TODAY ON REASONED REFLECTIONS:

• Personal finance articles 💰;

• Looking ahead;

• Tips on how to use your year-end bonus;

• Quote of the Reflection.

Personal Finance Articles 💰

Time for a bit of R&R

• Don’t take your credit card points to the grave

  My Take - I love credit card points and travel hacking. I can’t imagine losing almost 900k credit card miles—can you imagine the trip you could take? The lesson here: use those points to book your dream vacation! Now! Otherwise you risk those points being devalued or losing them upon your death.

• $12/hour to $500k?!

  My Take - Ah, the magic of compounding and the power of dividends! Reinvesting those dividends is like giving your future self a financial gift that keeps on growing. It's one of the smartest moves you can make to build lasting wealth over time!

• Retirement tips and tricks

  My Take - The best thing you can do for your financial future? Start investing early. Time is your greatest ally—allowing your investments to grow and compound over the years. But if you missed the chance to start early, don’t worry. The next best time to start is right now.

• Asset allocation

  My Take - Figuring out the right mix of stocks and bonds in your retirement account can be tricky. Luckily, target date funds take the guesswork out of the equation! Here’s how it works: decide on your expected retirement year, choose a target date fund that aligns with that year, and let it ride. These funds automatically adjust over time—starting with a higher allocation in stocks for growth and gradually shifting to more bonds for stability as you approach retirement. It’s a simple, set-it-and-forget-it solution for long-term investing!

• Dreaming of a tax refund?

  My Take - Where did 2024 go?! With the New Year right around the corner, it’s time to start thinking about tax returns… Ugh.

Looking ahead…

Thanks for joining me on this journey in 2024! I’m excited about what’s in store for 2025. Each month, Reasoned Reflections will focus on a specific area of personal finance—think the stock market, open enrollment, tax season, and more. Plus, Reasoned Reflections is launching its very first referral program!

I’ll kick off January with a topic that’s near and dear to my heart, so you won’t want to miss it. I’ll share more details in next week’s Reflection—stay tuned!

Reflection No. 14: Year-end bonus to-dos

I - Issue: What should you do with your year-end bonus?

R - Rule: Contrary to popular belief, you should spend your year-end bonus. Okay, not all of it! But you should spend some of it. A good rule of thumb is to use 10% of your bonus for fun—splurge on whatever you want! After that, you should use the remaining amount to pay off debt, build an emergency fund, or invest it.

A - Analysis: Receiving a year-end bonus can feel like a windfall, but you should use that money prudently.

Using a percentage for guilt-free spending can be a great way to enjoy your bonus while staying financially responsible. For example, using 10% for something fun, such as a vacation, new tech, or those shoes you’ve wanted for so long, ensures you celebrate your hard work without derailing your finances. For example, if your take-home bonus is $5,000, you use $500 for fun and the remaining $4,500 on practical goals.

If you have debt, such as credit card balances or student loans, consider applying the remaining bonus amount to pay down that debt. High-interest debt can significantly drag on your finances. Paying it off provides an immediate return, effectively “earning” back that interest. If you have no high-interest debt, you can shift focus to building or reinforcing your emergency fund. Experts recommend having three to six months of living expenses in a savings account to protect against unexpected expenses or income loss. Depending on your personal risk level, you might consider having more or less in your emergency fund. Do what you are comfortable with!

Investing is the next option once you have a fully funded emergency fund and manageable or no debt. Contributing to retirement accounts like a Roth IRA or HSA (okay, HSAs aren’t technically a retirement account but see Reflection No. 12 and consider HSAs as a quasi-retirement account) can help grow your wealth while taking advantage of tax benefits. If you’ve maxed out your retirement accounts, you could invest in a taxable brokerage account for additional growth.

Finally, consider using part of your bonus to tackle specific financial goals. You could save for a home, fund education expenses, or make extra mortgage payments. Aligning your bonus with your personal financial goals ensures it works to improve your long-term financial health.

C - Conclusion: Using your year-end bonus wisely means finding the right balance between fun and financial responsibility. Allocating 10% for enjoyment and directing the rest toward paying debt, saving, or investing allows you to maximize the impact of your bonus while still rewarding yourself for your hard work.

Time to Reflect…

Year-end bonuses are an excellent opportunity to celebrate while advancing your financial goals. Allocate 10% for guilt-free spending, then focus the rest on reducing high-interest debt, boosting savings, or investing for the future. Enjoy your bonus responsibly.

Quote of the Reflection

Thanks for reading! If you (i) want to see a topic featured on Reasoned Reflections, (ii) have any questions, or (iii) just want to say hi, please email me at [email protected].