Tip Tuesdays: Why You Shouldn’t Rely on the “Bonus” Component of Your Compensation

I’ve observed quite a significant number of people plan their finances around receiving the bonus component of their compensation. And when their employer doesn’t give the expected bonus — due to whatever reason ranging from the economy to performance — their financial plans are thrown out of gear.

If you look at the terms and conditions of your employment, the bonus component is usually listed as being “up to a certain figure.” And up to can mean anywhere from zero to that figure. A bonus is not promissory in nature.

It’s therefore a good idea to not rely on your expected bonus when making your financial plans. Or, you can do better. Make two plans — a best case plan with your expected bonus and a worst case plan without it. And expect the latter to be the reality.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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