Some companies offer quarterly or annual bonuses. Though its rewarding to receive a bonus, it’s also important to create your budget without using your bonus as part of your annual budget. To help you handle bonuses correctly, follow these simple guidelines:
Don’t do anything until you actually get your bonus
You might have a vague idea of how much bonus you’ll get but do not start spending the money before you get it. Plus, it will be taxed before it even reaches you. So, you really don’t know exactly how much you’ll get.
It’s okay to have general plans for your money, but don’t start racking up credit card debt or making promises to your family about extravagant vacations until the money is in your account.
Your bonus isn’t guaranteed income
If the company is not doing well that quarter, they may opt to cut bonuses rather than lay people off. It’s also possible that you may not qualify for the bonus based on unmet sales quotas or other performance expectations. Keep in mind that your bonus is not entirely within your control so you should avoid relying on it as a regular part of your income.
Don’t rely on bonuses to reach financial goals
Using your bonus to help you reach your financial goals like paying off debt or building your emergency fund are good ideas. You will also be able to reach your goals more quickly. However, you should be working towards these goals separately as part of your monthly budget. If you solely rely on your bonuses to reach these goals, you may not make any real progress. If you’re making progress regardless of your bonus, you won’t be as frustrated if your bonus is not what you expected.
Have a little fun
It’s your bonus and you earned it! It’s okay to indulge a little. Set aside 10% to reward yourself for a year of hard work. For example, if your bonus is $3,000, take $300 and treat yourself. Go out to dinner with your significant other or get something beautiful. If you don’t have any debt, you own your home, and have a funded emergency fund, do something fun. Go on a vacation. However, you need to understand that you’re not to purchase any item or go on vacation unless you actually receive it. So if you decide to use your bonus each year to cover your family vacation, understand that you will not go on vacation if you do not receive the bonus. This way your vacation will not destroy your budget.
Don’t Depend on Your Bonuses to Make Ends Meet
Its unwise to include your bonuses in your budgeting estimations when determining how much you can afford to borrow – especially for a home. This will protect your finances in the future. If you’re relying on your bonus to make ends meet each year, you need to change the way you’re spending money or earn a higher salary.
Lastly, whatever your bonus, it’s always a good idea to invest or save part of it.