It’s my favorite time of the year! Spring? Kind of, but I’m really talking about annual bonus and merit time! My employer has a fiscal year that is different from the calendar year so our bonus paid out only recently. The only problem with a generous bonus is this illusion that I now have wealth.
I’m really not complaining. During my 18 years in the workforce since college, there have been plenty of years where the company/organization I was working for didn’t pay out any bonus or give merit raises. I’ve heard the “times are tough” talk more than I’d like to admit. Instead, this is purely my own psychological barrier that I need to overcome.
Shortly before bonuses are paid out, we’re notified of the estimated amount, based on corporate metrics. From there, I calculate what mine will be after taxes. The prospect of so many thousands of dollars ending up in my account on a certain date is exciting to say the least. I’m not money-hungry by any means, but you have to admit it’s fun to think of the possibilities that come with so much money.
This year, I decided months ago that I’d put most of it into my savings account. I’d created a cash flow analysis to determine how much I need to save each year from now until I’m 50 (2026) so that I’d have enough in cash for early retirement, less some big house expenses (appliances, flooring, etc) that I’m anticipating within the next 9 years.
With so much of my bonus transferred to savings, there wasn’t much left. In my April expenses post I talked about how I used the rest to buy a new fridge, as well as a few other things, and also donate a portion to various organizations. But I’m quickly reminded why I don’t like having so much money in my savings account – it creates an illusion of wealth.
It’s different from my investments, in that I find it burdensome to remove money from my brokerage account (and create a taxable event), whereas it’s easy to access my savings account. Knowing the money is just sitting there, and there are so many things I could buy, makes it hard not to spend it. I do my best to be frugal but I still struggle with buying things that I want but don’t necessarily need.
There’s no easier way to lose control of your expenses than thinking that you have more money than you actually do. After all, that money is earmarked. It just happens to be for many years in the future. I’ve gotten used to a much smaller balance in my savings account and it’s messing with my mind to have so much more now.
If interest rates go up, I’d consider a CD ladder. But they’re still low enough now to make me question if it’s worth the hassle.
Any suggestions on how to handle this? Is there a better place for me to store my early retirement cash reserve? I’d love to hear your thoughts and suggestions.