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It’s Year-End Bonus Time // The Irony That Comes with Doing Personal Finance Right

sorry to those of you who got an early email about this post, before it actually posted. we’re struggling to adapt to the new (in our opinion worse) wordpress interface. but let’s press on!

this week and next are anxious weeks for us. these are the weeks when we’ll find out whether we’ll be doing a happy dance that we hit our year-end goals, or making sad puppy faces at each other for the next few weeks because we missed the mark. yep, it’s bonus time.

a little rewind for newer readers, or those who read a thousand blogs and can’t keep everyone’s story straight — no judgment. we’re planning to retire at the end of 2017, pretty much no matter what (within reason, or even not within reason — we’ll definitely retire if the zombie apocalypse comes). we’ll explain why that date is significant once we’ve finally pulled the plug, but we’re highly motivated to make our finances work by that time, or to reverse engineer our budget once we know what we have as of our quit date. that has meant adjusting our original targets, which would have let us retire closer to 2020, to more aggressive numbers, which require a combination of laser-focused saving and major cooperation from the markets. and, well, the markets haven’t held up their end of the bargain this year, with their mostly flat performance so far (not to mention that little roller coaster ride in late summer, though thankfully that has mostly evened out).

we’re both in senior positions, and at the end of each year, we get bonuses that are partially a reflection of our performance, but are by and large a form of profit-sharing with our respective companies. this is great in good years, because we benefit even if we didn’t have all-star years ourselves, but it’s a bummer in the down years, because we get small bonuses even if we rocked it individually. the writing is on the wall this year — not a great year for one of our companies, and a medium year for the other. meaning: we’re going into our year-end reviews with low expectations, and are anticipating that we won’t hit the targets we set for the year. :::sad trombone sound:::

related: adjusting our goals // rolling with the market punches

The irony of doing personal finance right // Our Next Life

getting started in investing is tons of fun, because you watch your balances go generally up as you save more and more. for new investors, most of the changes in balance are from investing more cash, not from market swings (and hopefully not from taking money out!). it’s wonderfully motivating, because you see a direct result: put money in, balance goes up, high fives all around. but then this funny thing happens after you’ve been at it a while, and saved a nice sized chunk: suddenly, the direction that the little graph goes isn’t up to you anymore, and even if you’re investing like gangbusters, the line has a mind of its own. it might go up, it might go down. before you know it, you might start seeing big swings, like seeing a decline over a month of more than you plan to spend in a whole year of retirement. (yes, this happened to us in august, but it didn’t mean anything since we didn’t sell any shares, and things bounced back in october.)

this same thing happened with our bonuses, too. when we were young cubs in our industries, we got our little bonuses reliably, as a pat on our eager heads for working hard and showing promise. but as we stayed at it longer and got to be more senior, and the potential for much larger bonuses increased, we started to have a lot less control over these as well. just like with our market investments, our bonuses started to rise and fall with the health of our companies, and had much less to do with our own inputs.

how’s that for irony? you work hard to get your finances in order, and to put yourself in control of them, only to be rewarded with… losing that control? that’s an exaggeration, of course, since we still decide where and how to invest our assets, and we decide what companies to work for. we’re far from powerless. but there’s a pretty big dose of mandatory surrender that happens in personal finance, ironically, when you’re doing it right.

we view all of this as a reminder that it’s okay not to be in control of everything, and in fact, that we’re never fully in control even if we think we are. not to get all yogariffic on you guys, but letting yourself surf the flow instead of fighting against the current is a far better way to be. that attitude is required if you’re going to be a happy investor.

what we’ll do with our bonuses

no matter what our bonus amounts end up being, we’ll sock 100 percent of both bonuses away into some combo of our index fund account at vanguard and our primary residence mortgage (as opposed to our rental property mortgage), since our goal is to have the house paid off before we retire, and we need enough in our vanguard account to sustain us for the first ~20 years of retirement, until we go into 401(k)/ira mode. we’re considering making a personal loan to a family member, which could also play into this as well — perhaps we’ll talk about that in a future post. (it’s not something we would have chosen or offered, since mixing family and money is dicey business, but we’ve been asked, and want to give it our full consideration.)

i find out later this week what my bonus is (thursday, to be exact), and mr. onl finds out next week. we’ll take any happy bonus-y vibes you care to send our way! :-)

anybody else who has crossed the point when the markets have a bigger impact on your balances than your savings rate struggle with this fact? anyone have some pro tips on learning to surf the wave instead of fighting the current? anyone else waiting to learn about your bonus and want to vent about it? we’re all ears!


