Speaker 1: Welcome to Merin Talks Your Money, the personal finance edition
Speaker 1: of Merin Talks Money. In these bonus podcasts, yes bonus,
Speaker 1: we get tips from experts across industries on how to
Speaker 1: make the most of your money. I'm mere in Sunset
Speaker 1: Web this week it's bonus season. A question I'm sure
Speaker 1: is on everyone's minds is how you should spend or
Speaker 1: not spend your bonus, assuming you get one. Joining me
Speaker 1: now is Claire Balentine, personal finance reporter at Bloomberg News.
Speaker 1: Hi Claire, Hello, Now listen. The first thing we should
Speaker 1: ask is are most people going to get a bonus?
Speaker 1: You know, in the column you wrote about this a
Speaker 1: few months ago, you start with companies are slashing jobs,
Speaker 1: pay us starting to flatline, analysts bracing for a volatile year.
Speaker 1: Is there a chance that maybe bonuses are going to
Speaker 1: be a little disappointing this year?
Speaker 2: What we've seen, at least in the US says that
Speaker 2: bonus season has been disappointing from some of the big banks.
Speaker 2: A lot of bankers are getting less bonuses, some getting
Speaker 2: none at all. So that's been disappointing here and sort
Speaker 2: of reflects the broader environment of people getting a bit
Speaker 2: our companies getting a bit more worried about the economy
Speaker 2: and then slashing bonuses as a result.
Speaker 1: Yeah, it's a quick way to cut costs. Now, if
Speaker 1: we're in that environment, and clearly we are. If you
Speaker 1: do get a bonus, maybe you should just stick it
Speaker 1: in the bank and hopefully the best for next year's.
Speaker 2: That is one take, and some advisors will recommend that,
Speaker 2: but yeah, I think it's it's kind of based on
Speaker 2: the person.
Speaker 1: Okay, so maybe you should spend it.
Speaker 2: Well, So there are a couple of schools of thought here,
Speaker 2: and so you know, the financial advisors that I talked to,
Speaker 2: very first is looking at your financial situation and if
Speaker 2: you have debt, if you have outstanding you know, student loans,
Speaker 2: if you don't have an emergency fund, those are the
Speaker 2: places where your bonus should go to.
Speaker 1: Okay, So the first place, sorry, I'm going to go
Speaker 1: back and get nailed down this personal finance stuff. The
Speaker 1: first thing you should probably do is make sure that
Speaker 1: you have a certain number of months of living money
Speaker 1: you're stuck in an account, right, we always say six months.
Speaker 1: If you've got six months worth of cash in an account,
Speaker 1: regardless whether you have debt or not still have six
Speaker 1: months of cash in an account, because that's your freedom money.
Speaker 1: It gives you a sense that you can if something
Speaker 1: goes horribly wrong, you can leave your job. You can
Speaker 1: there's a lots of things you can do if you
Speaker 1: know you've got six months worth of living in the bank.
Speaker 1: So is that the first thing? Is that what most
Speaker 1: financial advisors say?
Speaker 2: Exactly? Yeah, and the six month is a good one.
Speaker 2: Some recommend three, but they're bumping it up to six
Speaker 2: months because the job market is a bit more shaky.
Speaker 1: Yeah, okay, so you do that, and then from what
Speaker 1: you said, I'm guessing the next thing is get rid
Speaker 1: of any high interest debt.
Speaker 2: High interest debt. Yeah, and that's you know, that's not
Speaker 2: just the consumers that are on the lower end of
Speaker 2: the spectrum. A lot of high earners also have credit
Speaker 2: card debt or personal debt. So putting your bonus towards
Speaker 2: that is always a good idea if you.
Speaker 1: Have it, and in the in the US maybe student debt.
Speaker 2: Student debt can also be a big factor too, if
Speaker 2: you have private student loans. There's a balance here though,
Speaker 2: I think you know, obviously, if you don't have an
Speaker 2: emergency fund, you want to put your bonus money towards that.
Speaker 2: If you have a lot of bad debt, you want
Speaker 2: to put the bonus money towards that. But if you
Speaker 2: have you know, say you have a car payment, or
Speaker 2: a mortgage payment, or or student loans that don't have
Speaker 2: a crazy high interest rate, those can kind of be
Speaker 2: okay to carry over and to gradually pay down. Unless
Speaker 2: you're one of those people who just can't stay in
Speaker 2: the idea of debt, then maybe you should use your
Speaker 2: bonus for it.
