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How to handle cashback bonuses? Invest for FIRE or spend it?
02-19-2018, 12:37 PM
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#1
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Dryer sheet wannabe
Join Date: Dec 2017
Posts: 21
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How to handle cashback bonuses? Invest for FIRE or spend it?
I'm a CC churner and want to apply for a CC to get a $400 cashback bonus. I'm having a dilemma on how to treat this $400.
I'm planning to make a large purchase for a hobby of mine: crash pads for bouldering. At the same time, I want to maximize my Roth IRA or reduce my debt. Thus, I'm conflicted on the different options on how I could use this money:
- 2 pads for $310 (superior quality, long life). Invest leftover $90 into Roth.
- 1 $150 pad (average quality, short-medium life). Invest leftover $250 into Roth.
- Invest entire $400 into Roth. Buy either pad option with take-home pay.
If I didn't have the $400 bonus, I would feel bad about buying the $310 pads and may opt for the $150 pad instead (or 1 superior quality pad rather than 2). Thus, having the $400 bonus makes me feel less guilty to splurge.
My finances: Have a 6 mo EF. I maximize my 401(k), HSA and working on my Roth. I'm confident I'd be able to maximize my Roth without any cashback bonus. I have a student loan of $16k @ 3.4-3.8% and a auto loan $12k @ 2.2%.
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02-19-2018, 01:39 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Mar 2012
Posts: 3,931
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Your $400 bonus is really about $320 due to fed/state taxes on it.
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02-19-2018, 02:09 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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Quote:
Originally Posted by njhowie
Your $400 bonus is really about $320 due to fed/state taxes on it.
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no tax on cc rewards.....considered a rebate lowering cost, not taxable inc.
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02-19-2018, 02:14 PM
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#4
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gone traveling
Join Date: Apr 2011
Posts: 3,375
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I don't understand the guilt thing of spending on a favorite ongoing activity.
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02-19-2018, 02:27 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,265
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Money is fungible.
It doesn't matter.
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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02-19-2018, 02:34 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Location: Denver
Posts: 3,519
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Quote:
Originally Posted by Chuckanut
Money is fungible.
It doesn't matter.
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+1 Important concept to internalize.
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02-19-2018, 02:46 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2008
Posts: 13,150
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I'm a bit of a cashback bonus hoarder. Letting the balances idle instead of spending.
__________________
Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
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02-19-2018, 03:13 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,228
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Quote:
Originally Posted by easysurfer
I'm a bit of a cashback bonus hoarder. Letting the balances idle instead of spending.
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Is that supposed to be advice, or a confession?
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02-19-2018, 03:21 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2017
Location: City
Posts: 10,351
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Quote:
Originally Posted by Chuckanut
Money is fungible.
It doesn't matter.
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+2
This is an example of what Richard Thaler calls "mental accounting." https://en.wikipedia.org/wiki/Mental_accounting We all do it to one degree or another, but your angst seems a bit excessive. There is no difference between the rebate and your take home pay.
Regarding retirement saving here is a quick multiple choice test that may help: You are 75 years old, in good health, and reviewing your investments. Would you rather
(a) find that you are running out of money.
(b) find that you may have saved a little more than you need.
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02-19-2018, 03:27 PM
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#10
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Moderator
Join Date: Dec 2007
Location: Eastern WV Panhandle
Posts: 25,346
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Ditto on the "mental accounting".
However, before I ever heard the term when I came into a windfall, usually from working a holiday (overtime pay) or similar I'd split the difference and half went to whatever we wanted to splurge on and half went to savings.
__________________
When I was a kid I wanted to be older. This is not what I expected.
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02-19-2018, 03:33 PM
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#11
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Thinks s/he gets paid by the post
Join Date: Dec 2014
Posts: 2,511
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Quote:
Originally Posted by Chuckanut
Money is fungible.
It doesn't matter.
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what would you do if the money came from some other place? Extra earning?