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54 replies »

  1. Hahahaha, you can get all yogariffic on me anytime. :) This is SUCH an interesting point about gaining control, only to lose control. Since my investments are still at the teeny-tiny beginning stage, I haven’t really experienced this yet. But good to know that it’s coming up!

    I actually think that the whole control thing is a pretty important topic in the pfsphere. Because really, that IS the concept that is underlying many, many of all of our posts on some level: You can be in control. Take control. If you do X, Y will happen. It’s up to you to make a change. But in truth (and I’m about to go all Pema Chodroniffic on you) we don’t actually have control over anything. In addition to the stock market not doing what you expect it to, anybody could get robbed or hacked at any time, or have a personal emergency, or a change of heart. I think it’s probably a good idea to try to keep this in mind as much as possible, or else we (and by “we” I really mean “I”) can get into these narratives like, “Oh yeah, I used to be reckless with money, but now I’ve got it all figured out, end of story, don’t expect any further developments on this front.” Whereas actually our situations, values, or beliefs could change in ways we don’t expect.

    So yeah. Important stuff. Thanks for posting. :)

    • And YOU can Pema out any time you want. :-) I think it’s an important narrative for the PF world to empower people and make them feel in control, because otherwise what’s to stop people from saying, “Well, you can’t really control things, so YOLO!” But yeah, it’s also a total misconception. Keeping it real over here… ;-)

  2. I’m completely with you there !
    Before, I was mostly ignoring the line behavior most of the time, but now that we want to retire early, the line feel less abstract. With all the recent market swings, some days, adding funds felt like rescuing the line from going down! I know that, with a bit of luck, it just mean that we are enjoying good investment prices, but I still prefer to see the line goes up :)

  3. I imagine there is a lot of anticipation leading up to what your bonus will be this year. Hope it’s a great one! I think you do what you can and what you have control of, and learn to let the rest go. Easier said than done of course. :)

  4. We haven’t been superstar savers this year, but I would say that around the point when we crossed about $200K in investments (excluding our rental and cash), we started to see the market do its market thing. Some months, we see multi-thousand gains, and other months multi-thousand losses.

    If we were still DINKs with a commensurately high savings rate, we might not have noticed until around $300-$400K, but I can’t really complain one way or the other. Our stock market investments literally began at historic lows (2008 & 2010 respectively).

    • I think that hitting that crossover point, while perhaps more stressful because fluctuations are more pronounced, is also a super awesome thing. So congrats for being well into that zone!

  5. Definitely an interesting topic. Since I demoted myself last year by quitting my director job, I put myself in the position of pretty much getting healthy bonuses every year regardless of how well the company itself does because I am no longer in a position of seniority (they happen quarterly, though). This year it’ll probably work out nicely because the market has been somewhat of a roller coaster. I MIGHT actually make out better, but that was completely dumb luck. Last year, not a chance. Next year…we’ll see.

    I get what you mean regarding the irony of it all. The higher up you get, the less control you have over your own bonus, though the potential for getting paid incredible amounts of money also goes up. For most, I’d think that this risk is probably well-taken in your younger years. Though I appreciate the dependable quarterly bonus, there’s no doubt that the potential for something much, much larger demands attention.

    But in any case, I am definitely a “ride the wave” kind of person. What happens, happens. I do admit to looking at our net worth at an *almost* daily basis, and I do get frustrated with wild swings in the market due to itchy Wall Street types trying like idiots to “beat the market”, but eh, that’s the nature of the game I suppose.

    Good luck on Thursday – I seriously hope you guys get a huge chunk because you know exactly the right thing to do with it – invest some and pay down your mortgage with the rest. So many out there would buy a new car or some such nonsense.

    I’ll be thinking about ya! :)

  6. Sending happy bonus vibes your way for sure! I’m such a novice when it comes to investing, but I am starting to get very small tastes of mandatory surrender now that we’ve maxed out our Roths for another year.

  7. All in all, a great “problem” to have. Having worked our entire lives for employers who did not provide year end bonuses, I’d say regardless of the amounts, being able to accelerate your retirement dates and increase your assets in one fell swoop is indeed a coup! This is truly a “cup half full” opportunity, and whatever the final numbers they are simply another cherry on the top of your retirement sundae.

