How to put bonus in budget

[corn18]

Another budgeting question (I'm driving my wife nuts). How do you handle an annual bonus? Right now, it sits outside my monthly budget. I have all normal expenses covered including savings in the monthly budget. The bonus is just that, a bonus. I don't see a reason to put it in the budget other than to know how much it is and decide where to put it. Right now, it's going into my retirement savings or college fund.

Tom

[TheKayla]

For any irregular bonuses or for me, freelance checks even, I don't include them in my budget at all -- as if I never got them. The cash then goes directly to whatever my biggest financial goal is at the time -- extra loan payment, car payments, etc. It usually is a reward in itself to be that much closer to debt free as it is my biggest stress factor. Every once in a while, I may take out a hundred dollars or so to treat myself to a new outfit or eating out a bit more that month if I worked really hard on something and it was a bigger check/bonus, but I surely try to not make that a habit.

A lot of people do choose to spend irregular income a bit more freely, but just think of where to invest it in a way that will bring you the greatest gratification long term. I'd suggest saving most of it, but feel free to keep some for yourself if you feel its a bigger motivator. I know especially for my freelance income, taking out even a fraction of that to do something really for myself, I don't feel deprived and keep working for more income.

[kork13]

For any irregular bonuses or for me, freelance checks even, I don't include them in my budget at all -- as if I never got them. The cash then goes directly to whatever my biggest financial goal is at the time -- extra loan payment, car payments, etc.

This is what I do as well. Any unexpected money (bonus, tax refund, travel per diem/reimbursement, etc.) is immediately directed to either savings or debt payoff. Occasionally I'll justify spending a small part of that "surprise" money on something larger that I've been planning for a while, but even that is a rare occasion. The easiest way to include a bonus into the budget is to exclude it entirely, and just use it to enhance your financial standing.

[Jerry91]

I agree with the above two answers. Irregular bonuses or rather any kind of bonuses should be included in the budget. You are doing the right thing by saving it in a retirement account or college fund.

[Augustine]

The bonus is just that, a bonus. I don't see a reason to put it in the budget other than to know how much it is and decide where to put it.

I also agree that you should use the money to take care of your biggest financial priority and although it is not in your monthly budget, it should be included in your overall financial plan.

[Wino]

take care of your biggest financial priority

I second this. When you get the bonus, look at your present situation.

1. Living expenses (not luxuries; things like food, utilities, rent/mortgage, transportation)
2. Other expenses (also not luxuries; clothing, periodic maintenance, cell phones, 72 inch 3D smart TV*)
3. Small emergency fund
4. High interest debt
5. Low interest debt
6. Total emergency fund (6 months of the above items)
7. Short term savings (college for kids, fund for new car cash purchase, down payment or cash for a new house)
8. Retirement savings
9. Mortgage payoff
10. Toys (The bigger the boy, the more expensive the toys)

And in about that order. I don't know if I've left out anything critical, but you get the idea. You're in the 4 and 5 area right now, so that's where you should put your bonus when you get it. Numbers 7, 8, and 9 can be worked contemporaneously. When you get your next bonus, you look at the list again, and decide again what to do.

*Of course I'm not serious. (It should be at least 78 inches).

[corn18]

I second this. When you get the bonus, look at your present situation.

1. Living expenses (not luxuries; things like food, utilities, rent/mortgage, transportation)
2. Other expenses (also not luxuries; clothing, periodic maintenance, cell phones, 72 inch 3D smart TV*)
3. Small emergency fund
4. High interest debt
5. Low interest debt
6. Total emergency fund (6 months of the above items)
7. Short term savings (college for kids, fund for new car cash purchase, down payment or cash for a new house)
8. Retirement savings
9. Mortgage payoff
10. Toys (The bigger the boy, the more expensive the toys)

And in about that order. I don't know if I've left out anything critical, but you get the idea. You're in the 4 and 5 area right now, so that's where you should put your bonus when you get it. Numbers 7, 8, and 9 can be worked contemporaneously. When you get your next bonus, you look at the list again, and decide again what to do.

*Of course I'm not serious. (It should be at least 78 inches).

4,5 it is. This bonus pays off all debt except house. Next bonus is EF, retirement and college. It really skewed the budget into meaningless data when it was in there. Now I have a much better handle on monthly and irregular expenses vs. income. With the proper application of the bonus, I have a monthly budget that I am not as embarrassed to show someone. Still not great, but much better in the week or so since I have been on this forum.

Thanks everyone,

Tom

[disneysteve]

I have to say how great it is that you've taken this on and made so much progress in such a short time.

[ProjectDebtRelief]

Great job!

I am also one that doesn't include any bonuses in monthly budgets. I have never had a steady bonus but extra money is just that and goes to savings or debt -- never spent on "fun" stuff.

[LivingAlmostLarge]

Same our bonus isn't looked at in our regular budget because you never know what it will be. Some people do though if they work on commission and have a low set salary and know they usually pull in X amount.