Yesterday, Blueprint for Financial Prosperity had a great post about what to do with a Signing Bonus. I thought it was great that he emphasized using the money for something you will enjoy but get a lot of use out of, like getting an apartment or purchasing a car.
Here's what I would like to add. Remember that your bonus will be taxed. Most of the time, it will be taxed at the time you receive it. If it's not, you will owe taxes on it when you file your taxes. When planning how much you'll have left over after taxes to spend, I say plan on only receiving about half of the amount. For example, if your bonus is $5,000...plan on taking home $2,500. Then if it ends up more, it'll be even better. You don't want to go and buy something (or somethings) for a total of $5,000 because then you'll end up owing more than you'll receive.
Also, it might be smart to actually wait until you receive the bonus in your check before you spend it because a lot of companies wait a few weeks (or even a few months) before they give you your bonus. And also, many companies require that you pay the bonus back if you don't stay a predetermined set of time, usually a year.
Wednesday, June 28, 2006
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I just found out (ie just got my bonus) that some companies will actually quote your bonus on net terms - so I actually got the full amount after taxes because they actually paid much more than the bonus. Of course, that's totally up to the company and all and I wouldn't be surprised if very few do it this way, but it's worth looking into.
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