5 Options on How to Handle Your Year-End Bonus

Dec 03

So, you just received your company bonus check.  Now, what should you do with it?

Before you go out and spend it on something that you might regret, have you had a chance to review your wealth planning pie?

Your wealth planning pie consists of all your wealth planning priorities, goals, and objectives.  No matter if you have $1,000 or $1,000,000, your wealth planning pie is only so big, which requires you to make wealth management decisions regardless of how big your pie is.

Let’s review five options on how you could handle your bonus and the positive impact it could have on your wealth management pie.

Pay Down Debt

Paying down debt provides you with one of the most important benefits of having money, financial flexibility.  While most people may see money as only a tool to purchase material items (which it is), the greatest benefit of having money and minimal debt is the financial and life options that it provides.

How you spend your money and your physical health intersect. When you spend money in a way that serves the purposes you intend it for, you can create help to financial stability.  Learn more about how to Optimize Your Spending here.

Fund Your Emergency Fund

An emergency fund is a critical component of having a balanced wealth management plan.  As the smallest of unexpected financial expenses could wreak havoc on your overall retirement plan.

Next, to having your debt maintained, the next best financial move you could make would be having an emergency fund.  An emergency fund is just that, money set aside, typically 3 to 6 months of salary or living expenses.

If a sudden job loss, medical issue, or life emergency arises, your emergency fund, helps provide you the financial wherewithal to make it through without having to go into debt.

Invest in Your Retirement Plan

This year if you are under 50, you can contribute a max amount of $19,000 to your plan, but if you are over 50, you can contribute a max amount of $25,000.

Did you know that there are more retirement savings options beyond your 401(k)?  However, no matter how much you may contribute to your 401(k) plan, you can also invest in an Individual Retirement Plan (IRA).

As you may know, an IRA comes in two forms a Traditional or Roth.  You can find out more about these options to see which one may be right for you by reading this article.

This year if you are under 50, you can contribute up to $6,000 to an IRA, but if you are over 50, you can contribute a max amount of $7,000.

In total, you could contribute $25,000 to a qualified retirement plan if you are under 50 or $31,000 if you are 50 or older.  Contributions of these magnitudes could really boost your wealth management plan’s probability of success.

 Invest in Your Kids

As most of you know, I have a set of triplets and a younger daughter.  That is a lot of colleges to pay for.  It can be daunting for anyone to determine how they are going to help their kids fund this cost.

One of the most flexible college savings options is to establish and fund a 529 plan.  The assets within a 529 plan grow tax-free when used for the typical qualified educational expenses such as tuition, room, and board.

What I like most about the 529 plan is that anyone can contribute to them.  I encourage parents to establish a plan even if they don’t contribute, simply to allow others, such as family members to make contributions.

Celebrate

Thus far, I have identified four ways to use your bonus to help solidify and improve your wealth management plan.  However, I may have saved the best for last.

You’ve worked hard to help your company achieve its objectives for your bonus payout to occur.  Why not take some of that bonus and enjoy the fruits of your labor?

While financial and life goals are important, working towards them can often be hard and requires a healthy amount of discipline.  A bonus payout whether planned or a surprise should have a portion of it set aside to enjoy now.  Maybe it’s a nice dinner with your family or a long weekend away with your spouse.  While the possibilities may be endless, take the time to pause and enjoy it, within reason.

A Balanced Approach

Like with so many aspects of a comprehensive wealth management plan, taking a balanced approach will often get you to see your results faster with potentially a little less stress.

You should design your wealth management pie to align with both your financial and life goals.  Knowing what is important to you will help dictate the size of your wealth planning pie slices, which creates the foundation of your wealth management plan.

With your wealth management plan in place, it will help guide you to make decisions that create peace of mind.

For questions about any wealth planning, portfolio management, or tax related topics, do not hesitate to contact me to find out what options may be best for your personal situation.