Bonuses are strange creatures - part reward, part mystery, and often, a bit of a letdown. They float around in rumours, performance chats, and company updates… until one day, they land in your account. And by then, they’re often half gone.
When I buy a packet of chips - it’s so fluffy and full - and when you open it most of it is filled with gas and only in the bottom there is a small portion of fried potato - that’s the chips remaining.
Well such is our stories with Bonus - first of all - this is like a mythical creature - before this number gets finalised - it goes through company performance, individual performance, department performance bell curve, alignment fitting and after all the other blah blahs gets mixed into it - what’s available is in fact peanuts in many cases. And I’ve failed to derive this number my any means of mathematical formulas based on the various factors the employers set.
And when the letter comes out - we do hope that number seems great - then the next hit - a MASSIVE one is TAX MAN! He takes away the highest tax percentage on this bonus and eventually what gets credited into our bank account is similar to the potato chips remaining in the air puffed packet. Looks full, fluffy and nice - but when it finally lands in our bank account - it’s less than 50% of what was already reduced from the complex mathematical formula.
This is reality and unfortunately - we can’t avoid most of it - but with some strategies / ideas we do have option to optimise / maximise what we get into our hands.
Read on to the end - I also share what we do in our household once the amount lands into our account. Again this is our own personal situation and circumstances that we have come up after discussing based on what suits our needs. It’s best that you consider your personal situation, your partner’s shopping needs and any special requests that might suddenly pop up as soon as the amount hits the bank account into consideration. :)
Option 1: Before you get it: Salary Sacrifice into Super!
Look to see how much you get paid into Super every year - and there might potentially be some extra that you can contribute to get to the 30k per year limit. I’d highly recommend tapping into that as an option. For egs., if your employer contributes say 20K as part of their commitment to pay you - then you’ve the other 10k that you can contribute into your super to take advantage of being taxed at 15% than being taxed 30%+ marginal rate. This means you don’t get to enjoy your money for today - but it helps in maximising the dollars that you’d have in your super account.
As always, it’s a constant battle between living for today vs optimising / saving for future.
I’m still trying to find a person who has mastered it all. Until then - we all are on our own - trying to balance it all. What works for me - may or may not work for you - try and fail and have as many iterations (hopefully not so many) as you may need until you find something that works for you and most importantly for you and your significant other. Always remember Happy wife, Happy life! :D
And, I’d like to imagine Super account as another investment account - just that we don’t get access to it until we reach our retirement age.
Most employer would ask before you get your bonus to say what you’d want to do with it - don’t be like my kid when I give him $10 to for mother’s day stall - he will end up spending all of $10 on things that his mom may or may not like / use. He is just like his other class mates - who all are looking to buy the coolest things that their mom can wear / enjoy - by spending it all. Rather you could look to see how you could use your hard earned dollars into reducing the debt, save for emergency funds and or investing the money into super.
If you decide to go through the option of Super - fill out the form provided by your employer to get that portion / percentage of your bonus into your super account. That amount has branched out and it’s set aside and growing in your super account. Also, taking care of this before it hits your bank account helps in not having to complicate the tax time complexities and or any sudden expenses that you might feel the itch for.
Option 2: After you get it:
For some reasons - the bonus money is always considered as a free money - like something that you’ve found when you’re walking on the street or a neighbour gifted some of their home grown veggies from their garden.
NO - please stop having such a belief - I’m talking to myself in here!
In the past - we have made the mistakes of funding this money into all types of luxuries and comforts. Including travel, sudden shopping spree, upgrading a thing that doesn’t need to be upgraded (TV, Smartphone) or you name it.
Given, this splurge or the urge that I’ve had and reading numerous blogs, we live only once, we want to enjoy life and also spend money on things we love - it’s a tough battle. The marketing machine is working so hard in taking the hard earned money from us - but if you set a plan ahead and stick to it - it’s good for you.
We do a 45, 45 and 10 split with whatever money that hits our bank account. The first 45% of it goes towards paying off our mortgage, the second 45% goes in accumulating our investments and the remaining 10% is for everything else. YOLO, falling for the marketing machine and what not.
This discipline hasn’t come in a day - it has taken a long time. Even now we occasionally contemplate should we increase the 10% into something else, but we try and fail and I’d sort of half heartedly agree that we are practicing it with some hits and misses. But at least we have a method to our madness and it’s serving well for us. Be keen to hear what’s your strategy and or see what works best for you?
And you do have option to contributing into Super after you get the amount in your bank account - just that this becomes a little more trickier as the amount you got in your hands is already taxed and now you pay out of your hands into your super - which means ATO needs to refund some portion of your marginal tax into you. Which is not bad - but just that if you do Salary sacrifice - you can completely avoid this step.
This blog is applicable for people who are on PAYG. If you are self employed or doing contracting roles - the situation will be different to you.
And as a next step!
Getting a bonus is exciting. It’s a recognition of our hard work. But it can also be a launchpad - to financial stability, growth, and long-term wealth.
Whether we use it to clear debt, invest in our future, or find a flexible middle ground, or blow it all off - the choice is ours. But the important thing is to be intentional than being impulsive.
So the next time that notification hits our account and we smile and before we start to gossip on how much our fellow peer received, let’s also ask - “How will this bonus lead to a better financial possibility?”
And then, let’s make it count.
A checklist for reference:
✅ Check your concessional super cap.
✅ Salary sacrifice bonus payment if possible.
✅ If not, consider post tax concessional contribution + notice to ATO.
✅ Allocate intentionally - Debt, Investments, Super and most importantly Fun!
✅ Don’t forget : Happy wife, Happy life! :)