WEBVTT - BONUS: Listen to This Before You Blow Your Bonus

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<v Speaker 1>Welcome to Merin Talks Your Money, the personal finance edition

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<v Speaker 1>of Merin Talks Money. In these bonus podcasts, yes bonus,

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<v Speaker 1>we get tips from experts across industries on how to

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<v Speaker 1>make the most of your money. I'm mere in Sunset

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<v Speaker 1>Web this week it's bonus season. A question I'm sure

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<v Speaker 1>is on everyone's minds is how you should spend or

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<v Speaker 1>not spend your bonus, assuming you get one. Joining me

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<v Speaker 1>now is Claire Balentine, personal finance reporter at Bloomberg News.

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<v Speaker 1>Hi Claire, Hello, Now listen. The first thing we should

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<v Speaker 1>ask is are most people going to get a bonus?

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<v Speaker 1>You know, in the column you wrote about this a

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<v Speaker 1>few months ago, you start with companies are slashing jobs,

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<v Speaker 1>pay us starting to flatline, analysts bracing for a volatile year.

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<v Speaker 1>Is there a chance that maybe bonuses are going to

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<v Speaker 1>be a little disappointing this year?

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<v Speaker 2>What we've seen, at least in the US says that

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<v Speaker 2>bonus season has been disappointing from some of the big banks.

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<v Speaker 2>A lot of bankers are getting less bonuses, some getting

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<v Speaker 2>none at all. So that's been disappointing here and sort

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<v Speaker 2>of reflects the broader environment of people getting a bit

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<v Speaker 2>our companies getting a bit more worried about the economy

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<v Speaker 2>and then slashing bonuses as a result.

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<v Speaker 1>Yeah, it's a quick way to cut costs. Now, if

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<v Speaker 1>we're in that environment, and clearly we are. If you

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<v Speaker 1>do get a bonus, maybe you should just stick it

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<v Speaker 1>in the bank and hopefully the best for next year's.

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<v Speaker 2>That is one take, and some advisors will recommend that,

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<v Speaker 2>but yeah, I think it's it's kind of based on

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<v Speaker 2>the person.

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<v Speaker 1>Okay, so maybe you should spend it.

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<v Speaker 2>Well, So there are a couple of schools of thought here,

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<v Speaker 2>and so you know, the financial advisors that I talked to,

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<v Speaker 2>very first is looking at your financial situation and if

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<v Speaker 2>you have debt, if you have outstanding you know, student loans,

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<v Speaker 2>if you don't have an emergency fund, those are the

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<v Speaker 2>places where your bonus should go to.

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<v Speaker 1>Okay, So the first place, sorry, I'm going to go

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<v Speaker 1>back and get nailed down this personal finance stuff. The

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<v Speaker 1>first thing you should probably do is make sure that

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<v Speaker 1>you have a certain number of months of living money

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<v Speaker 1>you're stuck in an account, right, we always say six months.

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<v Speaker 1>If you've got six months worth of cash in an account,

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<v Speaker 1>regardless whether you have debt or not still have six

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<v Speaker 1>months of cash in an account, because that's your freedom money.

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<v Speaker 1>It gives you a sense that you can if something

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<v Speaker 1>goes horribly wrong, you can leave your job. You can

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<v Speaker 1>there's a lots of things you can do if you

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<v Speaker 1>know you've got six months worth of living in the bank.

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<v Speaker 1>So is that the first thing? Is that what most

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<v Speaker 1>financial advisors say?

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<v Speaker 2>Exactly? Yeah, and the six month is a good one.

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<v Speaker 2>Some recommend three, but they're bumping it up to six

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<v Speaker 2>months because the job market is a bit more shaky.

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<v Speaker 1>Yeah, okay, so you do that, and then from what

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<v Speaker 1>you said, I'm guessing the next thing is get rid

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<v Speaker 1>of any high interest debt.

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<v Speaker 2>High interest debt. Yeah, and that's you know, that's not

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<v Speaker 2>just the consumers that are on the lower end of

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<v Speaker 2>the spectrum. A lot of high earners also have credit

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<v Speaker 2>card debt or personal debt. So putting your bonus towards

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<v Speaker 2>that is always a good idea if you.