Speaker 1: Yeah, because those debts, mortgage debt and all that kind
Speaker 1: of thing, they're set up to last for twenty years,
Speaker 1: and so you know, you might be able to take
Speaker 1: your bonus and do something completely different with it rather
Speaker 1: than the get rid of a debt that you already
Speaker 1: planned to have long term exactly.
Speaker 2: Yeah, And I think the thing that was really interesting
Speaker 2: to me and talking with financial advisors, you know, obviously
Speaker 2: the best thing you can do for your financial health
Speaker 2: is to you know, pay on debt and all that,
Speaker 2: but they really stress the fact that you should use
Speaker 2: at least a little bit of your bonus money on
Speaker 2: something fun. If you just you know, pile it all
Speaker 2: into your bad dat or into your four oh one k.
Speaker 2: It's a little bit sad. I mean, this is what
Speaker 2: people work for all year. You should treat yourself a
Speaker 2: little bit. And I think, you know, I think advisors
Speaker 2: would even say, you know, maybe you put the you know,
Speaker 2: ninety five percent of it into your bad debt, but
Speaker 2: use a little bit to treat yourself, and that kind
Speaker 2: of motivates you to keep building up good financial habits.
Speaker 1: Now, that's the interesting One of the things that we
Speaker 1: often say on this podcast, John and I is that
Speaker 1: your financial life is a balance between the present and
Speaker 1: the future. And it's quite easy to get yourself caught up,
Speaker 1: particularly if you read the money pages in the newspapers
Speaker 1: or personal finance websites, saving websites, et cetera. It's quite
Speaker 1: easy to get yourself caught up in the idea that
Speaker 1: your money should all be dedicated to the future. But
Speaker 1: of course now is now and the future is unknown,
Speaker 1: so we need to find a balance between living well
Speaker 1: now and planning to live well in the future. So
Speaker 1: with that in mind, it makes perfect sense, almost regardless
Speaker 1: of your debt position, to take a chunk of a
Speaker 1: bonus and say, well, I'm going to spend that on
Speaker 1: something that works for me. I'm very taken with you
Speaker 1: wrote a bad a young woman called Donna Hickson who's
Speaker 1: just going to spend a bonus on shoes.
Speaker 2: Yes, I loved that. I mean that was so great
Speaker 2: just to just someone who was sort of treating themselves
Speaker 2: after a long, hard year. Obviously, just like you said,
Speaker 2: I think that's so great. There is a balance with
Speaker 2: it all, you know, should you spend all of your
Speaker 2: money on shoes, No, but a little bit treating yourself.
Speaker 2: And the big thing that career coaches I talked to
Speaker 2: said is that motivates you to work hard the next year.
Speaker 2: That makes you feel like your job is producing something
Speaker 2: and is creating the quality of life that you want,
Speaker 2: and so a lot of it just comes down to
Speaker 2: your motivation for next year.
Speaker 1: Well, that was an interesting tip, and that again I'm
Speaker 1: on the same columns. I love your columns. Class on
Speaker 1: this column a bad tay lad, which is that's got
Speaker 1: to be an American name, hasn't it.
Speaker 2: Oh?
Speaker 1: Yes, yeah, it's a corporate lawyer. And she pre spent
Speaker 1: some of her bonus on some Apple products and then
Speaker 1: she put a video about it on TikTok and by
Speaker 1: doing that she somehow encouraged herself to actually work the
Speaker 1: hours that she needed to get that bonus. And she said,
Speaker 1: rewarding myself preemptively actually motivated me. And that's one way
Speaker 1: to look at it, isn't it spend it now, then
Speaker 1: you've got to put the hours in to get that bonus.
Speaker 2: That was an interesting one, And I don't know if
Speaker 2: I would would recommend that, but I think pre spending
Speaker 2: can be a little dangerous. But I do think there's
Speaker 2: something there in, you know, motivating yourself to get to
Speaker 2: the to the goal. Or maybe you know it's bonus
Speaker 2: season now and you can sort of think about next year.
Speaker 2: Maybe you say to yourself, Okay, if I do you
Speaker 2: know these three things, then I'm going to spend you know,
Speaker 2: my entire bonus on this, you know, one pair of shoes.
Speaker 2: I wanted this vacation. So seems to me like rewarding
Speaker 2: yourself at the end is better. But you know, to
Speaker 2: each their own.