    • Haha — so true! A great problem to have. :-) And we have always loved getting a chunk of our income at the end of the year — it has always been terrific for our savings!

  8. End of year is always interesting because everyone’s talking big bonuses and large corporate Christmas parties where they give out prizes (flat screen tvs?!?). For Mr. T and I, December is the same as every other month in our companies. I guess it’s nice to not have to deal with a lot of weird corporate-y things, but I’m sometimes jealous of that extra at the end of the year! :)

    • We have never been to that kind of a holiday party! :-) And in truth, our bonuses are really deferred compensation more than “bonus.” It’s just easier to short-hand it that way. But yeah, the grass is always greener, right? ;-)

  9. Getting a big year-end bonus check is great, no question, but it’s definitely designed with the employer in mind: giving the company the ability to present a big target in recruiting and compensation negotiations, allowing them to reduce salary expenses in bad years, and serving as a carrot on a stick to keep employees until the end of the year. In my last job, there was always a big exodus each year after profit sharing was paid out.

    You make a great point. Just like you said, the more senior I’ve gotten, the larger percentage of my compensation has become “performance-based” — while at the same time, 90%+ of that “performance” is out of my hands: sales and metrics from other departments where I have no visibility or influence (or competence, for that matter). Love the comparison to the markets.

    Big bonus vibes for both you!

    • So totally agree with you — the bonus is great and all, but it’s absolutely a carrot on a stick, sometimes more stick than carrot! Thanks for the big bonus vibes! :-)

  10. With your plan to retire at the end of 2017, I would make putting 3 years worth of spending into cash in 2016. Then you don’t have to ride the waves. The waves rarely span more than 3 years from crest to crest and you won’t want to be thinking about them when you start your one year countdown. We did this a year ago and it takes the month-to-month “bounce” out of our thinking.

    • Great advice! We are actually pretty conservative in maintaining a higher cash position that most people would advise, so we already have close to two years. Our plan is to top it off more in 2016 and 2017, but to really invest hard this year. Great advice overall, for sure, to keep that good amount of cash on hand to ride out the bumps!

  11. We’re also in the mode of dealing with things being out of our control. In addition to what all passive investors have to deal with when markets fluctuate, I’m taking a beating on the bonus front. Working in health care, we have seen patients less willing to come in due to increased cost sharing with higher co-pays and deductibles. Thus our company is much less profitable and so my bonuses decrease. At the same time, our companies’ own health insurance premiums went up nearly 30% for the coming year, meaning our once awesome family coverage will now be a bit less awesome and we are responsible for a bigger share of the cost meaning essentially a pay cut.

    Seeing how massive of an effect a single piece of legislation can have (good for some, bad for others) and how quickly that can change with a change in administration/congress majority makes us pretty conservative on our health insurance planning for the long term.

    • Geez, yeah — you guys are getting the health care double whammy. I know I’ve been promising this post for a while (it’s super detailed, so is slow to write), but our Obamacare calculations have led us to conclude that we want to keep our income as low as possible in retirement as possible, to try to qualify for a super silver plan, which is just a step above Medicaid. Not sure if we can make it work, but doing that would make our health care expenses a lot more manageable and predictable! Wishing you guys good luck that you don’t get any more effective pay cuts while you’re working!

  12. I remember bonus time in my previous life. The hopeful anticipation and then the reality that the leadership always did everything they could to reduce it. But something was always better than nothing. Our bonuses were always paid in March. Because it was immediately taxed at the highest tax rate I would up my 401K percentage to eat a large portion of the bonus then adjusted the 401k with-holding down for the rest of the year to what would max it out. 401K Bulk purchase every March defeated some monthly cost averaging of purchased stocks/bonds benefits but I put it to work faster.

  13. :::Happy Bonus Dance!!::: The anticipation is always much to bear – but I always tend to chuckle a bit, because the indecision of which goal to put the bonus towards (versus my regular checking account) is where the nerves come to play. Do I want to increase my retirement savings? Propel our home down-payment fund? Beef up my emergency savings a bit more? I am sending you both incredible vibes! :) I just finished The One Page Financial Plan by Carl Richards, and one of the best chapters I think that helps with learning to surf the wave is titled “Invest Like a Scientist.” He emphasizes how to focus on the history and facts of the markets, versus getting caught up in emotion. Sometimes I feel like I can be a robot in terms of investing, but maintaining that allows me to not take away from my long term investment plan!