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<v Speaker 1>Have it, and in the in the US maybe student debt.

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<v Speaker 2>Student debt can also be a big factor too, if

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<v Speaker 2>you have private student loans. There's a balance here though,

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<v Speaker 2>I think you know, obviously, if you don't have an

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<v Speaker 2>emergency fund, you want to put your bonus money towards that.

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<v Speaker 2>If you have a lot of bad debt, you want

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<v Speaker 2>to put the bonus money towards that. But if you

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<v Speaker 2>have you know, say you have a car payment, or

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<v Speaker 2>a mortgage payment, or or student loans that don't have

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<v Speaker 2>a crazy high interest rate, those can kind of be

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<v Speaker 2>okay to carry over and to gradually pay down. Unless

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<v Speaker 2>you're one of those people who just can't stay in

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<v Speaker 2>the idea of debt, then maybe you should use your

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<v Speaker 2>bonus for it.

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<v Speaker 1>Yeah, because those debts, mortgage debt and all that kind

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<v Speaker 1>of thing, they're set up to last for twenty years,

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<v Speaker 1>and so you know, you might be able to take

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<v Speaker 1>your bonus and do something completely different with it rather

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<v Speaker 1>than the get rid of a debt that you already

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<v Speaker 1>planned to have long term exactly.

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<v Speaker 2>Yeah, And I think the thing that was really interesting

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<v Speaker 2>to me and talking with financial advisors, you know, obviously

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<v Speaker 2>the best thing you can do for your financial health

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<v Speaker 2>is to you know, pay on debt and all that,

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<v Speaker 2>but they really stress the fact that you should use

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<v Speaker 2>at least a little bit of your bonus money on

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<v Speaker 2>something fun. If you just you know, pile it all

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<v Speaker 2>into your bad dat or into your four oh one k.

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<v Speaker 2>It's a little bit sad. I mean, this is what

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<v Speaker 2>people work for all year. You should treat yourself a

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<v Speaker 2>little bit. And I think, you know, I think advisors

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<v Speaker 2>would even say, you know, maybe you put the you know,

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<v Speaker 2>ninety five percent of it into your bad debt, but

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<v Speaker 2>use a little bit to treat yourself, and that kind

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<v Speaker 2>of motivates you to keep building up good financial habits.

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<v Speaker 1>Now, that's the interesting One of the things that we

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<v Speaker 1>often say on this podcast, John and I is that

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<v Speaker 1>your financial life is a balance between the present and

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<v Speaker 1>the future. And it's quite easy to get yourself caught up,

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<v Speaker 1>particularly if you read the money pages in the newspapers

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<v Speaker 1>or personal finance websites, saving websites, et cetera. It's quite

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<v Speaker 1>easy to get yourself caught up in the idea that

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<v Speaker 1>your money should all be dedicated to the future. But

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<v Speaker 1>of course now is now and the future is unknown,

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<v Speaker 1>so we need to find a balance between living well

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<v Speaker 1>now and planning to live well in the future. So

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<v Speaker 1>with that in mind, it makes perfect sense, almost regardless

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<v Speaker 1>of your debt position, to take a chunk of a

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<v Speaker 1>bonus and say, well, I'm going to spend that on

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<v Speaker 1>something that works for me. I'm very taken with you

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<v Speaker 1>wrote a bad a young woman called Donna Hickson who's

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<v Speaker 1>just going to spend a bonus on shoes.

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<v Speaker 2>Yes, I loved that. I mean that was so great

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<v Speaker 2>just to just someone who was sort of treating themselves

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<v Speaker 2>after a long, hard year. Obviously, just like you said,

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<v Speaker 2>I think that's so great. There is a balance with

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<v Speaker 2>it all, you know, should you spend all of your

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<v Speaker 2>money on shoes, No, but a little bit treating yourself.

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<v Speaker 2>And the big thing that career coaches I talked to

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<v Speaker 2>said is that motivates you to work hard the next year.