Speaker 1: I mean one of the key things here. In fact,
Speaker 1: I tend to think that in life in general, one
Speaker 1: of the key things that one should always be doing
Speaker 1: is attempting not to create regret. Right, I think it's
Speaker 1: the worst emotion you can possibly have is regret. You
Speaker 1: want to spend a lot of your time thinking about
Speaker 1: your life in terms of how can I do this
Speaker 1: so that I don't regret my choices, And when it
Speaker 1: comes to a bonus, you are leaving yourself a lot
Speaker 1: of room for regret in either direction. If you spend
Speaker 1: it all on boring stuff, you might regret that you
Speaker 1: never had that great trip to for Lanka. And if
Speaker 1: you only have the great trip Tosh for Lanka, boy,
Speaker 1: you're going to regret not paying off some of.
Speaker 2: That debt definitely. And there's sort of a middle ground too.
Speaker 2: I think that at least some advisors I talk to
Speaker 2: you suggest it. You know, maybe you can use your
Speaker 2: bonus to splurge in a way that's going to help
Speaker 2: you long term. Maybe you sign up for a fancy
Speaker 2: gym membership, or maybe you have a meal delivery service
Speaker 2: which both makes your life a little easier and maybe
Speaker 2: helps you eat healthy. So there's there's a middle ground
Speaker 2: there too. You can set yourself up for maybe some
Speaker 2: other health and lifestyle goals. I talked to one woman
Speaker 2: and I just loved this. She was a financial advisor herself,
Speaker 2: and she spent some of her bonus on permanent makeup.
Speaker 2: So that's the eyeliner that is permanent, So she could
Speaker 2: save herself money getting ready or save her self time
Speaker 2: getting ready in the morning, and she has young kids.
Speaker 2: I just thought that was so great.
Speaker 1: That's a great gift to yourself. But Claire, what if
Speaker 1: eyeliner fashions change? M I'm feeling potential for great I
Speaker 1: am feeling potential regret.
Speaker 2: I think I think there are versions that you know,
Speaker 2: last maybe six months or so. It's not permanent, permanent,
Speaker 2: but yeah, that's a great point, all right.
Speaker 1: The one I'll tell you what, the one that I
Speaker 1: particularly liked that is in another one of your columnies
Speaker 1: you suggested and it was again it was suggested from
Speaker 1: an IFA who said that a lot of his male clients,
Speaker 1: and this is such a male thing, isn't it, they
Speaker 1: like sports betting. And so one thing you can do
Speaker 1: with the bonus is you can take a small amount
Speaker 1: of it that you think to yourself, I just don't
Speaker 1: mind losing this, and I'm going to have some fun
Speaker 1: with it, and you can put it into a separate
Speaker 1: account and use it for your sports betting, for your
Speaker 1: crypto investing. Hate mail for the user dress please your
Speaker 1: crypto investing, your sports betting, and possibly maybe your your
Speaker 1: moonshot investing, your small cap investing, your high tech, high
Speaker 1: growth investing, whatever it is, things that have a much
Speaker 1: higher risk profile than the stuff you might put in
Speaker 1: in the UK SIP and in the US your four
Speaker 1: oh one k, etc. I think with a higher risk profile,
Speaker 1: you can set yourself up a little account that is
Speaker 1: a play account of fun account, and if you lose it, well,
Speaker 1: hey you lost it, and maybe it's it gives you
Speaker 1: the same pleasure as a pair of shoes might give
Speaker 1: someone else.
Speaker 2: Definitely, And I like that too because if you put
Speaker 2: it in the fund, you can use that in June.
Speaker 2: You know, you don't have to spend your bonus right
Speaker 2: now when you get it. You can put it in
Speaker 2: a fund and then you know, gradually draw it down
Speaker 2: if you need it throughout the year. So there's there's
Speaker 2: no there's no law that says you have to spend
Speaker 2: your bonus right now.
Speaker 1: And there is another interesting idea that you wrote about
Speaker 1: that I'm very keen on because I'm a natural pessimist.
Speaker 1: Well I try to be a natural optimist on some things.
Speaker 1: I'm a natural an apocalyptic mindset knocking around in the
Speaker 1: back and as regular listeners will know, and one of
Speaker 1: the things that someone suggested is using some of your
Speaker 1: bonus to invest in preparing for an emergency. And this
Speaker 1: really is to suggest you don't think you're going to
Speaker 1: get a bonus next year, Assemble an emergency kit, accumulate
Speaker 1: a week's worth of food, set up a basement retreat,
Speaker 1: or even a full bunker. A full bunker, you have
Speaker 1: quite a big bonus. A full bunker.
