on: December 13, 2012, 10:42:50 AM »
I save 100% of the net of my bonuses. My spending, like yours, is completely based on my monthly paycheck, so when the bonuses come along, I just save them.

I use a snowball strategy for savings, so I give the money to the first category that isn't done yet. With my aggressive mortgage paydown, I'm now just throwing the entire bonus at the mortgage, which feels great to shave a few years of payments off in one go!

mustachecat

  • Bristles
  • ***
  • Posts: 398
Re: What do you do with bonuses?
« Reply #9 on: December 13, 2012, 10:57:44 AM »
I'm spending all of mine ($500) on home furnishings and improvements. So far, I've bought a couch, tile caulk, decorative rope, wood putty, spackle, staining pads, and wood stain. I'm going to build a media center (we have most of the supplies for this), paint the bathroom, install new shelving, etc. I think it'll be a lot of bang for my buck.

We'll save 80% of my fiance's and use the other 20% for the inevitable project overruns. ;)

StashinIt

  • Stubble
  • **
  • Posts: 138
  • Age: 35
  • Location: Fort Worth, TX
Re: What do you do with bonuses?
« Reply #10 on: December 13, 2012, 11:17:21 AM »
Well, I made 8k in bonuses this year. I spent a couple hundred bucks on bike accessories and clothes. The rest I put into my IRA.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8660
  • Registered member
Re: What do you do with bonuses?
« Reply #11 on: December 13, 2012, 11:35:01 AM »
I suppose the excuse I would justify it with is that I've worked a lot of extra hours to earn that bonus this year (often neglecting other aspects of life) and do feel like I'm not spending on a few things I would like to to keep that savings rate high while I'm still dealing with my pre ERE/MMM housing choice expenses.  But... bottom line, I'm doing just fine with my current expense level and should probably avoid any lifestyle inflation and just kick the money straight into my brokerage. 

Good suggestions on the 401k - but I'm already maxed for the year on that and my IRA.  I'd be thrilled to have another tax deferral option to fund.

If you've been deferring otherwise wise purchases, I see no problem with spending some of the bonus.  I would personally try to continue to save at least my normal saving rate.  I'm sure you are making quality spending choices (i.e., getting a higher quality item that would last longer) rather than retail therapy (which could lead to bad habits). 

As far as tax deferral, I don't know your situation, but there are also HSA accounts and 529 plans for college.

starbuck

  • Bristles
  • ***
  • Posts: 360
  • Age: 34
  • Location: Small Town Connecticut
Re: What do you do with bonuses?
« Reply #12 on: December 13, 2012, 11:56:05 AM »
In years past, I would keep ~10% to spend on something I'd been wanting for a while (new ski jacket, staub dutch oven, sewing machine..) and put the remainder towards a savings goal/emergency fund.

This year, I'm making that money work much harder for me and putting that 90% into my investment account (if we get bonuses, that is.) Or I may use that to start funding the Roth IRA for 2013. Either way, I like to have a plan BEFORE I get the windfall, and then enact it immediately so I don't spend it bit by bit as it sits there languishing in my checking account.

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1157
Re: What do you do with bonuses?
« Reply #13 on: December 13, 2012, 03:54:04 PM »
When I've had windfall gains like this, I've bought stock with them (index funds), but set the dividend crediting to go to a different account - a fun slush fund.  That way its a gift that keeps on giving.  Over consecutive years, the amount in there has built up, so the slush fund averages a few hundred bucks a month.

Kinda like allowing yourself no regrets fun money, but at a perpetually safe withdrawal rate :)

RoseRelish

  • Stubble
  • **
  • Posts: 179
  • Age: 33
  • Location: Chicagoland
    • RoseRelish - Slow down and Enjoy Life
Re: What do you do with bonuses?
« Reply #14 on: December 13, 2012, 03:59:12 PM »
I usually put my bonus into my brokerage account. I spend a few hundred on a little weekend getaway with the wife and save the rest. It feels great to drop a big chunk of money into the brokerage account at once rather than the drips throughout the rest of the year.

simonsez

  • Pencil Stache
  • ****
  • Posts: 783
  • Age: 33
Re: What do you do with bonuses?
« Reply #15 on: December 13, 2012, 04:14:58 PM »
I get my school loan lender on the phone and put the amount on my highest interest rate loan with the highest balance.  I also do that twice a year (ignoring the rare year with 27 pay periods like this one for federal employees) when I get 3 paychecks in a month instead of 2.

plantingourpennies

  • Bristles
  • ***
  • Posts: 441
  • None.
    • Money, Kittens, Happiness
Re: What do you do with bonuses?
« Reply #16 on: December 13, 2012, 05:15:56 PM »
"Bonuses" account for a large amount of my compensation plan.

