Time in the Market savings rate report – February 2018 – investing your bonus

bonus

[This savings rate report about investing your bonus may contain affiliate links at no cost to you]

It’s bonus season so let’s talk about why investing your bonus makes sense but before I do that let’s celebrate the changing seasons!

Spring is here and the weather is starting its return to normalcy again. Yes, that means snow and cold is abnormal because I don’t like it! We had a few snow storms in the last two weeks but I think snow is finally behind us! That means I can finally head out and do some hiking without cold wind buffeting my face.

Not that we didn’t hike during winter but it’s much more enjoyable when the sky is nice and blue and the weather is above freezing. My fiancee and I spent some hours this weekend exploring some nearby walking paths and getting into the spring spirit. One of things I enjoy most is walking around exploring the natural areas around us like the beautiful river below.

There’s really something special about spring. The weather starts to warm up and the wonderful smells of nature start to return. It was really nice being out there and enjoying the crisp air and the sounds of the river flowing right near us.

hiking

Another great part of March besides Spring starting is that I get to look at my February savings rate! This is generally my best month of the year because it’s the month I get my bonus. I’m a big fan of investing your bonus in as big a way as possible. After all, it’s extra money you generally weren’t expecting.

If you’re familiar with withholding tax tables then you know that a bonus is often taxed at a much higher rate than your usual check. The reason is that the tables are based on that specific paycheck’s wages. Your biweekly wages + your bonus can easily boost you into the next income bracket for that paycheck. A higher income bracket means more taxes withheld for that paycheck alone. As I’m not a fan of lending the government money only to get a big refund, I try to avoid that.

There’s an easy way to avoid that for anyone with a 401k. Just bump up your 401k contribution for that paycheck to 50% or whatever your maximum happens to be. That reduces your taxable income, which has been bumped up by the bonus, and reduces the tax withheld. On top of that, it gives you a big start on your 401k contribution for the year.

That’s exactly what I do each February. It’s one of the reasons February is my biggest month of the year. My bonus isn’t anything enormous(it’s still nice but below 10k). However, putting 50% of that plus my regular monthly wages into 401k give me a huge boost to my savings rate for the month. It also allows me to get a big boost of money into the market earlier in the year so it can grow more.

As an example, my gross income savings rate last year was 53.6% with a 68.9% savings rate! That’s the starting point to compare against this month so let’s start with the gross savings rate.

Gross Income Savings Rate

gross income savings rate

On a gross income basis, I saved 57.0% of my income this month. That’s a huge month, my biggest ever and a great continuation of the results in January.

That number jumps to 61.75% when I add in employer contributions.

Bumping my 401k to 50% for the bonus month is a huge boost to my results. Most of the savings this month is due to that. Front loading my 401k means my contributions for the rest of the year go down on a % basis but that gives me extra cash flow to invest in non tax-advantaged accounts. After February, I’m ~45% there to maxing out my 401k which is great to see. The rest of the year will see a smaller portion of my paycheck going into the 401k. The reason I don’t max it out early is because I need to contribute each month to get the match as my employer doesn’t true it up at the end of the year.

That leads to bigger paychecks and as long as I can keep my expenses low, that means I’ll have extra cash to invest in taxable accounts.

Let’s take a look at the savings rate now.

Savings Rate

savings rate

My savings rate for the month is 71.14%. That’s another record and with January’s great results, makes for an awesome start to 2018. I’m glad to see the momentum that started near the tail end of 2017 continuing into 2018.

Adding in employer contributions brings that number to 77.05%.

It’s no surprise that my portfolio was up nearly 30k in the latest month as that included these contributions.

Overall, I’m very happy with the results as this will give me a good head start on my 2018 goals. I know I have some upcoming expenses like my wedding and honeymoon that will drive the savings rate down rest of year. I have some expected expenses due soon, the first of which is the 2nd payment for our wedding venue which is going out this week.

Speaking of expenses, let’s take a look at where my money went this month.

