The following is a staff writer post from MikeS. He is a married father of 2. So, with the cat, he ranks number 5 in the house. He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.
One of the benefits of working for a larger company is that there usually is a defined plan for an annual bonus. Bonus plans can go by various names, but in the end they all boil down to extra money. It is bonus time again where I work.
My Bonus History
I usually try to anticipate what bonus I might get and what I would do with the extra money. This year was a little harder for figure out what I might be getting.
Last year, I received a pretty big bonus of $20,000. Our CEO had communicated a couple months back that the bonus pool would be larger this year compared with last year. So, what did I guess? I ran some calculations for a range of bonuses, $10,000 to $25,000. I will admit the $25,000 was pretty optimistic, but I guy can dream, right?
I received on the lower end of the range, $14,000. Which as it relates to the formal bonus plan is 5% above what I should receive. I am never upset about receiving extra money, so I was not disappointed. What did I do with the extra money?
Dividing Up My Bonus
The first thing that comes out of my bonus is actually my 401k contribution. The same percentage that is applied to my paycheck is also applied to my bonus. I could elect to either have a larger or smaller amount deposited, but the election would also carry over to my normal paycheck for one pay cycle as well. Since I did not want anything different to happen, I decided to have the normal 6% regular 401k and 1% Roth 401k contributions taken out. The company still matches the regular 401k contribution that it does in a normal paycheck. Specifically, the company matches dollar for dollar up to 6% plus an additional 2% (in lieu of a pension) regardless of whether you contribute or not. So, simply by contributing to my 401k, I effectively get a larger bonus, 6% of $14,000. The net effect is that I put $2,100 into retirement savings.
Now, I wish that I still had most of the bonus to play with, but by the time the government takes their cut, the bonus doesn’t look as big anymore. The net amount that was deposited into my checking account was roughly $7,700. This feels like a far cry from the original $14,000, but there is not much I can do about it.
I wish I could say that all of the money went into my emergency fund or I deposited it all in my Vanguard account. I did deposit it into my savings account, but it is allocated essentially for future spending. I set aside $1,200 for our Disney vacation 3 years from now. We have been setting aside roughly that number for the last few years and now have built that bucket up to $6,400. Our target for the trip is $10,000 by 2018 and we are on track.
We also set aside money for my wife’s gym membership, as well as some personal training. The total on that amount was $1,700. Her monthly gym membership is about $60 a month and then we set aside an additional $1,000 to cover the training. I’ve have been with my wife for over 20 years, married for almost 12. Little things like the gym and personal training help keep her on board with the broader budget goals and savings. So, while setting aside the money for those things might not seem wise to some, in the broader picture it makes perfect sense.
Since, we set aside $1,700 for things for my wife; we set aside $300 for me. I took that money and added it to my secret 2nd honeymoon fund. We earmarked $1,500 for a vacation this year. This has been the amount we have bucketed the last few years and seems to be enough for now.
The ‘Kid’ category also received a $1,000 allocation. This category for is for just about anything related to the kids, be it an activity, clothes, or anything else I deem related to the kids. There always seems to be something coming up with them.
The last thing we carved the bonus up for was the house. Initially I had been planning on using some of the bonus for an extra mortgage payment, probably about $1,500, then setting aside additional money for house maintenance. However, the house money set aside may just be used for some new windows. I haven’t made the final call on that yet, so the money is just earmarked in savings right now for the house.
In the past, any extra money had been used for either debt repayment or padding the emergency fund. We are in a position now where we don’t have to use a bonus for those purposes anymore. It feels nice to be making progress. Do you anticipate and extra cash this year? What do you think you will use it for?