Using Your Bonus and Raise To Break The Golden Handcuffs

Your job – how’s it going? Is it just pretty good, but not great? It pays the bills, but you wish you could make some changes at work. Maybe you disagree with some policies, think your boss isn’t making the right calls, or feel frustrated that you can’t accomplish what you want. But you’re down in the hierarchy at work, and you have limited ability to make significant changes. So why are you still there? Well, it’s comfortable, pays well, and change is hard. Besides, you need to pay those bills, right?

Raises come and raises go – hooray, another extra three percent in the paycheck. It seems like they always just get absorbed into your life, and you’re no better off after the raise than you were before.

Lets not forget about bonuses, and tax refunds. The first time you got a bonus, or a big refund, you felt amazing! The possibilities were endless. If only you could get a bigger bonus or other windfall, you’d really be able to get ahead. But now you’ve come to expect your bonuses, rely on them even, and if the company has a poor year you’ll be one of those at the water cooler grumbling. You need that bonus, after all. How else will you be able to pay off your debts, or go on a vacation? Your kitchen and bathrooms could use some remodeling too.

It seems like no matter how much that raise or bonus is, it’s just never enough.

But what if it was?

What if it was enough – and more – to buy you freedom?

Putting Windfalls to Work

This year, instead of letting that raise just get absorbed into your daily spending, pretend you didn’t get one. That’s right, no raise this year, sorry about that. After all, if your company was in trouble and didn’t give you a raise, you’d find a way to get by-right? So figure out your dreams and put this money to work. Maybe you’ll invest in yourself, your family, your dreams, or your freedom. Don’t put this money to work getting more stuff, upgraded stuff, or other things that will just tie you closer to your job.

Take that bonus, tax refund, or other windfall and make it disappear. That’s right, you didn’t get one – after all, if you didn’t get one, you’d manage-right? It’s more important to keep your job. So as soon as it hits your account, go ahead and transfer it right out again. Even if you don’t know what you want to do with it yet, just keep it aside so it doesn’t get spent in drips and drabs here or there.

When you use your raise to upgrade your lifestyle, or your bonuses on stuff or fancy vacations, you’re just letting those golden handcuffs get tighter around your wrists. When you’re on the earn and spend treadmill, you need to keep earning in order to keep spending. You’re running as fast as you can just to stay in place, like the Red Queen said to Alice in Wonderland.

The Red Queen Has Your Keys to Freedom

A Different Path

When you’re on the earn and spend treadmill, you’re dependent on your income to sustain your lifestyle. You have almost no control over your job. Even if you’re the CEO, you’re beholden to your shareholders and the board of directors. The larger economy, regulation, or missteps at the top can bring your company down and into bankruptcy, even if you’re stellar at your job. Your entire livelihood is tied to the company. If that company has a bad year but you did a great job – you had a bad year and no raise/bonus for you. If your company makes some bad bets and folds, you’re out of a job. If your department, boss, or the business changes-you and your skills might no longer be needed.

Financial independence gives you a different path. You can do good work for its own sake, whistling while you work. When you hit the “crossover point” as they call it in Your Money or Your Life, you’re “bulletproof”. You disagree with the boss? You can let them know without fear for your job. Your skills aren’t needed anymore?  *shrug* OK, time to move onto somewhere that they are needed. Company folds? Just pack your stuff, head on home, and go for a hike-or watch a movie. You can go start your own business, take some time off and work on your hobbies, or travel the U.S.-or the world-and then pop back into paid work when and if you want to.

So don’t let your bonuses and raises just pass by, slipping through your fingers, keeping you on the Red Queens treadmill. Break free of the golden handcuffs by striving toward financial independence a little bit more every day. You’ll find a few of those links breaking every year, the handcuffs getting looser, and that gold chipping off. After some years, you’ll look down and see that under that gold, the handcuffs were made of rust all along. The only thing keeping you cuffed was yourself and your fear of change. You’ll finally tear them apart and you’ll be free to live life on your own terms.

What are you doing with your raise or bonus this year? How will you use it to further your way to financial freedom? Let me know in the comments!

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P.S. I did a guest post today over on the Notorious D.E.B.T – if you have a chance, be sure to swing by and check it out! As of this writing (7 AM EST) it’s not up yet but should be soon.