Expenses

sankey graph

On the income front, my primary job made up most of my income. My self-published royalties made up a tiny portion but they did cover my entertainment budget so that’s nice!

It’s less impressive when you consider my entertainment budget this month was Netflix and iTunes.

The biggest chunk as mentioned before is savings which is super cool!

Rent comes next and is a smaller % this month as my income shot up due to the bonus.

Car costs are next and include my car insurance payment for the next 6 months. I’ve still yet to make any additional payments on my car loan but the plan continues to be to pay it off this year ahead of schedule.

Health is next and includes an annual visit to my neurologist, some blood work and some supplements. It’s crazy how much a specialist visit costs these days especially for people who don’t have copays. We have a fifteen minute talk to confirm everything is OK and here’s a bill for $260 after insurance discounts. Then the blood work is extra too! Yikes, it really makes one worry about healthcare costs in retirement.

Groceries included two trips to Trader Joe’s(my fiancee and I split these every other week) and a few other stops at Whole Foods and Shop-Rite. Shop-Rite started carrying a frozen keto friendly pizza which is relatively decent albeit expensive. Still, it’s a nice thing to have for a quick snack when I’m feeling extra lazy.

Home bills reflect my gas and electric costs.

Restaurant expenses were low this month as we ate in more often and only went out for lunch a few times. I also made a few stops at Chipotle. It’s much easier to just eat in than out when following the keto diet.

The rest of the items including internet, phone, parking and health insurance are there each month and don’t really change.

Gifts made an appearance again as I picked up a card and some of my fiancee’s favorite chocolates and biscuits for Valentine’s Day.

I also got a haircut which flows in under personal grooming.

On the household front, I used a $75 gift card I had from Christmas and some extra cash to pick up a electric kettle, a glass tea pot with an infuser and some loose leaf tea for future tea making adventures. If anyone loves tea then I highly recommend making the switch to loose leaf teas over bagged. The glass tea pot I got is quite excellent and very easy to use and clean.

Overall, this was a very solid month thanks to my bonus. However, my ability to control expenses certainly helped make it a record month too. I was very happy to almost hit 50% in January and smash it in February and know that will help offset some harder months later in the year.

I already know March will likely be a struggle due to a wedding venue payment being due.  It’s good to have these strong months to help lead the way as I progress through the year.

At this point, I’m happy with where I stand and have a great shot at hitting my 2018 goals. I always find it easier to save money in the winter when I’m in hibernation mode. Now that it’s spring, I’ll be outside a lot more often and that means more money will be spent on things such as lunches when I’m miles away from home! Still, I’ve got a great start on the year so I’m not too worried on splurging a little bit when warranted. Gotta enjoy life after all!

How was your February? Any major or fun purchases lately or coming up? Let me know and as always, thanks for reading!

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5 thoughts on “Time in the Market savings rate report – February 2018 – investing your bonus

  1. Nice work Time – circa 80% all up savings rate is phenomenal!!!! Keep it up!

    As it happens, I went to Ikea today and bought myself a tea-pot ($10) and then to my local Japanese grocer for some loose leaf Genmaicha tea – it’s my favourite all rounder for green tea.

    How simple is it to change 401k contribution rates in the US? Is it an online process or through HR?

    1. Thanks man, I’m pretty hyped about the savings rate.

      It’s pretty simple for me to make a change in my 401k. I just do it via the 401k website and as long as I get in in about 2 weeks before the paycheck, it gets processed. Some others in smaller companies may have to email HR which may take longer.

  2. Hey TITM,

    congrats on your bonus and to that awesome savings rate. 77% is more than impressive. I usually manage to be in the range of 40%-60%, but that’s it. I wish we had something like a 401 plan over here in Germany too…but all they come up here concerning investors is more taxes. 25% on dividends and additional and complex rules for ETFs etc.

    All the best for your wedding and honeymoon!! Enjoy!

    Greet’s
    DividendSolutions

    1. Yea the 401k is pretty awesome – can’t complain about all the tax-advantaged accounts we get in the U.S.

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