When you get some unexpected income, a tax return, or other chunks of money, be prepared ahead of time and budget your beautiful bonus.
My Bonus! Now… What to do with your Bonus?
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Ok, so you’re committed to the Mêtis Money Matters plan, and you’re making great progress. Now, the budget has been set, you’re clearly focused on your financial goals, and you have recently come into some unexpected money: your beautiful bonus. This can be in the form of an actual bonus from your employer, your birthday, some extra cash from a garage sale, or maybe even cashback from your credit card, or rebate-based app.
Seize the Day and Budget that Bonus!
From personal experience, it can be a little daunting to figure out what to do with the extra money we have at our immediate disposal. The cash can spend itself rather quickly if you’re not careful. I suggest following a simple plan for all forms of bonuses. Budgeting is extremely important!
What to do with Bonus Money: Paying Your Uncle Sam!
Ok, now, the first thing to keep in mind with your bonus is taxes. It is easy to forget and easier to get frustrated with the haircut right off the top. Generally speaking, I try to think about the take-home portion of bonuses as 60% of what the gross amount is. Depending on what is taken out pre-tax, it could be more or less. Some people may like to adjust their withholding to get more of the bonus upfront, but that depends entirely upon the individual.
Annual Bonuses: Practically Budget your Beautiful Bonus
Now that your beautiful $100,000 bonus is down to $60,000, what to do with all those Benjamins? (Of course, these dollar amounts are just an example: let’s dream big). Going back to the importance of the goals, this is when you can really blast away at those goals and timelines. It is also an opportunity to give a little more, and spend a little more on yourself as well. Here’s a general template I use as a starting point with any bonus cash we come across.
Example:
$100,000 Bonus
<40,000> Taxes @ 40%
______________
= $60,000 <— Think of this as your starting point
<6,000> Extra Giving (10%)
<9,000> Straight to Savings (15%)
<42,000> Goals (70%)
<3,000> Mad Money (5%)
Extra Giving (10%):
It is just exactly as it says. Consider finding something or someone to bless/ donate/ contribute to. I look at this as “extra” because it is aside from your regular charitable giving patterns. As a side note, this step is extremely gratifying. There is nothing like giving an unexpected gift to someone truly in need to make the bonus truly beautiful.
Straight to Savings (15%):
I recommend paying yourself. Yes, that is correct. Pay yourself before assaulting the objective. Consider throwing it in the emergency fund. This is a great way to save for when you really need it!
Goals (70%):
This is where you get to practice Mêtis in applying this bonus infusion to your goals. Use it carefully. Consider making an extra payment on the car loan, student loans, or mortgage. Maybe you have some goals that involve some home repairs as well? This could also be a good use of the bonus. Additionally, you can always save this portion as well. Regardless of the blend of goals you have in front of you, this is a great way to stay on track or ahead of accomplishing your financial goals.
Mad Money (5%):
It is time to enjoy some well-earned rewards! After all, this is a bonus and there should be an allocation for you and your family to have some fun with the hard-earned cash. The process of budgeting and applying Mêtis requires discipline; now you have the gratification of enjoying your money without the “guilt” of open goals looming. There are no rules on this one – just enjoy it!
Closing Thoughts on how to Budget your Beautiful Bonus
When possible, by applying this in advance of the bonus disbursement you are establishing some boundaries and helping your household to stay on track. Just like with the budgeting process we went over, the actual dollar amount of the bonus could be different once it is disbursed (recall, the tax portion is an estimate). When that time comes, just adjust your percentages accordingly, and put the finishing touch on the bonus budget you have created.
Great work on cultivating Mêtis today! You are in mastering these exercises and putting your money to work for you. You are in control of where the dollars in your care are spent. Now, put that beautiful bonus to the task!
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