How to Handle a Promotion or Large Bonus at Work

0:28 Sports Talk: A Champion’s Perspective 

00:00:00] Adam Werner: Hi everyone, and welcome to AB Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple certified financial planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts 

now. 

[00:00:28] Ben Haas: Hey, Adam, how's it feel to be a champion? 

[00:00:32] Adam Werner: I didn't win anything, but yeah, it was, that was fun to watch. And I mean, of all of their games this season, that just felt like, you know, nail biters throughout the season to just have the super bowl kind of just feel like they were in control from the jump was somewhat anticlimactic, but very satisfying. 

[00:00:53] Ben Haas: Yeah. And having younger, of course, having younger sons that have not gone through the pain and anguish of long, hard losing seasons. It's like they just got to celebrate and celebrate. Like, I don't think they had the depth of joy that I have knowing what depth of pain is. 

[00:01:12] Adam Werner: Yeah, so to that end, even when the score was, you know, whatever it was, 20, 27 or 25, whatever it was to zero going into the second half, it's like, okay, but if the Chief's score. Yeah, before halftime, they're getting the ball. They can score again. This game could be very close, very quickly. Like just being a Philly sports fan. 

I all, I always have that pessimistic view on how things could go. So yes, it was nice to not have those negative things come to fruition. 

[00:01:42] Ben Haas: So I'll do my best here. Cause we should, you know, actually do the podcast. Let's, I'll let you kind of lay out a situation where we may feel like we're winning. 

We feel like winners. And we got to allocate some of that. So. 

[00:01:56] Adam Werner: Yeah. We've been asked the question or we've just been presented this situation a handful of times in the not too distant past, but it's just around, you know, I got a large bonus or I got promoted at work and 

now, you know, my salary increased or I changed jobs to now something that is going to pay me more. 

And then the question is, what do I do with now, hopefully what does feel like now excess income, than what I've been used to? 

[00:02:23] Ben Haas: Yeah. 

[00:02:24] Adam Werner: How do I handle this? 

[00:02:25] Ben Haas: Yeah, right, huge opportunity for people to, I would say, talk with their planner. Hopefully they have one, right, they have a plan. And we can talk about the difference if you have a plan or don't have a plan and how people go about it. 

But yeah, more important than this beginning of the year, hey, How's the market doing? What do you see the market doing this year? Am I making money? If you're in this accumulation phase of life, your income, right, your future earnings it's like your greatest asset. Sometimes far more than what you've already set aside. 

So you earning more, having some windfall in that way, this is a really big opportunity to think about, all right, how am I allocating this? How is this money going to serve either present me or future me? 

[00:03:11] Adam Werner: Yeah. Yeah. So I'll start with that differentiation, if we would hope if somebody is already working with a planner and part of our job of working with, we'll say those accumulator phase people, that is, I got this income coming in. 

Where am I saving, right? Building that hierarchy of I'm going to put this much in my retirement plan. Then I'm going to put in HSA, and say all of the things. Hopefully there is that hierarchy and if there's an influx, in theory, it may be as simple as great. Now I have this excess, just start, go down the list and start to fill each respective bucket in order. 

In reality, it's probably not that simple because we may not want to just fill all of bucket A. We may want to spread this out or the very human side of. But I don't, want this bonus to, or whatever it is, right, this increase to just before the future, you need to kind of weigh that against, I want to be able to realize some of this in the short term for some fun stuff. 

[00:04:15] Ben Haas: Yeah, I think, we certainly find that the drafting of the plan is not always the hard part. Right? Thinking through what are the, what are my priorities and how should I handle this? What's the pecking order to that? Oftentimes the hard part is actually executing on that. And if you've got a life event here or a life situation that kind of forces you to go back and look at the plan, it also then forces you to reflect on, well, now that this is right in front of me, now that it's truly decision time, I'm not just like projecting out. 

Is that really what I want? Is that really what I want to do? And I think that's the value of having a thought partner. Use a financial planner in that way to say, all right, in a vacuum, here's what I'll do. But when it's time, which comes to shove, like, help me rethink through this, you know, what is best for me now versus later? 

And how do I balance those things? 

[00:05:03] Adam Werner: Yeah. It's not only that, but just depending how long ago you may have kind of built that plan or built that hierarchy. If it's been a couple of years, your outlook may have changed. Your life situation may have changed a little bit. That could influence really, now that maybe this excess is truly real. 

And now I need to actually do something with it and not just in the theoretical, well, if this came to pass, here's what I would do. Your values, I don't want to say your values may have shifted, but maybe just your outlook on what you prioritize the most at different times is going to change and shift over time too. 

