Active Income FatFIRE Guide Property Investment

What to do with your Bonus?

Bonus season is upon us. Anxiety and anticipation is over. I have a figure to share. But what do I buy with it. Rolex? Jewellery? Holidays? Or should I be sensible and do the right thing. But its 2020! Don’t we all deserve a break from FIRE?

My company is one of the few companies that pay out bonuses in December. It’s great because it goes towards Christmas. But it’s also bad because it goes towards Christmas!

I (having run my own business for most of my career) have never really received a bonus. All my friends in the City on permanent salaries, used to tell me about the anxiety, joy or discontent during bonus season. I did have some anxiety in the lead up to comp day. But it actually feels special and I was grateful to receive it; although total compensation, after tax, is half of what I was earning from my consultancy business.

Word of warning: Yes – I work in big finance in the city. But I’m not an investment banker, sales trader or fund manager. I don’t get a 6 or 7 figure bonus. My bonus tends to be in the 4 to 5 figure range after tax.

I’m entitled to 25% bonus every year. This is a discretionary bonus calculated on my gross base salary and based on my performance, the firms performance and general market conditions!

When delivered, the bonus is tax deducted to the full amount (permissible by law). This year, as I have only been working in the firm for 7 months, the bonus has been pro-rated as well.


So this year my performance + company performance + market conditions were so good that I was awarded the full bonus allocation of 25% pro-rated over 7 months. It worked out to just over £20,000. Due to exorbitant taxation, my actual cash payout is unfortunately a lot less: £11,615. Nonetheless I was absolutely overjoyed to receive recognition and award for my contribution. I have added a Main Income tab to the FatFIRE Calculator Spreadsheet. Please download and have a play to work out what your bonus.

Main Income Calculator

The calculator is quite rudimentary and quite verbose at the moment. Please play around with the formulas as you like and modify it. I will make tweaks to it over time. It also caters for Contract/Pvt LTD Company income calculation too with day rates etc. Play around and let me know if you want me to include other calculations and data points.

What to do with the money?

Temptation was there to splash out. £11,615 is a sizeable amount of money and I could easily have dunked it into a Rolex, some jewellery for FatFIRE Mum or a nice holiday (that we cannot go on due to COVID). But being FatFIRE dad I resisted temptation (although the holiday Idea, having just typed it up, is very tempting). So what did I do?

Pay off Year End Bills (£4,800)

I have a number of bills that fall at the end of the year. Namely:

  • Home Insurance
  • Car Insurance
  • Deposit for my youngest child’s admission into nursery (unplanned)

I usually plan for year end bills, but for various reasons this year, I have used up some of my reserves. I could liquidate some shares, but I don’t really want it to impact my investment portfolio or mess up funds saved up for property deposits.

Pay off debts (£1,488)

I have a small sum left on my Car Loan. Although interest is low, it is still leaking £45 a month of interest payments that I could do without over the next 3 months.

Top up Property Deposit due to lending constraints (£9,450)

The chancellor has granted us, in the UK, with a Stamp Duty Land Tax (SDLT) holiday to kick start the property market. This effectively means that individuals do not pay any SDLT if the value of the property is less than £500k. But (as always) Property Investors are treated a little differently. We still have an exemption but the 3% second home surcharge is applicable.

I kicked off the purchase of a property, before the chancellors announcement, for a freehold 4 bed house for £189,000. The property is a bargain for that price and probably 20% off the market value (looking at comparisons in the area). The discount is due to a motivated seller and is dependent on completing quickly.

The mortgage process was going very smoothly. I managed to snag a very decent 75% LTV BTL mortgage. But half way through, due to COVID and general concerns with the economy, the lender demanded that I put up another 5% deposit (making it 70% LTV). This means that I am looking at funding another £9,450 to complete on time.

I spoke to other brokers and they have told me that lenders are overwhelmed and understaffed due to the property boom generated by the stamp duty holiday and COVID. They said that if I put in another application I may not get it secured in time.

£0 (-£4,123)

So now I have nothing left. In fact, to top up the property deposit, I have had to dip into another savings pot to the value of £4,123.

But although this sounds very boring. It’s not! From a financial well being perspective, I have made sound financial decisions:

  1. Paid off bills and expenses without incurring further debt. I could have easily spent money on luxuries and put these bills onto credit cards and went into Debt.
  2. Paid off existing debts that will reduce my overall outgoings.
  3. Invested money into property, which is a solid income producing asset in line with my FatFIRE strategy.

But this is still far too boring. So my advice is this. If you can, put some money aside to enjoy. Even if it is £500 that you use for a small holiday, or gadgets, or gifts, or a few nice dinners, anything. You deserve it!

So bonuses are a wonderful end to the year. But be sensible with that money and ensure that you cover you expenses, pay up your debts and invest what you have left. But don’t be too frugal. If you do have something left, use a little money to make you, your family and friends smile. It’s worth it, especially in 2020!

Remember to download Emma – super handy app – to help visualise and analyse your finances across all of your apps and ultimately help you cut down on your spending and increase that Savings rate up! Click here for a £10 cashback when you install and subscribe to Emma Pro!

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