230 | 4 Things to Do With Your Bonus

What did you do with your bonus last year?

Can you remember? Are you happy with how you used it?

If you’re looking to use your bonus more effectively this year, I have a few tips that will help.

In this episode, we’re talking about 4 things my husband and I do with our bonuses that you can implement, too.

• • 4 things my husband and I do with our bonuses

  • a big mistake many lawyers make with their bonuses

  • how to give more, if you want to
  • the importance of fun in your money management
  • the most effective way to work toward your goals

     

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You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords. By the way, if you’re a lawyer who’s struggling with debt, you’re probably making at least one of five common mistakes. Grab my free guide on how to correct those mistakes and finally get out of debt for good. Head on over to rhothomas.com/guide. That’s G-U-I-D-E.

Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. Today we are talking about how to use your bonus. I know bonus season is coming up, and this is a question that I get a lot, so I thought I’d share with you how my husband and I used our bonuses during the time that we were getting out of debt. So hopefully those tips will help you determine how you want to use yours if you get one. The first thing is more of what not to do than what to do, and that is that we don’t depend on getting a bonus. So we don’t depend on getting a bonus at all. We don’t depend on getting a bonus of a certain level or a certain amount. Have you ever been in a situation where you thought that you get a bonus, but you didn’t get one, or it ended up being lower than you thought it was going to be. I have seen that happen too many times with my clients, where, you know, some of the debt that they had was actually because they put something on a credit card that they didn’t have the money for. They technically couldn’t afford it, but they were like, Oh well, my bonus is coming in X amount of months, and so I’ll just pay it off then. But then they didn’t get a bonus, or the bonus was lower than it had been in the past, and so now they’re stuck with this debt. Bonuses are extra. They’re not guaranteed, like whether you get one or whether it’s a certain amount, none of that is guaranteed. So you want to make sure that you can cover your expenses with your regular income. And then you know, if you get a bonus, great, and you can use that money for something extra, but don’t count on that money. The next thing is we tithe. So if you’re not familiar with the concept of tithing in the Christian faith, it’s giving 10% of your income to your church. We give 10% of our gross income, including the total amount of any bonuses we receive, not just the amount that we get in our checking account. So we give 10% of our income before tax to our church. I know from working with so many of you that a lot of you have a heart to give, and a lot of my clients would love to give more, whether that’s to their church or to an organization that is important to them, and they sometimes feel like they just can’t afford it. So if that’s you, know that you’re not alone. We were in that exact same boat when we first started, when we were in our debt journey and all of that. And we started out with smaller contributions to our church, and then we stepped up to 10% of our net income, so 10% of what we actually got into our checking account, and then we stepped up to 10% of our gross income. So it is something that you can kind of step up into as you go along. And then beyond your tithes, maybe you want to give to other charitable organizations or things like that, like we do that as well. So if you’d like to give more using your bonus, could be one way that you do that. I The next thing we do is we take a small percentage for ourselves to just spend on fun things. A lot of times when people get bonuses, especially when they have goals like getting out of debt or saving, the tendency is to want to put all of that money right, all of the bonus toward their debt or in their savings account or whatever it is. But that’s a mistake, because if you are constantly focused on this goal, and everything is going toward the goal, and you’re not making that room for yourself and the things that are important to you, you’re going to burn out. And then when you burn out, you end up giving up, which means that you don’t end up achieving the goal that you are working so hard for. So when you get a bonus, I think you get to enjoy the fruits of your labor. When one of us got a bonus, we would take maybe 10% and we would be able to spend it however we want it to. We would put that in our fun money account. So I’ve talked about the concept of fun money before. It’s just money that you get to spend, no questions asked, and it doesn’t impact your bills or your goals, or, in the case of, you know, if you’re sharing your finances with a partner, it doesn’t impact your partner at all. So you get that fun money that set aside already accounted for. And so we would take a small portion of our bonus and split it between our fun money account so that we could get fun things that we wanted to buy. 10% is not a hard and fast rule, like, I don’t know if we did 10% every time, maybe sometimes it was more, maybe sometimes it was less, but the point is that you take a small ish percentage for yourself, and you are able to use the