[00:05:41] Ben Haas: I know you're going through it. Year of saving. Good for you. You know, we're having these reflections in my house too. Like, it just seems like the boys are growing up so fast, that now, where we were prioritizing maybe longer term savings, now we're actually starting to have these conversations on, well, are there things we want to do around the house that are going to, we think, enhance, right? 

Our values aren't shifting. It's still about. But how we go about it might shift. So I really love this topic as an opportunity to just highlight the importance of having a plan, highlights the importance of having a planner and remind people that when you go through these changes in life, it may not have to do with investments. 

It may not feel like, well, I need to call my financial planner for this. I encourage you to do that. Right. We are trained and we have now these conversations, you brought it up at the beginning, here more frequently where we got to help talk through it, think through it, go through those exercises, and we know that that can be valuable for them. 

[00:06:39] Adam Werner: And this is where, you know, just planning in general cannot be one size fits all, right? Because everybody's situation is going to be different. So something as simple as, Great, I received this bonus, or I got this promotion, I have this excess. And you start to go down the list of okay, where should we start to apply this? 

We would in many situations if somebody has what we would call quote unquote bad debt, right if there is just consumer debt not your house. Not your car that we're hoping are at, you know maybe lower interest rates, but credit card debt or loans personal loans things like that, very easy to just knock those off the list if you can, to a certain degree. 

And then you start to get into the where should, if there is still now excess, where can this be leveraged for the future in a way that really does serve me and my plan? 

[00:07:30] Ben Haas: Yeah. Is it to work less later? Is it to, you know, develop a new goal, fund things for the kids? Is it, I'm going to increase, you know, my giving elsewhere there that's where individual really is going to play a role. 

To get a little bit more into the weeds, like put our financial planner hats on here. I think more often than not, once we kind of look back on that plan and we go through the pecking order, if somebody does go through a meaningful windfall or an increase in income, the first thing we're going to talk about is taxes. 

[00:08:04] Adam Werner: So to that end. 

[00:08:05] Ben Haas: Yeah, does this create an increase in tax liability? Does it push you into a new tax bracket? You know, there, there are some of the logistical things that I think would come out of those conversations. 

[00:08:15] Adam Werner: Well, and so to take that one step further, it's the domino effect of that as well, because as we know, especially in planning, nothing happens in a vacuum. 

So yes, if now there is this windfall, whatever that may look like. And now that does push you into a potentially a new tax bracket. What other, you know, domino effects does that have? if you've been contributing to a Roth IRA, does that now put your income over the limit where now that takes that out of the equation? And now we have to go back to the drawing board to say, well we were saving X amount into the Roth IRA, but we're no longer eligible. 

So now what's the best next thing to now do with that? It may just be something as simple as we're not having enough withheld through our paychecks or depending how this income is coming about, do we now need to set up a system to make estimated tax payments to make sure we're not paying, you know additional penalties and interest when it comes to filing our taxes? Just those little kind of moving pieces that in the grand scheme are important, but can often get overlooked when you're just thinking I'm and I'm thinking even just personally, right? 

Money's coming in, money's going out. I'm trying to apply it to all of these buckets The taxes are a huge component But I think for the I'll say for the normal average person who doesn't live eat sleep breathe planning. 

[00:09:32] Ben Haas: Like we do. 

[00:09:33] Adam Werner: Yeah, that's not always like the first thing that comes to mind, but it is an important factor because that could have that domino effect of what can you really, of that net amount, some of it is going to need to go to taxes. 

[00:09:49] Ben Haas: Yeah. And it may be worthwhile to increase your deferrals into a retirement plan or, you know, figure out another method. If it is truly to try to reduce the tax liability that's being caused by this influx, you know, there, those are conversations that are really important to have at the beginning of the year when, you know this increase is being had as opposed to, Hey, I got close to the end of the year here. Now I'm looking at my pay stub and it's showing me what I've earned all year and oh my God, you know, how am I going to reduce my tax liability? Well, you know, you lost all that time. It may not be as easy. 

So yeah, really important to have a conversation on this as soon as you know, that increase is happening. 

[00:10:27] Adam Werner: Yeah, for sure. 

[00:10:28] Ben Haas: Ultimately. 

This is, this still has to be that exercise of, you know, like many other podcasts that we have around this, there has to be a hierarchy of your priorities, and then we can go through with you the hierarchy of where money should be going based on those priorities. 

[00:10:46] Adam Werner: Yeah. And ultimately if someone is facing, I don't want to say this decision, but hopefully someone is facing this situation where it feels like you're coming from a source of excess. 