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<v Speaker 2>That makes you feel like your job is producing something

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<v Speaker 2>and is creating the quality of life that you want,

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<v Speaker 2>and so a lot of it just comes down to

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<v Speaker 2>your motivation for next year.

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<v Speaker 1>Well, that was an interesting tip, and that again I'm

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<v Speaker 1>on the same columns. I love your columns. Class on

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<v Speaker 1>this column a bad tay lad, which is that's got

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<v Speaker 1>to be an American name, hasn't it.

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<v Speaker 2>Oh?

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<v Speaker 1>Yes, yeah, it's a corporate lawyer. And she pre spent

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<v Speaker 1>some of her bonus on some Apple products and then

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<v Speaker 1>she put a video about it on TikTok and by

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<v Speaker 1>doing that she somehow encouraged herself to actually work the

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<v Speaker 1>hours that she needed to get that bonus. And she said,

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<v Speaker 1>rewarding myself preemptively actually motivated me. And that's one way

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<v Speaker 1>to look at it, isn't it spend it now, then

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<v Speaker 1>you've got to put the hours in to get that bonus.

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<v Speaker 2>That was an interesting one, And I don't know if

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<v Speaker 2>I would would recommend that, but I think pre spending

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<v Speaker 2>can be a little dangerous. But I do think there's

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<v Speaker 2>something there in, you know, motivating yourself to get to

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<v Speaker 2>the to the goal. Or maybe you know it's bonus

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<v Speaker 2>season now and you can sort of think about next year.

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<v Speaker 2>Maybe you say to yourself, Okay, if I do you

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<v Speaker 2>know these three things, then I'm going to spend you know,

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<v Speaker 2>my entire bonus on this, you know, one pair of shoes.

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<v Speaker 2>I wanted this vacation. So seems to me like rewarding

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<v Speaker 2>yourself at the end is better. But you know, to

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<v Speaker 2>each their own.

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<v Speaker 1>I mean one of the key things here. In fact,

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<v Speaker 1>I tend to think that in life in general, one

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<v Speaker 1>of the key things that one should always be doing

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<v Speaker 1>is attempting not to create regret. Right, I think it's

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<v Speaker 1>the worst emotion you can possibly have is regret. You

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<v Speaker 1>want to spend a lot of your time thinking about

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<v Speaker 1>your life in terms of how can I do this

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<v Speaker 1>so that I don't regret my choices, And when it

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<v Speaker 1>comes to a bonus, you are leaving yourself a lot

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<v Speaker 1>of room for regret in either direction. If you spend

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<v Speaker 1>it all on boring stuff, you might regret that you

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<v Speaker 1>never had that great trip to for Lanka. And if

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<v Speaker 1>you only have the great trip Tosh for Lanka, boy,

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<v Speaker 1>you're going to regret not paying off some of.

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<v Speaker 2>That debt definitely. And there's sort of a middle ground too.

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<v Speaker 2>I think that at least some advisors I talk to

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<v Speaker 2>you suggest it. You know, maybe you can use your

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<v Speaker 2>bonus to splurge in a way that's going to help

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<v Speaker 2>you long term. Maybe you sign up for a fancy

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<v Speaker 2>gym membership, or maybe you have a meal delivery service

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<v Speaker 2>which both makes your life a little easier and maybe

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<v Speaker 2>helps you eat healthy. So there's there's a middle ground

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<v Speaker 2>there too. You can set yourself up for maybe some

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<v Speaker 2>other health and lifestyle goals. I talked to one woman

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<v Speaker 2>and I just loved this. She was a financial advisor herself,

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<v Speaker 2>and she spent some of her bonus on permanent makeup.

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<v Speaker 2>So that's the eyeliner that is permanent, So she could

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<v Speaker 2>save herself money getting ready or save her self time

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<v Speaker 2>getting ready in the morning, and she has young kids.

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<v Speaker 2>I just thought that was so great.

