It’s the Most Wonderful Time of the Year

You might think I’m a little premature with the title for this post, but I disagree! It’s annual raise and bonus time at work, also known as the greatest time of the year. I feel like I work all year just to find out my raise and bonus annually. And to top it off, this year I got a promotion as well.

The other day a friend and coworker IM’ed me at work asking what I was going to do with my bonus. Of course I responded and said “saving it!” She responded by saying I need to live a little. Too bad padding my investment accounts gives me a lot more happiness than spending it!

As part of my Millionaire To-Do List I want to save 75% of each raise and bonus. I actually saved 100% of my bonus this year (that didn’t go to taxes) and as my expenses haven’t increased lately, I plan on saving approximately 100% of the raise as well.

How I spent it (watch out for the humblebrags, they come out of nowhere):

1) I adjusted my 401k contribution percentage right before the bonus paycheck and have maxed out my 401k for the year! I was planning on getting there by November, but thought “why not?” and jacked up my contribution percentage to get there in September.
2) I then used $1,000 to max out my 2015 Roth IRA for the year.
3) The remainder will go straight into my after-tax Vanguard brokerage account.

This will be the first year I’ve ever maxed out my 401k, and I’ve done it in the ninth month of the year! I also didn’t even have an IRA account open until 2015, and have maxed out both my 2014 and 2015 contribution limits this year. As you can see, I go 0 to 100 real quick! All kidding aside, it just amazes me how fast I was able to go from putzing around saving a little here and there and contributing to my 401k, to maxing out my 401k, IRA, and HSA. All I needed was some motivation and a plan of attack. This was also a huge year in the fact I reached my first $100k in net worth. Thank you everyone for the words of wisdom and encouragement along the way!

I really like the idea of using my bonus to max out my 401k as the money is already invested before it can even reach my checking account and become spendable. This also means that every remaining paycheck for the rest of the year will be substantially higher since I will not have a 401k contribution being deducted. This will be awesome since I’ll be able to contribute a lot more than usual to my after-tax brokerage account for the final three and a half months of 2015. Sometimes it feels like I’m concentrating so much on tax advantaged accounts, that I deem untouchable, and therefore my personal after-tax brokerage account doesn’t the same love and attention. So it will definitely be nice to boost this account throughout the remainder of 2015.

Hopefully all this time and hard work will enable me to move up my Financial Independence Day from September 2026. I’ll reevaluate once 2015 comes to a close. Hopefully everyone else is having a financially successful 2015 as well.

If you get variable compensation such as a bonus do you sock it all away, or let yourself splurge a little? Have you maxed out your 401k or IRA already this year?

46 thoughts on “It’s the Most Wonderful Time of the Year

  1. Chris Muller

    Congrats on the promotion and the bonus! I think that’s incredibly smart to max out the 401k and Roth IRA – looks like you’re set up for 2016 already. One thing you said hit me and I never thought of it this way – maxing out your 401k by this time of the year leaves a few more months of no 401k contribution, thus increasing your paycheck. It’s kind of like a stretched out tax return!

    My wife actually gets a bonus 4x a year and we put 100% of it into her 401k. After awhile you don’t miss it – plus the taxes on bonus money are just stupid.

    Reply
    1. Fervent Finance Post author

      Thanks Chris! Yeah my paychecks for the rest of 2015 will seem like I got a huge raise. But then I’ll be knocked back to reality in January when my 401k contributions start kicking in again. That’s great of you and your wife to do with her bonus. If it’s invested before you have a chance to spend it, that’s the best way.

      Reply
    1. Fervent Finance Post author

      Thanks Steve! I’m pretty pumped to have my 401k maxed out in September, definitely feels like a win.

      Reply
    1. Fervent Finance Post author

      Thanks Tawcan. As soon as I notice a surplus in my checking account, I set up a transfer over to my Vanguard. Therefore no lengthy periods of time where my cash is high and maybe my subconscious thinks I should spend it 🙂

      Reply
  2. TheMoneyMine

    Hi FF – Bonus month is always a good month, especially if you are getting a promotion as well. So congrats!

    I had read somewhere that once you max out your 401k with your own contributions, your company match stops because, well you can’t contribute anymore. I’ve since done surgical contributions towards the end of the year to make sure the very last pay check is the one maxing out. Do you have a different experience? That would surely be a lot more practical.

    I never particularly plan on spending my bonus, it usually goes straight into the investment portfolio.

    You did do great this month, with all these savings/investment, you should be reaching the 200k$ level in no time 🙂
    TheMoneyMine recently posted…Pay cash or Finance ? The Ultimate GuideMy Profile

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    1. Fervent Finance Post author

      Thanks MM! Every employer’s 401k plan is different. My employer only contributes the match once a year, and it’s based on total contributions from the prior year. So it doesn’t matter when I max out my 401k. But you are right, others have to spread out their contributions throughout the whole year. People just need to make sure to read their 401k summary plan description to find out how their’s works.

