First things first: Congratulations on getting a bonus! For most people, getting a bonus like this is often the most money they have ever received in one lump sum. It’s an exciting moment, and you should be proud.
Getting a bonus comes with a lot of opportunities, but also some risks. Here are five rules you need to know about spending and saving your bonus:
- Remember that this money is taxable income. Depending on your tax bracket, a significant portion of this money will go towards federal, state, and local income taxes. Be sure to check with your accountant to ensure that you’re paying the right amount of taxes on your bonus before you use the money for other purposes.
- Decide how to allocate the remaining funds between what you need now and how much you want later. Retirement funds are crucial, even far before retirement. Remember that for some people, like professional athletes, retirement periods may last up to 60 years! It’s never too early to begin planning for your long-term future.
- Consider hiring a Financial Advisor to help guide you through allocating your bonus to meet your short- and long-term goals. Financial Advisors will listen to your individual needs and help you decide on the right breakdown of funds between emergency savings, retirement planning, college savings, and more.
- Spend a few weeks with your bonus before deciding to use it. It’s okay to want to buy presents for loved ones or get a new car – that’s a natural human tendency! But until you’ve spoken with your accountant and your Financial Advisor, it’s safest to keep your bonus unspent. This will help you avoid falling into the trap of blowing your bonus before thinking through your goals and needs. You’ve worked hard for this money – you deserve to use it to the fullest.
- Think about this bonus as just that: A bonus. It’s an exciting moment, but never a guarantee. Live off of your regular income and consider these funds as an opportunity to put a down payment on your future goals.
Here at Arbor Financial, we have over 20 years of experience helping clients navigate moments just like this. We’re focused on helping you make the right choices to meet your unique life goals – that means listening and tailoring our financial advice to your exact situation. Whether that’s deciding how to spend a bonus or learning how to save for retirement, we’re here for you. Make the right decision that puts you on the path to comfort and security. Reach out to us by using the link here.