How to Prevent that Bonus From Destroying Your Budget

Sarah Brumley

Sarah Brumley

Got a bonus? Whether it’s from a work payout, investment gain, or an unexpected check, it’s probably thrilling to see that extra cash in your account! But here’s the twist: if you’re not careful, that bonus could actually end up hurting your finances. That’s why today I’m sharing my top strategies for making sure you use that money wisely – without blowing your budget. Sound like something you need? Well then let’s get started.

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How to Prevent that Bonus from Destroying Your Budget

Well hey there and welcome back to another episode of the Financial Fix Up Podcast. I’m your host, Sarah Brumley, and today we’re tackling the topic of bonuses, windfalls, and other unexpected lump sums. And it could be that you’ve received a holiday bonus, a payout from an investment, or even a stimulus check. Whatever the case, I get it – it’s exciting to have some extra cash on hand! But here’s the thing – if we’re not careful, that extra money can end up disrupting our budget and financial goals, rather than supporting them. Trust me, I’ve been there – more on that in a moment.

So, knowing that, today I want to not only share some of my experience with bonuses, but I also want to give you three simple strategies to help you keep that bonus from blowing up your budget.

Now, if you don’t have a budget just yet, you definitely don’t want to wait. Grab a copy of the Financial Fix Up Planner today by heading to lemonblessings.com/planner. It’ll walk you through each step to take to get that budget up and running in a way that serves your financial goals, whatever they might be. Once again you can find it at lemonblessings.com/planner or by following the link in the show notes.

How a Bonus Can Hurt Your Finances

Okay, so I know it’s hard to think of extra money in your account as a bad thing, but it really can be, especially for those that are new to budgeting.

When Justin and I first made an effort to get our financial affairs in order, we had no money. And you’ve probably heard me tell this story before if you’ve been around the podcast for awhile, but the truth is that we were zeroing out the bank account every month just paying for our basic expenses. So, whenever a bonus graced our account, it felt like we’d just won the lottery. Often, we’d just take the money and spend it on whatever suited our fancy. New clothes, eating out, etc. And, don’t get me wrong – for some people there’s nothing wrong with that. BUT, for two new-to-budgeting individuals, our desire to spend money didn’t just end when the bonus money ran out. Soon we were back to using our credit cards and digging ourselves further into debt. Why? Because we got ourselves out of the habit of using our money responsibly.

So, how can you save your budget AND enjoy your bonus as well? Without further ado, let’s jump right into the three steps I recommend you take if you’ve received a bonus.

Step #1: Allocate to Critical Expenses

I don’t know about you, but the past year has been rough for many when it comes to finances. If that’s been true for you, then the place to start with that bonus money is to pay down those critical expenses. It could be your mortgage or rent payment, utility bills you’ve fallen behind on, or anything else that’s essential for your family’s survival.

For us, those critical expenses would include the following:

  • Mortgage
  • Utilities
  • Phone
  • Internet
  • Gas and Transportation

Of course, your critical expenses might be slightly different. For example, I work from home, so the internet is critical for me, but it might not be necessary in your situation.

Now, I know, it might not seem like “fun” to use your bonus for day-to-day expenses, but take a moment to think about how much you’ll appreciate yourself for doing so in a month or year down the line.

A quick side note here: there were definitely times in our financial lives that I would have included food as a critical expense. And while I do still lump it into that category, I know that the grocery budget is a place where people can overspend and get into trouble. If you do decide to augment that category of your budget, make sure it’s completely necessary. The last thing you want to do is get yourself in the habit of spending more on groceries that you would normally spend. That won’t bode well for the future, trust me.

Step #2: Buff Up those Funds

Once you have the critical expenses taken care of the next step is to buff up those savings funds. Sure, you might allocate money directly to your general savings fund (and I’ll talk about that more in a moment), but in our case I choose to focus on things that will come up over the course of the year. By doing so, I know that I’m spreading that bonus over the months to come.

So, as an example, our funds include:

  • Vacation
  • Home Improvement
  • Birthday
  • Christmas
  • Back to School and School Year Expenses
  • Medical Bills
  • Pet Care
  • Clothing funds for each of us
  • Miscellaneous
  • Game Night and Hospitality

If money has been tight, it’s likely that I’ll choose to divy up the bonus money between pet care, medical bills, and our clothing funds, just knowing that we will probably need those things more than anything else on the list. Also, if we’ve seen some additional home improvement needs, then I’ll add a little there as well. Of course, you funds will likely be different than ours, so take a look at what matters most to you and your family.

And if you want some additional help choosing and creating your funds, I’m linking to a podcast episode on that very topic in the show notes.

Step #3: Pay off Debt or Add to Emergency Savings

My third step in this process is to consider paying off debt or adding to your emergency savings. Now, I’m sure I’ll probably get several mean-spirited emails informing me that debt payoff and emergency savings should be top priority for that extra money, but there’s a reason I’ve placed this step so far down the list.

When you receive a large chunk of money and your temptation is to spend it, then setting the money in a “general fund” or paying off debt is a dangerous game to play with yourself. In our case, if the money isn’t allocated for a specific purpose, it’s likely we will spend it. So, if we stick $600 into our general savings account, it’s likely that we will think about the fact that they money is there, and rationalize ways that we could use it anyway. The same goes for debt payoff. In the past if we’d used that $600 to pay down our credit card, suddenly we were thinking about using that card for whatever comes up the following month.

All that to say that, in our case, it’s much better for us to allocate the “bonus”. money to essential needs and specific funds BEFORE we choosing debt payoff or general savings.

Of course, we all function differently. If you can pay down debt or add to your savings account without the temptation of revisiting that money, then by all means, do so!

Will That Bonus Destroy Your Budget?

Ultimately, it’s your choice how you use your bonus. If you do choose to spend it, just make sure to keep in mind the long-term cost of doing so. There’s nothing wrong with a new phone, but if it means an increase in your monthly bill, you’ll want to confirm that you can handle that expense for the months and years to come. Otherwise, you’ll find yourself (and your financial situation) in a world of hurt, regretting that you ever received the extra money.

In our case, we no longer regret the extra income. In fact, we celebrate that we can allocate it to the areas of our budget that have been underfunded and make life easier for ourselves over the months and years to come. That’s a great reason to celebrate!

Of course, if you don’t have a budget in place, make sure to grab your Financial Fix Up Planner and get started today. The sooner you start, the sooner you’ll see those results! You can find it at lemonblessings.com/planner.

Whatever you decide, just know that I’m cheering you on! You’ve got this! Have an amazing day and I’ll chat with you again next time!

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