majority of it to improve your finances if you’re in that season of life. The final thing is put our money toward our goals. The final thing we do is put money toward our goals. So back when we were getting out of debt, that was paying off debt. These days, it tends to be things like investments, but I always say you want to focus on one thing at a time. It’s something that I learned from the book essentialism, where the author talked about how we split our focus and our energy among so many different things that we aren’t able to truly do any of them well or to make very much progress on any of them. So he says, rather than splitting your time, your attention, your focus, your energy on all these different things and making a little bit of progress, focus that time, energy, attention, whatever, on the thing that matters most, and make a bunch of progress on that. And so I’ve applied that same principle to personal finance, where I teach my clients, and what we’ve done personally is I don’t spread the money across all these different goals, right? I teach my clients to focus on the goal that’s most important to them. So for example, if you don’t have an emergency fund, I suggest you have an emergency fund. And what you could do, let’s say you have a $5,000 bonus, and you want to have $3,000 in your emergency fund, right? You’re going to take $3,000 from that bonus and put it into your emergency fund, and then the remaining money you have put in put toward whatever your next goal is. So let’s say it’s paying off a credit card or something like that, you would put all the rest of it on the next thing, like the whatever debt you’re focused on, and then if there’s any remaining after that is completely paid off, then you Put it on the next debt and so on. I when you try to split your money across all these different goals, the amount of money going to each one often isn’t really significant, like it’s not enough to make a significant difference with that goal, versus if you focus it and you put it all on one goal, and you’re able to finish that goal completely in a lot of cases, or make significant progress on it. When you get a bonus, it’s a great time to make significant progress on your goals, and in many cases, depending on the balances, if you’re paying off debt, you’d be able to pay off, you know, one or more completely. I remember I was working with this couple one time, and they had a few different debts, including two credit cards that were completely maxed out, and their monthly finances were really tight because of all the payments that they had, and they got a bonus between two of our sessions, so between two calls, and they didn’t talk to me about what they were planning to do with the bonus. They just did what they wanted to do with it. And it turned out that the bonus was enough to completely pay off one of those credit cards, and that payment would have been completely eliminated, and the payment was $1,000 or more. I don’t remember the specifics at this time, but it was at least $1,000, so they could have had that $1,000 back. But what they did was they split the bonus across a few different debts, like made extra payments on a few different debts. So they reduced the amount of the debts, right? They reduced the balance on it. But they didn’t completely get rid of any of them, and so they still had all these monthly payments coming out. And ultimately they ended up running back up, like running one of those credit cards back up. And I truly believe that if they had paid one credit card off completely, they had gotten the satisfaction of seeing that $0 balance on their credit card, they had that $1,000 or more back in their account, all of that, I think would have helped motivate them more. Ultimately, they ended up quitting, like they ran that credit card back up, and they ended up quitting altogether. And so I think if they had made a different choice, obviously, I can’t know that for sure, but if they had made a different choice, it would have made a more significant difference in their finances, and I think it would have helped to motivate them and keep them encouraged to keep going. So we want to use your bonus In the way that’s going to make the most progress for you. That means focusing on one thing at a time. And if you don’t have an emergency fund, like I said, I suggest you focus on building your emergency fund. If you do have one, then maybe you focus on paying off your debt, but we’re going to focus on one thing at a time, because you’re going to achieve your goals much faster that way. So that is how we have handled our bonuses. Don’t count on the bonus coming in certain amount. Take some and give if that’s something that’s important to you, take some for yourself to spend however you want to, and then use some for your goals. So that is it for this week’s episode. Please, if you have not done so already, take a second, subscribe to the show, leave a review. All of that helps us to get this information out to more people, because it helps the show to be recommended to more people. And as always, I greatly appreciate your support. As we close out, friend, I pray that you take the information you learn here, apply it in your life and open up to the realization that wealth is available to you. As you do that consistently, week after week, you’ll continue to take steps to regain control of your time, build wealth and live the life of freedom and choice you deserve. Talk to you later.