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02-19-2018, 03:35 PM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2008
Posts: 13,150
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Quote:
Originally Posted by RunningBum
Is that supposed to be advice, or a confession?
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Confession. I treat cash back bonuses like saving gift cards for something worthy of a splurge.
__________________
Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
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02-19-2018, 04:27 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2013
Posts: 9,358
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Personally, I have an annual budget that includes a hobby category and is more than I usually spend. I save the CC rewards or put the points towards expenses already in the budget, like Home Depot gift cards for home maintenance items or use the points for travel, but travel already in the budget, not anything unplanned. Having an annual budget by category for me means less decisions during the year. If I'm not over-budget, then I can spend what I want.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
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02-19-2018, 05:17 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2014
Posts: 7,373
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Mine go straight to the travel budget.
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02-20-2018, 06:57 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Dallas
Posts: 1,155
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Two words: mental accounting
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02-20-2018, 07:14 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Jan 2014
Posts: 1,770
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How long have you been bouldering? You are probably going with other people, safety, right? No one else in the group has a crash pad? My buddy goes with several other people and they all chipped in for the crash pads. Use some to chip in on the "group" crash pad and use the rest on student loan.
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02-20-2018, 07:39 AM
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#17
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Thinks s/he gets paid by the post
Join Date: Jul 2013
Posts: 1,884
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Quote:
Originally Posted by sizzlinkola
- Invest entire $400 into Roth. Buy either pad option with take-home pay.
If I didn't have the $400 bonus, I would feel bad about buying the $310 pads and may opt for the $150 pad instead (or 1 superior quality pad rather than 2). Thus, having the $400 bonus makes me feel less guilty to splurge.
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Money is fungible. Saying that the money for the pads is coming out of the CC bonus or income is just mental accounting.
Personally, I've never treated "found" money as something just to be spent.
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02-20-2018, 08:01 AM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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Quote:
Originally Posted by mrfeh
Money is fungible. Saying that the money for the pads is coming out of the CC bonus or income is just mental accounting.
Personally, I've never treated "found" money as something just to be spent.
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Well I think they just mean it’s extra income so they feel like they can spend it on something they really want.
If I got an unexpected bonus at work or money gift from family I’d certainly consider spending at least part of it on something that I really wanted but had been waiting to buy.
Not working now and I’m the one who gifts to family members. I’m always hoping they’ll spend it on something fun but each has their priorities.
__________________
Retired since summer 1999.
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02-20-2018, 08:09 AM
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#19
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Thinks s/he gets paid by the post
Join Date: Jul 2013
Posts: 1,884
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Quote:
Originally Posted by audreyh1
Well I think they just mean it’s extra income so they feel like they can spend it on something they really want.
If I got an unexpected bonus at work or money gift from family I’d certainly consider spending at least part of it on something that I really wanted but had been waiting to buy.
Not working now and I’m the one who gifts to family members. I’m always hoping they’ll spend it on something fun but each has their priorities.
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I don't disagree.
Personally, I treat gifts different from something like CC bonuses. If somebody gives me cash as a gift, I do try to spend it on something I'd like that I wouldn't ordinarily buy for myself.
On the other hand, anything I personally do to generate money (CC bonus, CC cash back, paycheck, bonus) is all considered "income". Anything left after usual life expenses will be saved/invested.
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02-20-2018, 08:35 AM
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#20
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Thinks s/he gets paid by the post
Join Date: Nov 2013
Posts: 1,049
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Quote:
Originally Posted by sizzlinkola
Have a 6 mo EF. I maximize my 401(k), HSA and working on my Roth. I'm confident I'd be able to maximize my Roth without any cashback bonus. I have a student loan of $16k @ 3.4-3.8% and a auto loan $12k @ 2.2%.
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Use the 6 month emergency fund to fund the Roth account over the next couple of years, you can always withdraw contributions if you need cash, not idea but at least you have fully funded your Roth account.
Buy a crash pad-have some fun along the way to FIRE, better yet share with others as suggested earlier.
Pay off student and car loan.
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