      Great job always investing your bonus. I hope/expect $200k to come a lot faster than $100k. Take care.

      Reply
  3. Gen Y Finance Guy

    Congrats on the Bonus, Raise, and Promotion.

    I agree that it is the most wonderful time of the year.

    We typically do bonuses semi-annually at my work. Usually we get 30% of our annual bonus in July and the remaining 70% in January of the following year. We do that because the 70% piece is based on Financial performance of the company and it could go up or down.

    Raises are typically done in January.

    This year has just been interesting for me. I got a $5,000 raise and the remaining $5,000 of my bonus (without a promotion) in January. My bonus increased from $8,000 to $10,000 for 2015.

    Then in July I got promoted to Director where my salary increased another $30,000 and my bonus increased from $10,000 to $40,000.

    Just yesterday I found out that I am also getting an extra $10,000 for the prior year.

    Like you I have been trying to stuff money in all the tax favored accounts and some after tax stuff too. But also building up a war chest in cash for 2016.

    All that to say that January will be the most wonderful time of the year for me.

    Cheers!
    Gen Y Finance Guy recently posted…August 2015 Content CurationMy Profile

    Reply
    1. Fervent Finance Post author

      Here I am, just chugging along thinking I had a good year and you have to go and make me feel like a pauper 🙂 You’ve been killing it in 2015 Dominic. What is the war chest of cash for? Or do I have to wait for a post about it??

      Reply
      1. Gen Y Finance Guy

        Dude, you are killing it. Didn’t mean to make you feel like a pauper, sorry about that.

        We are looking to add a 3rd piece of real estate to our portfolio. We are even considering up to 2 cash flow properties outside of California, but we are still in due diligence mode and won’t be ready to pull the trigger either way until January or February of 2016.

        Also have some other things in the works that I can’t talk about just yet. But you bet there will be a blog post about them when it is safe to talk about.

        Keep crushing it my friend. It’s really cool to have an outlet to talk about all things financial.

        Cheers!
        Gen Y Finance Guy recently posted…August 2015 – Detailed Financial Report #8 – Net Worth $241,085 [+32.9% YTD]My Profile

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  4. Norm

    My wife usually gets a summer and Christmas bonus. It’s nice to put it all into savings, but this time around, we just bought a rental property and the one big fix it needs is a chimney liner put in. The cost of that comes out almost exactly to her bonus, so we know where that’s going!

    I am going to max out my 457 plan for the first time this year too. As soon as our emergency fund is replenished (around October 1) I am going to increase my contribution to $2,000 per paycheck which will get me to the limit by the end of the year. After taking that out, my paycheck will pretty tiny, so it should be interesting!
    Norm recently posted…Ending My Relationship With NewspapersMy Profile

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    1. Fervent Finance Post author

      That’s awesome that she got her bonus right around the time you needed to make your improvement on the property. That’s a hefty 457 contribution! You’ll be sad when you see the net pay, but you’ll be happy since you know where the contribution is going 🙂

      Reply
    1. Fervent Finance Post author

      Thanks Claudia! Paying down debt with your bonuses is an awesome plan. Sometimes I think I should slow down the investing train, and build a nice cash pile in case I want to try and strike out on my own. But for now, it all goes to investing.

      Reply
  5. DC @ Young Adult Money

    We use it just like any other income, so it doesn’t impact us too much. This is so true and is the reason why I’m all about automating retirement contributions -> “I really like the idea of using my bonus to max out my 401k as the money is already invested before it can even reach my checking account and become spendable.”
    DC @ Young Adult Money recently posted…10 Financial Benefits of HomeownershipMy Profile

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  6. The Bearded Dragon

    The most wonderful time of the year, indeed! A hearty congratulations on going pedal-to-the-metal and maxing out all your tax-advantaged accounts! I know the feeling in regards to your taxable account is getting no love. Sometimes I start to think I should throw more money that way … but then I remind myself that I don’t like paying taxes 🙂 So until the retirement accounts are full that’s where the money goes. Keep up the good work!
    The Bearded Dragon recently posted…Financial Details of Our Belize TripMy Profile

    Reply
    1. Fervent Finance Post author

      Thanks TBD. I guess the only way to speed up the contributions to after-tax accounts is to spend more!

      Reply
  7. Mr. Enchumbao

    Hi FF,
    Needless to say that you’re definitely on the right track. The people that don’t save the way we do don’t realize the joy that we get from buying investments. It’s probably the same high they get from shopping for material possessions, except that ours come with compounding interest. Congrats on maxing out your 401(K)! We started it doing it a few years ago and started front-loading this year. Cheers to saving!
    Mr. Enchumbao recently posted…The Self-Insurance Experiment: How Much Risk Can We Afford to Take?My Profile

    Reply
    1. Fervent Finance Post author

      Thanks a lot Mr. Enchumbao! The pre-tax 401k is a great invention that I love taking advantage of 🙂

      Reply
    1. Fervent Finance Post author

      As long as your maxing it out, who can knock on your strategy? I’m just excited about bigger paychecks for the last few months $$ 🙂

      Reply
  8. Leigh

    Congrats on the promotion! Those usually come with nice raises too 😉 Nice job on maxing out your 401(k) for the first time! My ESPP deductions still come off of my bonus, which is pretty sweet! You’re not losing out on any match by maxing out your 401(k) early, are you?

