Bonuses Aren't Free Money | Series 2.1

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Welcome to the Enjoy More 30s: Family Finance

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podcast, the only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out and distract our focus

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from simply enjoying life.

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Welcome to the Enjoy More 30s: Family Finance

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podcast. This is the second series now, which is called

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"Your Money Multipliers". So unlike the first "Your Money

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Mindset" series, where we were focusing more on higher level

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concepts for how we should approach money and finances

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really as a whole, namely viewing them as a tool to help

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remove anxiety and make life more enjoyable, this series will

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focus on more specific topics that affect your finances. The

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end goal, though, is really still the same. Any improvement

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that we can help make in any area that helps lessen the

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anxiety, creates more confidence for us to focus on making life

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more enjoyable for everything kind of outside of that.

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Today's episode is called "Bonuses Aren't Free Money". And

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what we're going to cover is what you need to know about how

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to approach your bonus, and what you can do to have it make the

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greatest impact for you. Now, we've all been in the position

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where we have that pair of pants that we own, we don't seem to

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want to throw it away. But you know, it's usually a pair of

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jeans or something like that, that you have crumpled up. And

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you know, once in a blue moon, they seem to fit the occasion.

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And you put them on you, they're a bit uncomfortable, because you

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haven't worn them in a while, and you wind up sticking your

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hands down to the pockets to get them situated, fitted correctly,

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what have you. And lo and behold, there's money in the

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pocket. So you pull it out all excited, because hey, you just

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found free money. The first thing that we naturally think of

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next- 'that's going to be just enough to buy __' and then you

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can kind of finish the sentence. And the money is gone. No one's

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reaction is, "Hey, that's great. I can't wait to get down to the

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bank and make a deposit." Now, if I'm a financial advisor, and

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I don't have that reaction about wanting to run down to the bank

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with that $10 bill and put it in my checking account, then you

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and everybody else certainly does not have that reaction

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either. And the thing is, it was always our money, we just didn't

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know we were finding it until just then. And the emotional

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excitement and surprise, influence the reaction that we

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had.

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So what you need to know- finding money in your pocket is

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surprisingly similar to how a lot of people tend to treat the

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bonuses that they receive. They know they're coming, not quite

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sure of the amount most times. But when they do come, it can

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very much feel like free money. If you treat it this way,

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though, you are negatively affecting yourself in actually t

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o ways. The first is pretty o vious- you're missing a p

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tential significant annual o portunity to save more money a

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d reach your goals more q ickly. The less you save, the l

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ss you have long term. So t at's pretty straightforward. T

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e second, though, is somewhat l ss obvious. When you forego s

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vings, you are also getting a customed to spending more. So w

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have clients that may tell u , "Hey, I always just treat t

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at as, you know, extra money. I don't need to live on that in r

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tirement, you don't have to w rry about that. Because it was j

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st, you know, it's free m ney." Now, if you stop and t

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ink about what you spent it o , though, which is what we do w

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th clients, that's often not t e case. Let's say you spent it o

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vacations- do you not want to v cation at all in retirement? H

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w about home renovations- are y u never going to want to u

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date your home again over a 20 t 30 year retirement? Whatever o

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r current equivalent is to g andma wallpaper and s

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ipcovers, I'm sure you're g nna want to get rid of it at s

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me point.

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So basically, you get hit twice. You're going to have less saved

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up, which is pretty obvious. But you will simultaneously, and

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more importantly, be accustomed to living on more because of

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that bonus. And a lot of the things that you're spending that

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bonus on now, you're probably going to want to do in

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retirement. Which means that income does also need to be

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replaced to have the retirement that, you know, you're going to

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want to have.

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So what can you do? The answer is to plan ahead of time what

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you will do with your bonus. And it absolutely does not and

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should not be to save 100% of it. Now, let's say you received

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a $10,000 bonus, for example. You could save maybe $5,000, go

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on vacation for another $3,000, and put $2,000 towards a home

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improvement, just as an example. But any portion that you wind up

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saving above what you otherwise would have done can be hugely,

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hugely significant. Another way, which really requires a little

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bit more of an advisor to implement, is that we have some

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clients that when we do their projections, it turns out if

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they just save 100% of their bonus, they don't have to worry

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about saving any other amount of their normal paycheck to reach

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their goals. And some of them really, really liked this

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mentality of, "Hey, this is free money that I get extra. Sure,

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you can have that you could put that towards my goals, since

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it's really not part of the normal pay that I get every

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month anyhow. And so if I just can have the freedom to spend my

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monthly paycheck kind of however I want, and you know, this bonus

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that just comes randomly once per year that I don't really

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think about can take care of me reaching all the goals and doing

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everything I want to do, then spending my paycheck anxiety

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free would actually make me the happiest."

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So there are a number of different ways that we can

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approach it. But using some approach to have this bonus

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reach our goals and reduce our anxiety in the process is what

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we're trying to accomplish. Overall, there are different

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ways to approach it. But anyway you happen to look at it, if the

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end result is you save more money than you otherwise would

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have, then you're giving yourself those two advantages.

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One, there will be more saved down the line and you will reach

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your goals more quickly. And two, and actually more important

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in many, many cases, what you are accustomed to living on, and

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therefore what you need to replace in retirement, will be

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So a quick summary of today's meeting. One- bonuses are not

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free money. You need to plan for what you want to do with those

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funds ahead of time. Two, if you treat it as free money and spend

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it- again, you're hurtin yourself in two ways. Less save

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less.

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, and more to be replaced long term. Three, you do not have t

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save all of it in your pla . Any portion then benefits

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ou in those two ways- more saved less to replace long

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Thanks for joining us today. Because a lot of this can be

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very complicated, and a lot of times you may leave an episode

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and say, "Hey, you know, I really need a little bit more

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information for how it applies to my situation", we've also

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added an 'ask Joe' section to the website. So if you go to

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enjoy more 30s .com, that's enjoy more three zero s .com,

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you'll now find an 'ask Joe' button on the lower right hand

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side where you could submit questions. We'd be happy to try

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to help and answer anything that we can to give you that

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additional resource going forward.

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If you enjoyed this episode, as I always say, please please make

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sure to subscribe and review us on Apple podcasts or wherever

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rankings so more people like you can find us. Now the next

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upcoming episode is entitled "Live It Up! Vacation Accounts".

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That will cover how to ensure we take the time for vacations, and

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at the same time maybe even improve ourselves a little bit

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financially in the process. So thanks very much as always, and

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I'll talk to you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS securities Inc and TFS advisory services an SEC

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registered investment advisor member FINRA/SIPC.