22 thoughts on “Using Your Bonus and Raise To Break The Golden Handcuffs”

  1. “Even if you don’t know what you want to do with it yet, just keep it aside so it doesn’t get spent in drips and drabs …” That is key! People don’t always know what their dream life is or have a vision for it – but we always know what we want right now, so it’s hard not to indulge in it for the sake of that future unknown. A little high now as opposed to an uncertainty later is the knee-jerk choice. “After some years, you’ll look down and see that under that gold, the handcuffs were made of rust all along.” Such a mind shift required to accept “some years” in this era of instant gratification – but very worth it to make the shift.

    1. It sure can be easier to go with the things we know will be instant fun – like a trip, new furniture, or a new car – instead of things that will pay off long down the line. That’s one reason I love the PF blogging community-watching people ahead of us on the journey reminds us all of how deferring gratification really can pay off!

  2. Love, love love this post!!

    I have a few coworkers that follow my blog, so I am a little nervous about sharing early retirement plans…

    After using my bonuses to eliminate debt the first six years I was out of school, I am excited to finally started saving my bonus money in 2017. I’m in technical sales and we get an opportunity for bonuses each quarter. In the first quarter, I saved 75% of my bonus and put the rest toward some updates for our house. I plan to do a 50/50 split on bonus money between paying down our mortgage and saving into investments.

    Thanks again for sharing this post!!

    1. Sounds like you have some great plans! I always love using my bonus to kill debt, or build wealth. Personally I find it more satisfying than getting more or different stuff. Although I did need to fix my driveway last year 😝

  3. TheRetirementManifesto

    Great challenge, Mom. You and I think alot alike. I’ve increased my savings rate by 2/3 of my raise every year (if I get a 3% raise, I increase my savings 2%). I also shuffle my bonus over to my VG money market fund as soon as it lands in our checking account. Out of site, out of mind. Too bad we didn’t get that bonus AGAIN this year (ah, but we did, we just didn’t SPEND that bonus again this year!).

    You need to enjoy the journey, but set up your life so you can enjoy it on your “regular” paycheck. Then, use the bumps to feed the FIRE.

    1. Love that last line-feed the FIRE! I also transfer out any windfalls, no matter how large or small, as soon as they hit my checking account. Even if I’ll eventually spend it, I’d rather get it out of the day to day spending bucket ASAP. That way it doesn’t get lost in the shuffle

  4. Historically Ive upped my 401k at each raise. As for bonuses, we bucket them. RSUs are allocated to roth IRAs which is the bulk of my bonus. Our profit sharing bonus we do spend towards our overall travel budget, but its rather consistently peanuts.

    Slowly those roth IRA contributions snowball with all our other savings into major net worth. Since its how we’ve always done it we don’t miss it in spending.

    1. Sounds like you’ve used some great strategies to use those bonuses and raises to your financial advantage. So true how if you get in the habit of doing this every time, you don’t miss the money

  5. ReachingTheCrest

    totally agree and just wrote about how to maximize your automatic transfers which included adjusting them annually to ensure you don’t miss capturing into savings that pay raise. Even if its a little raise or even a small monthly fee that goes away it all adds up. Over a few years, it REALLY adds up.

    1. It sure does! I started a vacation fund long ago, with just $1k. I would put $50 a month in it and add a small amount of any windfalls to it. I haven’t contributed to it in 6 years now, have withdrawn a bit about 4 years ago for a vacation, and today it has over $15k! Amazing how those small amounts, plus the market, add up over time.

  6. The best advice that I ever received was whenever I got a raise at work to up my 401k and if I got a bonus to put it towards by IRA. I have consistently done it and while it was tough at the time I am definitely glad that I did it. It has made a huge difference. Especially as the accounts grow and watching the returns of the market 🙂

  7. Great advice CMO! I’ve been following that strategy for the past 15 years, and can confirm that it works like a charm. It’s all about delayed gratification, and it works out in the end as long as you’re patient.

  8. We just did a post this week on our site describing how we plan on handling our bonus. After Uncle Sam takes his (big) cut, most of the money is going towards our three main goals: pay down the mortgage, 401(k) savings, and taxable investment accounts.

    We are putting aside a little bit of money for spending, but the majority is going towards our early retirement goals.

    1. That’s perfect! Mine is going toward the 401k (on target to max by end of year), mortgage payoff, and a small amount for short-term spending like camps for the kids and our road trip.

  9. “The only thing keeping you cuffed was yourself and your fear of change.” – So true!

    With our raises, we are maxing out the “catch-up” contribution amount of my husband’s 401k now that he’s age-eligible and auto-investing the rest. No bonuses or tax refunds…maybe someday.

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