I'n the past I've kept lifestyle inflation to a minimum by sticking to my budget and quickly putting everything else into savings/debt pay down.

This year I'm interested in putting a percentage of the year end windfall into a local charity.

I also like your idea of traveling on the cheap to a place that you are planning on living someday...

Best,
Mr. Pop
« Last Edit: December 13, 2012, 05:20:32 PM by plantingourpennies »

zoltani

  • Guest
Re: What do you do with bonuses?
« Reply #17 on: December 13, 2012, 05:32:40 PM »
I'll probably buy a little bit of climbing gear with mine.

Then pay the property taxes on my rental, and maybe an extra large payment to the principal on the mortgage.

The rest would go into my brokerage account to buy stocks/index funds.

Ozstache

  • Pencil Stache
  • ****
  • Posts: 836
  • Age: 51
  • Location: Oztralia
Re: What do you do with bonuses?
« Reply #18 on: December 13, 2012, 06:31:42 PM »
I don't get a bonus because I work for the government. If I did however  it would go straight to the 'stache, and bypass any chance of hedonic adaption.

c

  • Bristles
  • ***
  • Posts: 300
  • Location: NYC
Re: What do you do with bonuses?
« Reply #19 on: December 13, 2012, 06:40:47 PM »
We're allowed to put up to 35% in our 401k. I've been bad about paying into mine this year, so I'm doing the full 35%. Usually I use some to top up the 401K and  just throw the rest into an index fund. I've done this for the last few years in order to buy my apartment. As the bonus is taxed at a higher rate I feel it's better to put as much into the 401k as possible, but it's a risk as you don't know the final numbers, so I'm usually too conservative.

I never budget for a bonus, but I work in an industry where they're expected so I know there will be one and roughly what it will be based on the company's and my performance (projects, title, reviews etc).

For me it's never a massive amount of money but it's a nice boost.

This year I'm thinking about picking a stock for a change.

I also do a small splurge, usually a meal out and a small thing I've had my eye on. This year we went out to dinner and I bought a candle from One Kings Lane (about $150 for both).

This year my bonus was 12% of my salary. Overall my company's revenue is down 10%, so on paper I did great.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27911
  • Age: -999
  • Location: Traveling the World
Re: What do you do with bonuses?
« Reply #20 on: December 13, 2012, 10:03:22 PM »
Being a teacher, I don't get bonuses, but I'd save 100% of it under the following rationale: I already save 70% of my income.  If I want anything, I buy it.  If I wanted to spend more, I easily could, and be fine with a 65% savings rate, or 60%.  I don't want more, so if I don't spend more of my paycheck, why would I spend a windfall?

Instead I'd just use it to hit FI quicker.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

jrhampt

  • Handlebar Stache
  • *****
  • Posts: 1072
  • Age: 41
  • Location: Connecticut
Re: What do you do with bonuses?
« Reply #21 on: December 14, 2012, 06:51:09 AM »
I invest it.  In past years, I used it to pay off student loans.  This year, I plan to park it in Vanguard's Total International index fund.

The Taminator

  • Stubble
  • **
  • Posts: 132
  • Location: Toronto, Canada
Re: What do you do with bonuses?
« Reply #22 on: December 14, 2012, 08:18:34 AM »
Bonuses are taxed at a higher rate so I just plunk mine into my RRSP since I'm nowhere near maxing it out every year. In the past I took the cash and put it toward debt but since outside of my mortgage I'm debt-free, this is the way to go. That and at my level and position, bonuses are really tiny, about one paycheque.