    • Thanks, Alyssa! I still maintain that my anxious dance is not a pretty sight. ;-) I definitely get the indecision about how to use a bonus! It’s easier for us because we’ve bought all the houses we ever plan to buy, are maxed in the retirement accounts we’re eligible for, and don’t have kids to save for. Sooooo… not a lot of other choices! I will have to check out that book. And thanks for the good vibes! :-)

  14. Although I do look at the markets like 20 times a day, I’ve learned to detach my emotions from it. I used to trade a lot and the first time lost a couple thousand trading options (I sold them almost worthless after a severe, untimely drop), I felt like complete crap. After that, I learned it was strictly business. No emotions, just numbers.

    I don’t trade much now, but several thousand dollar swings are a daily occurrence that I don’t even notice. The big drop earlier this year was something else though. I’m just going with the flow. If there’s ever a need to make extra money in the future, I’m sure I’ll figure something out.

    Best of luck on your bonuses!

    • Seems like you have a very healthy view of it all, which you’ve come by honestly! That’s great that you don’t stress about the ups and downs — generally we don’t either, except for that big correction this year that later evened out. Thanks for the well wishes!

  15. Oh bonuses. Mine is announced in January and I’m trying so hard not to count my eggs before they hatch. House fund is depending on it!
    I’m more concerned about the raise/promotion I’ve had dangled in front of me since the summer. Allegedly, a hiring freeze around here means no promotions until our year end review. I’m trusting a corporate machine and that’s not the best place to put trust. So I’ll send a bunch of money vibes your way, but I’m keeping a few for myself. Best of luck in your bonus amounts!

    • Welcome back! Hope your vacation was fantastic! Ours starts in under two weeks… Yay! Good luck getting that promotion and raise. Sending those good vibes back to you!

  16. The “bonus” concept is actually a point of contention between Mr. ID and I. I work in an administrative position and have no idea what it even feels like to receive a bonus, whether it’s $1 or $10,000. My salary is my salary and that’s that – so when he complains in a “down” year, I can’t help but get frustrated and say, “why can’t you just be grateful that you are getting any additional money at all?!” I would kill for an extra check at the end of every year!!

    Looking forward to the family loan post – something I know everyone advises against, but I can think of a few situations that would make me consider it.

  17. I spent the first 13 years of my career working for large companies and essentially living and dying by the bonus. After receiving the same bonus amount 3 years in a row despite my continued growth and performance, I decided it was time to take my talent and energies to my own company. The great thing about working for yourself is that you are in charge of how much you get paid. The harder I work, the more I make. I like being in control vs. a corporate behemoth.

    • That’s so great that you found the courage to forge out on your own, and the direct feedback (in the form of more money) that comes from putting in more effort. At this point, so close to our retirement, we feel like it makes sense to stay put in our jobs, but if were planning to work longer, we’d for sure consider going out on our own!

  18. At this point of the journey, we have reached the point where money from savings is barely able to compensate a market drop. It is not funny to see how we save 50 pct of our income and see no change in the net worth.
    It might not be funny, but it is a good thing. This means that I have saved already a lot and I need the markets compounding effect to take care of the rest.
    The swings that it can bring are not to be underestimated. If they make me feel bad, I have the wrong asset allocation. For now, I am doing fine…

    Bonus wise I have had in 2008 a great personal result and a whopping 0 bonus… Good thing is that I consider a bonus as a plus, I do not count on it for daily living. It is part of the FIRE plan, not having it means I need more saving or more Mr Market

    Happy holidays and enjoy the mountains

    • It is funny how this happens, isn’t it? We save and save and save and eventually don’t have much impact on our own accounts through saving. But as you said, that’s a good thing. Happy holidays to you and your ladies!

  19. I also have a job where my income is heavily weighted in bonuses. Instead of year end bonus, we get bonus when we have anniversary of our service at the company. Since I don’t own a home or have mortgage, 100% of my bonus will go into index funds.
    It’s crazy to hear about and learn what young people in my industry would spend and waste their hard earned bonus money. The funny thing is they would consider me crazy as well:)

    • Haha — we’ve been on both sides of that one! We’ve blown bonuses, and we’ve saved them. Fortunately, we blew them when we were younger and they were smaller, and saved them when we were older and they were bigger. :-)