March – In like a lion and out like a lamb! Or so they say. Do they still say that? If you thought this post was going to be about the NCAA basketball tournament, sorry. March is bonus time at the Need2Save household. Woot-Woot!
March is usually cold here in the DC suburbs but nothing warms you up like a little extra incoming cash! Not only that – due to our current pay cycles, we will also both be getting an extra check this month! As if that wasn’t enough, Mr.Need2Save just found out that he will be getting the maximum $5,000 Profit Sharing 401(k) deposit from his employer in March.
This makes it feel more like March has started out like a lamb and will finish like a lion! If you have the urge to roar, we won’t judge!
We aren’t sharing details about our good fortune to be boastful. We have both worked hard (even taken some time off for raising kids) and are blessed to have really good paying jobs which come with annual bonuses. This year our annual bonuses were a little subdued due to lower performance at our respective companies. In addition, I have to wait until July to get the second part of my bonus compensation. I’m not sure the amount of that payment but it should be somewhere between $20,000 and $30,000 (before taxes of course).
We are sharing details because it’s important for us to talk about these extra earnings and how we use them strategically to meet our Early Retirement saving goals. Let’s be honest – without these extra earnings, it would take a lot longer for us to be retirement ready.
Heck, your bonus may be way bigger than ours too! If so, kudos to you badass!
Also, we want to be more transparent about where our earnings are coming from and we want to hear from you if you have some really creative ideas on how to allocate bonus earnings.
Extra Earnings Are Possible at All Income Levels
If you are working in a job that does not pay annual bonuses, does the lack of this significant variable pay leave you feeling like a second class worker? There are ways to find or earn extra money. Perhaps you get a higher base pay rate than you otherwise would, if they decided to give you part of your earnings as ‘discretionary’. Can you get overtime pay?
Even our 18-year-old son recently got a $250 bonus from an hourly job that only lasted 90 days! It was totally unexpected and he felt pretty good about it. When you are making $11 an hour, an extra $250 feels pretty damn awesome.
Back in our earliest career days when we were mere pups, we would often get a small year-end gift from former employers around the holidays. It wasn’t always a lot. Sometimes just $100 or a nice little $25-$50 gift card to buy whatever we wanted around Thanksgiving.
Okay, it’s absolutely true that one year Mr. Need2Save used an entire $35 gift card to buy nothing but Ben and Jerry’s Ice Cream. He’s not perfect!
Bonuses Can Cause Marital Stress
Back when I wasn’t working (outside the home) and I was taking care of our sons full-time, Mr. Need2Save was our sole breadwinner and bonus time was a bit of a double-edged sword for me. The extra income was great! But Mr. Need2Save and I didn’t really talk about what to use the money for in advance. One year he announced he was going to use the bonus money for some gizmo that he was coveting. (I don’t even remember what it was for). He thought that he worked really hard for that bonus and he should be able to use it for something fun. For him.
I certainly didn’t blame him. He had worked hard, but weren’t we a team in this thing?
As an unpaid stay-at-home mom, this sort of stung for some reason. I was starting to feel lost in my SAHM identity and missed the handsome bonuses I used to earn. Hey, I’m valuable too! But, nobody is going to give me an annual bonus for outstanding performance as mom/cook/errand runner/home medic/story reader/play date organizer of the year!
The sting didn’t last long, but it was one of those moments in our marriage where we discovered that having a more open dialogue about our money priorities would make for a healthier and happy union. I wasn’t upset with him for earning a nice bonus, I just wanted to be involved in deciding how to use it.
How We Prioritize
Since those earlier days, we now plan ahead for how to best use any spike in earnings. Flash forward many years and a funny role reversal happened. Thankfully, Mr. Need2Save still gets an annual bonus (he’s actually still at the same employer). After reentering the workforce and a few sweet promotions, in recent years my bonus has been much bigger than his – like 4 times as big last year.
If you really do take a team approach to all your earnings, there will be no hard feelings on either side. We decide together on how to use all of our extra take-home pay.
For a long time, we prioritized these extra earnings for big projects. Some were home-improvement projects like adding a fence in the backyard (that’s for you little Ziggy!) or installing a patio. Sometimes we’ve set aside the money to replace one of our cars. Along the way, we’ve always tried to save some as well.
Depending on where we are with our goals, we have dedicated some to college savings, boosting the old Emergency Fund, or for funding some of our more expensive family vacations.
Nowadays, we discuss our ideas and decide together on the best path forward.
Our Current Priorities
Okay – confession time. About 2 years ago, we parked over $30,000 in bonus money for a specific home-improvement project that we still haven’t used! Perhaps another blog post will be coming on this soon, but we have dragged our feet (okay, it’s been mostly me) and still haven’t spent the money. Mr.Need2Save is really getting on me to get this project started. I think he may go ahead and invest the money if I don’t move soon. Also, I certainly don’t want him picking out tile and paint colors! We are just trying to figure out which bits of the project we want to do ourselves and which ones to pay someone else to do.
With a flush of new money this month, we don’t have other major projects looming and honestly, I don’t want to sit on more cash when we still have those other funds still sitting there. So this year almost all of the incoming bonus money will be directed towards a combination of our 3 Early Retirement goals!
Enough Yammering, Here is the Breakdown
I’m kind of obsessed with pretty charts and graphs, so hope you enjoy this format…
The breakdown of the ‘Other’ category is as follows: $3,000 for Mr. Need2Save’s motorcycle purchase this spring, $2,000 saved for a small fence replacement project this year, and $1,000 thrown into our vacation bucket.
If you are following our Early Retirement goals, this advances Goal 1 (paying off our mortgage) by $7,500, Goal 2 (filling our gap year savings) by $13,926, and Goal 3 (post-60 retirement savings) by $8,019. We have really been focusing on Goal 2 so this advances that priority the most. Additionally, when the second part of my bonus comes in July that should be able to go 100% to investments as well.
We are also still considering creating a Donor Advised Fund (DAF) this year but we have time to finish our research into this option and decide where to pull the funds from.
Don’t Earn Bonuses?
- Fake yourself into using extra paychecks as bonuses. (read more here)
- Use your tax refund, if you get one.
- Use the extra money in your pay after hitting the social security income tax ceiling ($127,200 for 2017). (read more here)
- Pick up an extra income source on the weekends/evenings.
- Sell $hit you don’t need or use.
- If you are unhappy about your current pay situation – start looking for a better paying job and learn new in-demand skills.
I admit that I’m going to miss bonus-time in the future. For now, it keeps me focused on doing my best at my day job so I can maximize these extra earnings before we hit our FIRE goals. While we are still slogging it at work, we are going to be mindful to put every one of those extra dollars to hard work for us. Our Early Retirement path would look very different without these earnings.
I don’t know about lions and lambs, but we are Mad about March this year! In a very good way.
We’d love to hear from you. How do you prioritize the occasional windfall like this? What was the biggest bonus you ever received? If you are retired, are bonuses something you still dream about? Did you ever spend an entire bonus on something you regretted later?