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According to a 2015 survey by Accounting Principals, the average holiday bonus is $858. Of all these year end bonuses, 61% are less than $500 while 21% are greater than $1,000. Of course, not all companies give a holiday bonus. Only 67% of companies actually give year end bonuses out.

So most people get something, but not a lot.

This is the first year in my career that I’ve ever received a substantial holiday bonus.

I got a $5,000 bonus! Woo!

But what’s crazy is when you see people get HUGE year end bonuses. For instance, I know someone in my company who just got a $100,000 bonus.

His year end bonus is more than I make in the entire year! And most people for that matter. Must be nice…

While daydreaming about huge bonuses, I decided to do some research on year end bonuses (because that’s just the kind of thing I do) and stumbled upon an oil and gas company, Hilcorp, which gave a $100,000 Christmas bonus to every single employee in 2015. Every. Single. Employee. Not just one lucky person like my company, but all of its 1,381 employees.

That must have been one heck of a holiday party. Understandably, Hilcorp consistently ranks on Fortune’s list of 100 Best Companies to Work For.

This led me to really think:

What would I do with a $100,000 holiday bonus?

what would you do with 100k holiday bonus

What I Would Do With A $100k Bonus

Just like all earnings — what you make isn’t what you receive. You got to pay the tax man. How your bonus is taxed may vary depending on your location and company, but I’m going to assume a 35% tax rate.

Taxes = $35,000

So right there I’m down to $65,000 of actual money to allocate.

Since I have automatic 6% contributions to my 401k, $6,000 would immediately go there. Which means I would’ve already made a sizable retirement contribution before I consider options with the remaining $59,000. Plus, I would receive a $3,000 employer match on the 401k contribution.

401k Contribution = $6,000

My first order of business would be to eliminate my wife’s student loans in one fell swoop.

Paying off these student loans is a top financial priority for us right now. But even aggressively paying the principal down could take 3 years at the current pace to pay it off completely. I’m hoping we can make it closer to 2 years with additional help from advancing our careers. Wiping out this mountain of student loans forever would cost $42,257.77.

Student Loan Payoff = $42,257.77

Although paying off our $16k car loan is a strong consideration for the remainder of the bonus, paying down my mortgage would be a surprisingly better financial decision.

I would pay down the mortgage on my rental property by $13,435.70.

Now that may seem like an oddly specific number, especially when it’s nowhere near the total amount of remaining principal, but that amount is exactly what is needed to put my LTV (loan-to-value) at 78% and effectively terminate PMI (private mortgage insurance).

By knocking my mortgage down to this level, we would save over 2 years of PMI payments, an estimated savings of $2,465.10. That’s an effective return of 18.3%. Not to mention the savings on the mortgage interest rate, which is higher than the interest rate on our car loan.

The numbers show this should actually take priority over paying off the student loans.

Mortgage Pay Down to 78% LTV = $13,435.70

We had been kicking the can down the road with a needed car repair (probably too far down the road for that matter). With such a huge bonus, there would no longer be any excuse.

Car Repair = $434.29

It’s crazy how fast $100k goes. Just like that there’s less than $3k left.

We’re currently planning a trip to Greece for 2018, so the remaining $2,874.24 would go towards the trip. The trip is happening no matter what so this money would be used to upgrade the trip. Instead of booking places on Airbnb, we could splurge on more luxurious stays and activities.

Part of doing well financially is to be able to enjoy some of the finer things in life. I find it critical though to increase lifestyle expenses disproportionately to any income increase.

Allocating less than 5% of the after-tax holiday bonus for fun money is more than acceptable.

Greece Trip Upgrade = $2,874.24

Here is a quick summary of how I would utilize a $100k bonus:

100k holiday bonus breakdown

What I Did With My $5,000 Holiday Bonus

As much fun as it is to talk about all the things you could do with $100k, let’s get back to reality.

I’m not getting a windfall like that in the near future (but maybe down the road?) and neither are most people. But I did get a $5k year end bonus that I had to decide what to do with.

So what happens when you can’t do everything? Which items become the priority?

Taxes always get the #1 priority for any earnings. Instantly 30.5% got taken off the top before I even saw the money.

Taxes = $1,525.38

My 401k contributions are a pre-made decision to pay my future self first. As a result, 6% was deducted and automatically put into my 401k.

401k Contribution = $300

Originally, I was going to use the money to pay down my mortgage. I thought lowering the LTV down to 80% and making a written request would satisfy the requirement to remove PMI. To verify, I contacted my mortgage servicing company but unfortunately they also require an appraisal at 80%. The $550 appraisal cost makes the 78% LTV automatic termination a potentially more attractive option.

However, that extra 2% increases the required pay down by over $6,500. After getting a little discouraged by the PMI termination moving farther into the distance, I opted to put $2k toward the highest interest rate student loans and immediately made an additional payment.

In retrospect, putting money towards getting rid of PMI would have been the better financial decision.

Student Loan Pay Down = $2,000

That car repair still needed to happen. Even with a much smaller bonus, still no excuse for postponing it, so we got it taken care of.

Car Repair = $434.29

After moving all our savings into stocks recently, we’re still building our bank account balances back up. This was an intentional decision to bank the money, not a non-decision.

Savings = $740.33

Here is a quick summary of how I utilized my actual $5k bonus:

5k year end bonus breakdown

Bottom Line

The point here isn’t to be discouraging by thinking about all the things we can’t do right now. Instead, consider this a financial exercise that helps you discover your financial priorities.

How would you spend a $100k holiday bonus?

How about a $5k bonus?

As seen by my hypothetical and real money moves, paying off student loans and getting rid of PMI are our top 2 financial priorities. The toughest decision is determining how much to focus on one versus the other.

As long as you’re keeping expenses under control, eventually each one of us will make this extra $100,000 that exceeds expenses. It’s just a matter of time. Thinking through different scenarios and creating a plan for your money now will only help you make better financial decisions later.

5 thoughts on “What Would You Do With a $100K Holiday Bonus?

  1. My last year of corporate life I got a six figure bonus, the only one of my career. I just put it into a taxable investment account since all my tax advantaged plans were already maxed out. My timing was pretty good, the very next year after I left profits were down and not a single person got a bonus at all or a raise. Talk about perfect timing on leaving! Once you hit FI extra money rarely means extra spending because you are already spending everything you want to spend. But before that I’d always do what you are doing, except I’d spend at least a little of it on something fun. Your company thinks a lot of you to give you $5,000. That is a reason to celebrate!

    1. Wow that’s amazing timing! Congrats on your success and reaching FI. My wife’s response to this post was that I’m so boring — she’d probably squeeze out more fun money if we actually were to get a 100K bonus.

    2. Why was that considered “perfect timing”? Sure, you didn’t get a bonus, but, you didn’t get your salary or benefits either. So, you left just in time to make $0?

  2. At this point, I’d make the exact same move with the money as SteveArk did. I’d put it in a taxable brokerage account and probably invest it in a mix of a Total Market and Foreign index funds. My retirement plans are on schedule to be maxed out. The $100K bonus would not be enough to drastically change my life although it would cut my time to FI down nicely. I’d choose the reduction in time to FI over anything additional I’d want to buy. My wife (maybe like yours) may have some other ideas. We’d probably set aside a little bit for a nicer than planned vacation or something.

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