Bonus Checks and 401k Contributions

It’s March and that means bonus time. I always like to front load my 401k contributions for the year and often do a lot of it during the month where I get my bonus.

That way I can get those 401k contributions in early and avoid the hefty withholding that can come with a bonus check. I’m always a fan of not giving the government an interest free loan and bumping up my 401k contributions during bonus time can help avoid that.

In fact, I usually bump those up into the 30-40% range for the bonus month which helps sweep a ton of money into my 401k, helps bump the portfolio and drives future dividend growth while helping me lower my tax withholding for the month. It’s a big win for me! Lower taxes, higher savings rates and better future growth and dividends due to the money going in earlier.

It also means I get a higher paycheck going forward since my 401k gets that much closer to the max early in the year and I can reduce my contributions to a lower percentage. Since my employer doesn’t do a true-up at the end of the year, I can’t max it out before the last paycheck so I make sure that there are 401k contributions going in every paycheck so I can get the match.

It’s a bit annoying but what can you do. It’s not like I make close to enough to max out my 401k 3 months in anyway so it’s not a huge deal.

This year, I also had to put some extra money aside for a tax bill that will come due when I actually do my taxes. I guess that’s one of the risks with not getting this higher bonus withholding and having outside income.

The bill is due to the fact that I sold a bunch of stocks in the early part of 2020 and have to pay capital gains on those sales. I did put aside extra money via my paycheck throughout 2020 but I think I underestimated the amount I thought was due based on some initial estimates.

I have an accountant who does my taxes but I also like to do my own calculations just to prepare for what might be due and put aside some money so it’s not a huge surprise come tax day. That’ll impact my savings rate this month but hey taxes are expenses if I didn’t pay them accurately last year.

On the dividend side, I’m back to one of the four big dividend months of the year. I hold a lot of index funds and ETFs that pay quarterly so these quarter ending months are always bigger.

Last year, I didn’t see a lot of growth here due to the pandemic, some sales and some dividend cuts but I’m hoping to see that turn around this year. I’ve already seen some pretty decent dividend hikes from various holdings and I’m sure some of that will be reflected in the dividend payouts from my ETFs and index funds.

I’ve also put more money into my dividend aristocrat holdings on M1 and while that’s a small percentage of these bigger months, it’s still growing at a rapid clip and will help the yearly growth in any month.

I always love these bigger months because the amount I can re-invest is impressive and that will serve to help drive future growth in a big way.

Last March, I hit $2,009.62 in dividends which was actually a reduction from the prior year. Hopefully I can get back to growth this year so let’s see where those dividends ended in 2021.

March Dividends

March comes in at $2,597.50 which is a 29.3% boost over last year.

That’s a huge month and it’s nice to see a return to growth after a stumble last year. It’s really amazing how far I’ve come when I look at this graph. This month started below $1,000 a few years ago and now I’m halfway to $3,000 in a single month.

It really speaks to the power of additional dollars flowing in and the compound growth that comes along for the ride.

This month’s dividends will be re-invested and boost my forward income by $75.33 annually. That’s not a bad number considering I had smaller dividend months when I first started tracking this stuff in 2016.

Steve, my dividend employee, really worked hard to make these numbers happen. His hourly wage for March was $15.59/hr and that brings his annual wage to $6.31/hr.

The growth rate here is a good sign for the growth rate going forward and it’s awesome to see such a big boost in what’s already a big month. March brings the annual total to $3,153.64 or a 25.4% boost over last year at this time.

I’m hopeful to see pretty good growth going forward as we’re starting to lap the period of time where dividend cuts and interest/bond rates slashed monthly income for many.

I’m eager to see what June and September look like and if March is any sign, I might have under-estimated my dividends for the year when I set my financial goals for 2021.

As evidenced by the graph below, March is usually one of the smallest months when it comes to these quarter ending months and that bodes well for the rest of the year.

I’ve had some tough spending months recently with the purchase of a new home and some health issues but I’m hopeful March is the start of a change in that regards. That along with all the dollars re-invested along the way should mean good things for these graphs going forward.

March Total : $2,597.50
2021 Total : $3,153.64
Portfolio monthly hourly wage : $15.59/hr
Portfolio annual hourly wage : $6.31/hr

March Expenses – 401k Contributions and Taxes

Extra 401k contributions and lower withholding are great BUT they can be problematic if you have a year like mine when I sell a bunch of stocks and have capital gains I should be paying taxes on during the year.

That lower withholding means a bigger 401k contribution early in the year but they can also lead to a tax bill when you go do your taxes the next year IF you have outside income.

This was a weird year as I wasn’t really paying much attention to our taxes and also bumped up my wife’s 401k contributions quite a bit. We’re both still set as single so that might have really skewed some tax payments she was making.

I also sold quite a bit of shares with long term capital gains early in 2020 and sort of forgot about the hefty impact that will have on my tax bill.

I probably would have been well served to pay some taxes quarterly and that’s something I may have to do going forward any year where I have some hefty capital gains. I already have some this year so perhaps that’s something I’ll discuss with my accountant when I see him.

I don’t actually get my taxes done until April most years but I always do an estimate and it seems like I’ll own quite a bit when the tax bill comes due. As such, I wanted to put most of that money aside in these earlier months to cover that bill which is something you’ll see here.

Last year’s March had a 44.09% savings rate but this year March is actually a bonus month so more comparable to February’s 76.1% savings rate. I do think I had a lot more expenses this year combined with the bit tax bill I’m saving for here and I don’t believe I can reach anywhere close to that in 2020. Let’ see where my money when this March.

