Proposal: 4 ways to best use your annual compensation
The goal isn’t to “optimize everything” at once—it’s to align your money with what matters most: stability, growth, and optionality. Below are four buckets you can use to decide where each new dollar should go.
1) Build stability (your “sleep-at-night” fund)
Use part of your compensation to reduce stress and avoid having to borrow at the worst time.
- Establish an emergency fund (often 3–6 months of essential expenses).
- Cover near-term known costs (insurance deductibles, car repairs, planned moves).
- Automate a baseline transfer so it grows without decision fatigue.
2) Pay down expensive debt (highest APR first)
If you have high-interest debt, paying it down is a guaranteed “return” and improves cash flow.
- Prioritize credit cards / high APR personal loans before lower-rate debt.
- Use windfalls (bonus/RSU vest) for targeted principal payments.
- Keep it measurable: track APRs, balances, and a payoff date.
3) Invest for the long term (retirement + goals)
Put your money to work for future-you—especially in tax-advantaged accounts, if available.
- Contribute enough to get any employer match (if applicable).
- Increase contributions with raises (e.g., +1–2% per year) to keep lifestyle creep in check.
- Choose a simple strategy you’ll stick with (e.g., broad index funds, target-date funds).
4) Spend intentionally (quality of life + growth)
After stability and core goals, allocate guilt-free spending that improves your life and future earnings.
- Pick “high-joy” spending categories and cap the rest.
- Invest in skills/tools that expand career options (courses, certifications, equipment).
- Set aside funds for experiences and relationships—then actually use them.
A simple way to apply this
Use a lightweight “allocation rule” so you don’t have to renegotiate with yourself every month. Example: decide your order of operations, then automate it.