Year End Planning: Bonuses

 Less than half of all businesses provide a year-end bonus to employees*.  During the last decade, prior to the financial crisis, more than half of companies handed out bonuses.  My grandfather worked for Ford Motor Company and received many bonuses over his 30 years there.  But one word of wisdom that he shared with me that stuck:  You don’t live on your bonus, that’s for savings.

Here are 5 things to consider in allocating your year-end bonus:

  1. Review your financial plan. Are there any changes since you last updated your financial goals? 
  2. Have you accumulated any additional revolving debt that you don’t want to retain, if so consider paying off the highest costing debt first if you don’t have a cash flow issue?
  3. Are your emergency cash reserves at the appropriate level to provide for your comfort?  If not consider beefing them back up.
  4. Are your insurance coverages where they need to be to cover anything unexpected?  If not, consider re-evaluating these plans.
  5. Review your tax situation for the year.  Make an additional deposit to the IRS if you have income that has not yet been taxed so you don’t have to make that payment and potential penalties next April.   

If you can tick through the list and don’t need to put your bonus to any of those purposes, here are some other ideas: If you’re lucky enough to save your bonus, like my grandfather, consider maximizing your retirement plan at work, including the catch-up provision if you’re over 50.  Also consider maximizing a ROTH IRA, if eligible, or investing in a stock purchase program at work if one is offered.  Another idea is a 529 plan, which is a good vehicle for savings for educational goals.  If all of these are maximized, then consider saving in your after tax (non-retirement accounts) with diversified investments.

*Source: Huffington Post

Any information is not a complete summary of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making an investment.  Investing involves risks and you may incur a profit or loss regardless of strategy selected.  Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.