I saved 30.2% of my income in March. Adding in employer contributions, that number becomes 36.6%

If you add in extra equity, that savings rate grows to 33.2% and it becomes 35.0% with all equity involved. With employer contributions and equity, I’ve got a 41.4% savings rate.

So many things to track now that we’re home owners!

On a gross income basis, I saved 22.3% of my income and that number jumps to 27.0% with employer contributions.

Given that this was a bonus month and these are usually guaranteed 50%+ savings rate months, this is not a great month. It also means I’m 3 months into the year without a 50%+ savings rate month which isn’t a good sign for reaching some of my goals.

However, it’s not unexpected since my expenses ticked up due to the tax bill I have coming up. I’ve also seen a continuation of health expenses and some other home related things that have impacted this year.

I do think this is one of those years where my savings rate might actually drop quite a bit and the start of the year is an indication of that. I have one negative month and two months which are well shy of my 50%+ goals.

Still, it is kind of what I should have expected going into this year. We just bought a home which is adding up to quite a bit in terms of first time homeowner stuff and I’ve also got some health expenses which will continue to accrue until the deductible is met.

On top of that, there’s this big tax bill which will impact my savings rate quite a bit especially if I choose to send in quarterly payments next year because I already have some decent capital gains I’ll have to pay for next year.

It does make me feel a bit better that my housing payments at least are a form of savings now which makes this slow start to the year a bit more palatable.

I’ll write more about the first time homeowner stuff but man, there’s a lot of crap to buy and a lot of random expenses that you don’t even thinking about especially if your home happens to have a nice lush garden you now have to maintain.

On the expense side, taxes are mean and not so lean and take the top spot easily. This should be the majority of what I owe but I only did a generic calculation that might not capture everything. For example, my wife had a few small 30 year bonds mature that might add a bit to the total.

On top of that, given that I’ve already sold a few stocks this year for a profit, I might have to take out quarterly taxes to prevent a big tax bill next year which will impact future months. It’s not really looking good for my savings rate this year but hey with inflation maybe coming down the road, perhaps it’s time to spend down cash anyway! Or maybe there’s no inflation and I’m just saying that to make myself feel good about all my expenses, who knows!

Health was my #2 expense and included a continuation of a deluge of doctor visit bills. This will be a monthly experience until I get these medical issues figured out although they should slow down a bit now that I’m close to hitting my deductible. Coinsurance and stuff will still apply but at least it’ll be less impactful.

It’s crazy that pretty much every specialist visit is like $200-$300 for a 15 minute discussion about nothing. These health costs are on top of the health insurance premiums I pay every month.

I also have to get two crowns done on two teeth where I had a root canal AND apicoectomy which will not be covered by dental insurance since that’s now maxed out. Ah yes, dental insurance, so useless.

Utilities were up next and included two deliveries of oil that somehow fell into this month. I think we had one delivery sometime near the middle of February and one near the tail end of March but I paid for both this month. It was a cold winter and we like our home warm so the heating costs added up. It’s clear that utility costs are going to be way up in the home versus what they were in the apartment.

The mortgage is next and has a few parts to it. There’s some equity in there and I think I’m going to try to have the equity part(both extra + regular) exceed the mortgage costs each month. That’s a fun little thing to aim for and will help me pay off the entire thing faster if I can achieve that.

I also picked up a few additions to the ol’ home equipment and tools collection. This included a few trips to Lowe’s to pick up some gardening tools and gloves and stuff. It also included a leaf blower and a few other small things. I still need a lawn mower which I plan to pick up soon, maybe a weed whacker and a hedge trimmer too.

I’m getting to a point where I’ve got a good portion of the tools and equipment I’ll need but there’s some more expenses to come as well.

On the home repairs/maintenance front, I’ve also included lawn care items that seem like they’ll be a repetitive expense. Unfortunately as the snow melted, we found out we had a lot of vole damage so I’m trying to mitigate that and prevent that into the future. It seems like that’ll require a few repeated treatments that I can do myself but lawn care stuff can get expensive. We also picked up some grass seed and top soil and stuff like that to fill in certain patches and deal with some of the damage from the voles.

So far we’re enjoying that part of the home owner experience and that’s something I didn’t think I’d get into but both the wife and I are starting to get into gardening.

After that, we’ve got a bevy of the usual suspects including some pet expenses, groceries and other expenses. On the furniture side, we picked up a small cheap bookcase from Wayfair and also stocked up on some home necessities for the kitchen and living area.

Overall, it’s not an amazing month for one with a bonus but any month where I save money is a pretty good one. It’s also not a great start to the year but such is life, you can’t predict costs very well and stuff like health issues will sometimes pop out from nowhere. I should have done a better job of preparing for taxes so that I wouldn’t have this sizable surprise bill but you can’t win them all.

The cool thing about getting to this spot in my investing career is that my dividends are becoming a bigger and bigger contributor to overall savings. It’s certainly nice to have huge savings rate months but even when I don’t, I can count on these bigger dividend months to drive some purchases of extra shares. I’m getting to spots where I’m getting more in dividends than I am saving in a month and that’s pretty damn cool to see.

It really does speak to the power of investing as once it gets going, the internal savings rates can sometimes exceed what I can do with my job.

I’ll certainly try to help these bigger dividend months as much as I can but even in spots where I can’t save as much, I still feel pretty good about the overall financial picture because seeing these dividends come in and the portfolio share count continue to grow is a good thing in the long run.

Thanks for reading and hopefully you had a good march as well!