What To Do With a Bonus

Today is a very long awaited day for us.  My husband is receiving the second portion of his retention package!  So about a year ago, while his company was undergoing some changes, he was offered a monetary package for staying with the company another year.  We said sure, why not?  He got the first part of his package after staying 6 months, and today he received the 2nd half of his package. Each half was approximately $8k.

What did we do with the first package?  Well, if I break it down this is what happened to package #1.

• Trip to South America
• A nice piece of jewelry
• A down payment on a leased luxury car

I know.  What on earth were we thinking??  That was us back then.  Present day us is *hopefully* smarter than that.

I was looking forward to this second check because I wanted to get started in being avid savers again.  So what am I going to do with the money?  I’m dumping it all into ING to increase the size of our emergency fund.  That will hopefully put me at around $15k.    Having learned the hard way what not to do with retention packages/bonuses, I now know what the best things to do with bonuses would be.

1. Pay off non-mortgage debt.  Depending on what the interest rates are on your loans (and during these times they are most likely higher savings rates), I would pay off the highest rate loan you have first.
2. Contribute to your retirement accounts. Hopefully you are contributing the maximum into your 401k.  If not, get on it NOW.  The next best thing you can do is contribute to your Roth IRA accounts.  Max it out if you can.  Remember if you make over $166,000 as a married couple you are not eligible to contribute.  So if you are making under $166,000, make sure you contribute as much as you can especially if you expect to rise above the $166,000 cut off anytime soon.
3. Build your emergency fund. I don’t care if the economists say we are out of the recession now.  You can still lose your job, you can still get sick, you can still get in an accident and you can still lose a loved one.  Be prepared.
4. Invest. Now is a great time to invest.  If all your other areas (meaning retirement, emergency fund, etc.) have been getting enough attention, look into some stocks.  Now is a great time.
5. Charity. I’m a strong believer in karma.  If you are doing well right now, it’s a good idea to give back.

What I have learned NOT to do with my bonus:

• spend it on materialistic goods that don’t really offer much value (ie. luxury car, jewelry)
• spend it before I receive it (yes this is how we were able to plan the South America trip.  We anticipated the funding for it and went ahead on the trip before we got the money).
• spend every penny of it.

I think its a good idea to spend a little bit of your bonus just to celebrate or to reward yourself.  What I did with our last retention package was NOT smart.  This time around, I plan on saving most of it but have no problem going out to dinner with the husband for a nice quiet celebration.  We will of course be enjoying wine beforehand!