Speaker 2: Yeah, that one's a bit extreme, but I think that's
Speaker 2: that was a really interesting one, and I can sort
Speaker 2: of you know, see, sure, if you want to set
Speaker 2: up a full bunker and you have the funds for it,
Speaker 2: go for it. But you know, there's even a bit
Speaker 2: more middle ground, you know, like, you know, do you
Speaker 2: have stuff in your apartment if the power goes out?
Speaker 2: It's probably a good idea. Does sort of think about that,
Speaker 2: you know, is your pantry stocked? Do you have these
Speaker 2: things that are gonna make your life? You know? Okay,
Speaker 2: if if say you you know, have a bad illness
Speaker 2: and you know, like during COVID times, we needed food
Speaker 2: to just stock up on that. So some of these
Speaker 2: smaller things. You know, do you have a like a toolkit?
Speaker 2: You know, I know a lot of people that maybe
Speaker 2: you probably don't have that in their New York apartment.
Speaker 1: Now when everyone has a toolkit, everyone has a toolkit.
Speaker 2: Well, I don't know people my age. I'm I'm you know,
Speaker 2: in my late twenties. Now I think maybe maybe some don't.
Speaker 2: But it's you know, investing in a cod is a
Speaker 2: good idea.
Speaker 1: Want you to go out and spend some of your
Speaker 1: bonus on a toolkit?
Speaker 2: Okay, noted, I will definitely do right.
Speaker 1: In the UK, of course, we did a podcast last
Speaker 1: week with an energy consultant, and listening back to that,
Speaker 1: I can tell you that there's a very strong chance
Speaker 1: of blackouts coming in the UK relatively soon. So everyone
Speaker 1: is going to want to have torches, candles, a couple
Speaker 1: of weeks worth of food, et cetera, because you just
Speaker 1: never know when that kind of thing is going to come.
Speaker 1: So there's a lot in there. Now. One thing I
Speaker 1: would say and to ask you about is that this
Speaker 1: isn't really just about bonuses. Is that we're not really
Speaker 1: talking about bonuses. We're talking about any lump sum you
Speaker 1: might come into suddenly. So everything that we've discussed holds
Speaker 1: for an inheritance for example as well, doesn't it.
Speaker 2: M Yeah, that's a great point too, any sort of
Speaker 2: random sum of money that you come into. And I
Speaker 2: think that's also a great point because I know way
Speaker 2: too many people that think of their bonus as part
Speaker 2: of their salary and that's a dangerous mindset because it's
Speaker 2: not guaranteed, so you shouldn't be counting on that. But yes,
Speaker 2: great point with if you have an inheritance, if you
Speaker 2: have if you come into any kind of money sort
Speaker 2: of randomly.
Speaker 1: Or undeservedly, should we say undeservedly.
Speaker 2: Yes, yes, great point. And so you know, you could
Speaker 2: have sort of a balanced approach to that. You could put,
Speaker 2: you know, some to retirement. I think a smart paying
Speaker 2: down bad debt, very smart, maybe if you have kids,
Speaker 2: putting it in their college fund, and then maybe a
Speaker 2: little bit to treat yourself and maybe to take a
Speaker 2: vacation or travel. That's a good investment in yourself too,
Speaker 2: so experiences. It's that balanced approach I think is really important.
Speaker 1: If you've got a huge bonus and you could take
Speaker 1: any trip you wanted to go anywhere in the world,
Speaker 1: you wanted right now, where would it be?
Speaker 2: You know, that is a great question because I'm actually
Speaker 2: about to do a three month job swap in Hong Kong,
Speaker 2: so I leave a week and a week and so
Speaker 2: I it's great timing because i have a couple of
Speaker 2: trips planned that are kind of once in a lifetime trips.
Speaker 2: I'm going to Japan and I'm going to Thailand, so
Speaker 2: that that's actually is where my bonus money is going
Speaker 2: this year.
Speaker 1: It's fantastic. Well claim, thank you so much for joining
Speaker 1: us today, really really useful information. Thank you, thanks for
Speaker 1: listening to this Bonus Maren Talks Money. We'll be back
Speaker 1: next week. In the meantime, If you like us, show, rate, review,
Speaker 1: and subscribe wherever you listen to podcasts. And if you
Speaker 1: have a personal finance issue you'd like us to talk about,
Speaker 1: to get an expert on to talk about, let us know.
Speaker 1: This episode was hosted by me Maren Sunset Web. It
Speaker 1: was produced by Summersati and Tiffany Choi. Additional ending by
Speaker 1: Rishi Badjacal. Special thanks to Claire Valentine