7 Things You Can Do With an Expected or Unexpected Year End Bonus

 

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‘Tis the season for an expected or unexpected bonus payment at work. Many people are fortunate enough to work for an employer who recognizes their hard work.

What to do with it? Depending on your situation there are different answers.

Save it – Saving it would be a smart option. Beefing up (or starting) an emergency fund is a great idea. Read most any article and you’ll see this is a foundational step. How much to save? That depends. Dave Ramsey says 3-6 months; Suze Orman says 9 months. I am a fan of Suze on this one. There is nothing like having some cash when things don’t go as expected.

Invest it – Adding additional funds to your retirement savings is always a good move. Whether you can defer more into your 401(k) or IRA, your older self will thank you for doing so. I frequently ask myself when I am thinking of spending money needlessly whether my older self would care that I spent money on XXXXXX. The answer is always no. This helps me clarify needs vs. wants. Not to say I don’t spend on wants, I just don’t get into the stupid zone with it.

Pay Down Debt – If you have debt you are trying to clear, then this might be a great opportunity to gain some ground on it. Using an annual bonus to make an extra principal payment on your mortgage can reduce your interest in addition to scheduling that “burn the mortgage” party earlier!

Education –  Have you wanted to take a class or start on a degree program? This might be the jumpstart you need. Have kids? You could put it into their 529.

Home Repairs – There might be a home repair you’ve been putting off that you would love to tackle over the New Year. This has the potential, depending on the repair, to increase the value of your home. You could do something big like a new furnace or something small like replacing your kitchen cabinet knobs with something new.

Spend it – Maybe you had plans and were saving up for something special and this puts you over that magical amount. Balance out your spending with other priorities. While items are nice, sometimes spending on experiences is well worth it, especially with family.

Donate it – I have a friend who donates her annual bonus every year split between her local church and a variety of good causes on her list. Some good ideas are food pantries, hospitals, conservation groups, homeless shelters or even a friend, family member or neighbor in need. There is no better feeling than being able to help somebody else.

Any of these or a mix of them would be great choices. The important thing is to plan out whatever you are going to do with it. You will then avoid that awful feeling of regret.

Do what you do intentionally. Your employer gave you the bonus to reward you for your hard work this year. Follow through and continue to do a good job for yourself.

 

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Why Dave Ramsey is right about using cash

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I have listened to Dave Ramsey since late 2007. My husband found his TV show on Fox Business one night. He came down the stairs and said “there is this guy on TV you might like”. So I watched and was hooked. Since then the TV show went off the air but in the interim I found the podcasts and listen to them regularly.

Dave Ramsey is a huge advocate of using cash and rages against credit card use. He has rational and logical arguments against this. I agree that they are really are a convenience.

In early 2008 we decided to make the switch from using credit cards to cash. I had used credit cards since I reached theoretical adulthood at 18. I thought it would be a minor change and in some ways it was, but not in others. Here is what I discovered when I made the switch.

Spending cash requires pre-planning. With a credit card I can go anywhere conveniently. If I am to spend cash, I need to go to the bank (or an ATM), and take out the right amount of money. If I don’t take enough out, or even if I do, I am limited. This resulted in the next thing I found.

I spent less. I had always budgeted but as many studies have shown, I spent more by using plastic. There is just simply a bottomless pit of money there. You are limited by your credit card limit but really, who thinks about that when spending? You would only think about that if whatever you were buying would bump up against your limit. If you are buying dinner for $65 and your limit is $3,000, you won’t give a thought to ordering a dessert. You will rationalize that it is only $8 and order that chocolate cake. How much would it cost you to bake a chocolate cake at home and save money? Next to nothing.

I had a hard time parting with my cash. This was quite surprising to me. This made it real. There was more of a connection between “feeling” my spending than with a credit card. I naturally limited myself because I wanted to hang on to the cash. This was probably the biggest benefit I found by doing this.

I stayed on budget. Really this statement is a no brainer. I only had so much cash to spend and when it was gone, I was done. The time I would need to spend to go out of my way to go get more money just wasn’t worth it to me. I am a busy person and didn’t want to do that. Inertia works in my favor there. The trip is not worth it to me. This was a built in buffer or “time out” from spending aimlessly.

The loss of the credit card rewards really didn’t matter. When you are using the cards, you think that you are being smart since you are getting some money back. Not using coupons but using your credit card? That’s okay, you’ll get rewards points. When you stop using them, you find that those rewards are much smaller than what you save by staying on budget.

I felt relieved. I handle all the money in our home. I use Quicken for our finances. Each credit card charge requires me getting a receipt, bringing it home, entering it into the software, reconciling the bill, then paying it on time. It was so liberating not to have to do all of that or keep track of it. I felt free.

I had no purchasing guilt. This is one of the things I heard on Dave’s show and it is real. He says having a budget gives you permission to spend. I agree except that I always had a budget. I didn’t always follow it, but even when I did there was always something “there” and I never noticed it until I switched to cash. It was stress. Stress for spending and not having the tangible cash in my hand. Even though I knew I had enough in my checking account to pay for it because I planned on spending $100 at that store, it was still there. I never knew it until I switched. Then I could feel it leave.

Freedom. I have never looked back. Try it.