[00:10:55] Ben Haas: Yeah, that's a good, this is a good problem to have. 

[00:10:57] Adam Werner: Yeah, and maybe going back to something that we kind of touched on earlier. As your approach may change right as your situation in life may change again. Those priorities may shift up and down that scale to that's where to your point, just having the conversation. 

We would certainly encourage to have that conversation with a planner to help give all of the context and talk through all of your options. But what we would hope for someone to avoid is putting savings or funds in a spot that they would regret right down the line or maybe even more in the near term. 

Flexibility is key in our minds when it comes to financial planning. Flexibility is a wonderful thing. Sometimes its value is not quantifiable, right? You can quantify the impact of, I'm going to put this amount of money in my 401k. I know what my tax rate is. I'm quote unquote saving these taxes. 

But when it comes to maybe putting money that's not necessarily dedicated to a specific goal. It's not dedicated to retirement and you're just saving it in the bank or you're putting it in a non retirement investment account, that flexibility is huge because let's say you flash forward two or three years, you get another bonus or you get another promotion. 

You're kind of going back to that same process, that same thought process again, of let's reevaluate. Yeah. It would be a terrible feeling to now get to that point in the future to say, well, I wish I would have done something different two years ago, knowing what I know now, that's where flexibility, depending where you're saving, can have a huge upside benefit of just giving yourself options to make other decisions in the future. 

[00:12:41] Ben Haas: Yeah, I know how I am. You kind of want to feel like you're maximizing your potential everywhere, but I promise you certainly as planners on our end. We know the positive that comes from just feeling comfortable with your decisions, right? The positive space that comes from, you know, think about the meeting that we just had this morning, right? 

There's a plan, we know we're going to follow it, but that meeting I still hope is so valuable, not that we changed course on a lot of things, but the conversation was, is this still how we want to handle it? 

[00:13:12] Adam Werner: Yeah. 

[00:13:12] Ben Haas: Is this still what we feel is best? And just to confirm that sometimes is the value of partnership and now the confidence that the two of them can have for the next couple of months, maybe even through to the end of the year saying, all right, as these things occur, I've confirmed what feels best for me. 

[00:13:29] Adam Werner: To maybe put a bow on that, hopefully it's not a win or lose situation, right? When you're making these decisions on kind of what, where to apply this money. Hopefully something as simple as I'm going to win by avoiding a loss, right? 

[00:13:43] Ben Haas: Yeah. Right? 

[00:13:44] Adam Werner: By avoiding painting yourself into a corner at some point in the future can be looked at as a win. 

You don't have to get every single bet right on. I'm going to save here because this is where I believe taxes are going in the future. Sometimes it's okay to win by not losing. 

[00:13:59] Ben Haas: Yeah. So wrap that all up. I think it's, such a life sometimes throws you curve balls. And I think we are often found when somebody has got a fire to put out. 

There's the other side of that, right? That you got a fast ball and you are ready to smack this thing out of the ballpark. We're quickly moving from football to baseball. I like that. 

[00:14:19] Adam Werner: Yeah. 

[00:14:19] Ben Haas: When you have these good things going on, similarly, if you don't have a plan or you don't have a planner, like seek somebody out, this is a great opportunity to make sure you feel confident in the decisions that you're making, that you're avoiding the things right, the blind spots, like you just said that you may not be aware of. 

And I promise, at least on our end, we're not going to judge you if you want to take some of that money and kind of serve present self, right? All work no play makes Jack a dull boy. Okay. Get it. But let's just still have the conversation on how we make sure that we are doing our best to have open conversations about how you're going to serve future you, too, because money is just a tool to live the life you want to live. 

But you gotta, you gotta have future you thank you as well. 

[00:14:58] Adam Werner: Yeah. So I'll say one last thing to maybe drive that point home. The amount of times that we have said after certain meetings with new people that are kind of right on that cusp of retirement, we often say if we had only met them three years earlier, five years earlier, right. 

To be able to have the discussions come up with that plan so that you can make those tweaks, make those tiny adjustments along the way. So to drive home your point of, if you're in this stage, get a planner even in these positive situations so that again, you flash forward to retirement, you're not having those, well, I wish I would have done this differently. 

Just give yourself the time and the space to figure it out in advance. 

[00:15:42] Ben Haas: Awesome. Appreciate you. Thank you for all your guidance in this space. 

[00:15:46] Adam Werner: You got it. Thank you. 

[00:15:48] Ben Haas: Later. 

[00:15:49] Adam Werner: Bye. 

[00:15:57] Adam Werner: Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant, and financial advisor, or tax advisor prior to making any decisions or investing. Thanks for listening. 

Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.