    I sock away the entirety of my bonuses. I figure if I want to spend more, I should do so within the means of my regular income, especially with how much higher it is this year with my job switch. I’ll finish maxing out my after-tax 401(k) with my mid-September paycheck and I did my Roth IRA back in January! In the past, I’ve made some huge mortgage pre-payments with my bonuses, which was always a great feeling 😀
    Leigh recently posted…Defining my uniformMy Profile

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    1. Fervent Finance Post author

      My employer’s match sucks (better than nothing), but it’s contributed once a year based on prior year’s total contributions. So it doesn’t matter when I max it out, I’ll still get the full match. But everyone’s plan is obviously different so others should check theirs to make sure.

      Awesome job with maxing out all your tax advantaged accounts so early!

      Reply
  9. Amber Tree

    congrats with your promotion, bonus and 401K achievements this year. It sounds like you are dedicated to your plan.

    I like your bonus question: We try not to splurge with it. The last years, it has been used either to fund home improvement works, to speed up mortgage repayments and as from now, it will go straight to the FIRE accounts we have.

    We do not feel the need to splurge that one, or to treat ourself with luxury items. We each have our monthly fun money, and that is enough for us for now
    Amber Tree recently posted…options experiment – where are weMy Profile

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  10. Mr. Budgets @MrandMrsBudgets

    Congrats! I have my review at the end of the month and I’m hoping it’s more pay with less work as Mrs. Budgets has me “scheduled” to leave my day job (after 10years) sometime early next year. I really don’t want to but as they say..happy wife, happy life! She has others plans for me! We have maxed out our 401k but no Roth IRA to contribute to as Mrs. Budgets and I file our taxes separately. :/

    Mrs. Budgets doesn’t receive a bonus but I usually get a xmas bonus which pays for all the xmas gifts plus a little more to sock away.
    Mr. Budgets @MrandMrsBudgets recently posted…August Recap and Monthly Budget ReportMy Profile

    Reply
    1. Fervent Finance Post author

      Good luck with your review! And I wish someone had me scheduled to leave my job so soon as well 🙂

      Reply
      1. Mr. Budgets @MrandMrsBudgets

        It should be a cake walk though I doubt they will let me do less work for more pay. Part time for me would be nice but Mrs. Budgets wants me to go cold turkey.

        Part of staying home means cooking / cleaning / laundry / (plus) jewelry business / etc. :/

        We shall see!!

        Reply
    1. Fervent Finance Post author

      Thanks ONL! I hope it’s much sooner than 2026. Right now I’m “celebrating” with the family on vaca for the week down south in the mountains. Very relaxing and a nice getaway from NYC. Take care!

      Reply
  11. Abigail @ipickuppennies

    Bonus/raise time comes at the end of the year for me. And I try not to count on the bonus, so I’m kind of tense for a lot of December. Some of that is probably an increase in email volume at work and the stress of the holidays. But mostly I’m just curious to see what will come in the mail. (I work in a different state than the rest of the employees.)

    I put 20% aside for taxes, and we take a small percentage to splurge on something. The rest gets tucked away into savings. Once this most recent savings goal is accomplished, I may put future bonuses more toward retirement accounts.

    Gosh, we are just party animals, eh?
    Abigail @ipickuppennies recently posted…In which I complain about good dealsMy Profile

    Reply
    1. Fervent Finance Post author

      Haha – saving/investing sounds way better to me than being a “party animal”. Best of luck to you in December with your potential bonus.

      Reply
    1. Fervent Finance Post author

      Sorry Sam – no pity party for you! You’ve been in both worlds, and you can’t tell me the one you’re in now isn’t better than working for the man!

      Reply
  12. a woman

    Congrats on the promotion!
    I am a woman from Europe. Here, in my environment, people are usually thinking more to invest in order to cover their retirement, but this is not a general rule!!. Indeed, some of my friends are like me: they have a budget, they have a plan, they want to buy a house (in order to deduct some money from taxes), we are searching to learn how to invest. I become quite advanced in the friend’s group, and I am actually give financial advice pretty regularly.
    My dream was the retirement by 40, the reality is I will do around 50.

    As my experience, all my bonus are gone to pay faster the previous mortgage. Now are going to help to buy the new home (the last one), and in the future we will do the same thing: to pay faster. The previous homes are rented and producing some money.

    Reply
    1. Fervent Finance Post author

      That’s awesome that you’re able to rent the old house and get that passive income. Also you seem like a good friend, and I hope you achieve your FI goals. Thanks for stopping by!

      Reply

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