Bonus time is a little like Christmas as a 10-year-old. You think you’ve been pretty good all year, drafted your letter to Santa by writing a really compelling annual review about your fabulousness, and then wake up on that magic morning wondering what exactly will be left under the tree.
Getting any kind of bonus in your line of work is a total privilege, so it’s essential for financial well-being that it’s put to good use, despite our instinct to want to buy all the things the minute it hits our bank account. I have a pretty specific formula for financial windfalls and treat bonuses the same way. Here’s exactly how I’m spending my after-tax bonus this year, and why:
40% to Pay Off Debt
This is the absolute first stop. If you get a windfall, make paying down your debt a financial priority. Credit cards and any other consumer debt should always be considered as the first to go.
I’m working my way to becoming entirely debt-free, but am holding on to a few student loans at low payments simply because the interest rate is insanely low and I can take my time on those. (One benefit to school during recessionary periods!) That said, tackling student loan debt is challenging but absolutely doable, especially if using some of these unexpected inflows.
If I had debt that was sitting around at a higher interest rate and not attached to the investment of my education, this percentage might need to be higher. Paying down debt with an unexpected windfall is a really useful first move. It makes the rest of your money go further because interest you earn on savings isn’t offset by the interest you’re paying on debt.
30% Toward Savings
This past 18 months have taxed my savings beyond the cushion I really like to have, so it was essential to get it back up to closer to that “emergency” level that we all shoot for. That should look like three months of expenses saved — including rent, groceries, etc. If you’re good in this emergency savings category, think about increasing your retirement funds.
New York rent — and frankly, many urban areas nowadays — make that an obnoxious number, but it still is still the golden goal to try to have financial peace of mind during difficult times. In that calculation, be sure to take into account spending that keeps your lifestyle fairly intact.
Most of us don’t want to have to sell possessions, make major cuts, or change standing recurring payments (like child care, pet services, car payments, etc.) because of what we all hope is a short-term financial issue.
10% for Nesting
The older I get, the more I need the nest to feel like a restorative respite after the crazy days that actually get you to a place where you get a bonus. I’m becoming more and more aware that treating my home like an investment can make a difference in mine and my family’s overall well-being.
This bonus went to a few home upgrades that were essential to creating a cozy space for us to call home. Whatever this purchase might be for you, think about the little details of your every day life that would add a feeling of luxury with a little better quality. Maybe it’s a plush throw for the couch, an upgraded coffee maker, or a collector’s set of your favorite reads to enjoy.
10% for Travel
Vacation funds need to come from somewhere, and that can be one of the hardest areas I find to save around. This one is pretty simple, but it’s a helpful category to think of on its own as travel costs can add up quickly if you’re not really disciplined saving for them.
This year, travel spending took the form of an immediate trip to get our year on the right track, but ideally this will extend into travel you have planned for the rest of the year as well. I also tend to forget more localized travel costs (for example, grabbing a train ticket to visit a friend in a relatively close city.) Those costs can still add up, so saving for them in advance helps.
10% For Reinvesting in Me
Clever move girl — isn’t this just spending on yourself? Well not exactly. I think of bonus “investment in me” spending as things that build my brand at the office, grow my resume, and keep evolving my executive presence. This year, that took a few forms. I needed a few polished work accessories — a couple of professional portfolios to take to meetings and a few other work accessories.
I also spent money on a few classes around emerging technologies and financial concepts that will help me grow at my day job. There are so many affordable options for this skill building, but sometimes work isn’t up for footing the bill for things that are slightly adjacent to your core activities. Lastly, I desperately needed a few work basics and hit up my go-to basics haven for a new blazer. These are the buys that are squarely directed at keeping me moving forward in my career across style and substance.