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<v Speaker 1>That's a great gift to yourself. But Claire, what if

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<v Speaker 1>eyeliner fashions change? M I'm feeling potential for great I

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<v Speaker 1>am feeling potential regret.

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<v Speaker 2>I think I think there are versions that you know,

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<v Speaker 2>last maybe six months or so. It's not permanent, permanent,

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<v Speaker 2>but yeah, that's a great point, all right.

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<v Speaker 1>The one I'll tell you what, the one that I

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<v Speaker 1>particularly liked that is in another one of your columnies

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<v Speaker 1>you suggested and it was again it was suggested from

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<v Speaker 1>an IFA who said that a lot of his male clients,

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<v Speaker 1>and this is such a male thing, isn't it, they

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<v Speaker 1>like sports betting. And so one thing you can do

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<v Speaker 1>with the bonus is you can take a small amount

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<v Speaker 1>of it that you think to yourself, I just don't

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<v Speaker 1>mind losing this, and I'm going to have some fun

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<v Speaker 1>with it, and you can put it into a separate

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<v Speaker 1>account and use it for your sports betting, for your

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<v Speaker 1>crypto investing. Hate mail for the user dress please your

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<v Speaker 1>crypto investing, your sports betting, and possibly maybe your your

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<v Speaker 1>moonshot investing, your small cap investing, your high tech, high

0:09:26.800 --> 0:09:29.240
<v Speaker 1>growth investing, whatever it is, things that have a much

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<v Speaker 1>higher risk profile than the stuff you might put in

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<v Speaker 1>in the UK SIP and in the US your four

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<v Speaker 1>oh one k, etc. I think with a higher risk profile,

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<v Speaker 1>you can set yourself up a little account that is

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<v Speaker 1>a play account of fun account, and if you lose it, well,

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<v Speaker 1>hey you lost it, and maybe it's it gives you

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<v Speaker 1>the same pleasure as a pair of shoes might give

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<v Speaker 1>someone else.

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<v Speaker 2>Definitely, And I like that too because if you put

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<v Speaker 2>it in the fund, you can use that in June.

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<v Speaker 2>You know, you don't have to spend your bonus right

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<v Speaker 2>now when you get it. You can put it in

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<v Speaker 2>a fund and then you know, gradually draw it down

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<v Speaker 2>if you need it throughout the year. So there's there's

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<v Speaker 2>no there's no law that says you have to spend

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<v Speaker 2>your bonus right now.

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<v Speaker 1>And there is another interesting idea that you wrote about

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<v Speaker 1>that I'm very keen on because I'm a natural pessimist.

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<v Speaker 1>Well I try to be a natural optimist on some things.

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<v Speaker 1>I'm a natural an apocalyptic mindset knocking around in the

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<v Speaker 1>back and as regular listeners will know, and one of

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<v Speaker 1>the things that someone suggested is using some of your

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<v Speaker 1>bonus to invest in preparing for an emergency. And this

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<v Speaker 1>really is to suggest you don't think you're going to

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<v Speaker 1>get a bonus next year, Assemble an emergency kit, accumulate

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<v Speaker 1>a week's worth of food, set up a basement retreat,

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<v Speaker 1>or even a full bunker. A full bunker, you have

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<v Speaker 1>quite a big bonus. A full bunker.

0:10:46.080 --> 0:10:49.240
<v Speaker 2>Yeah, that one's a bit extreme, but I think that's

0:10:50.640 --> 0:10:52.920
<v Speaker 2>that was a really interesting one, and I can sort

0:10:52.960 --> 0:10:54.920
<v Speaker 2>of you know, see, sure, if you want to set

0:10:54.960 --> 0:10:57.000
<v Speaker 2>up a full bunker and you have the funds for it,

0:10:57.240 --> 0:10:59.800
<v Speaker 2>go for it. But you know, there's even a bit

0:10:59.880 --> 0:11:02.840
<v Speaker 2>more middle ground, you know, like, you know, do you

0:11:02.920 --> 0:11:05.360
<v Speaker 2>have stuff in your apartment if the power goes out?

0:11:05.400 --> 0:11:07.480
<v Speaker 2>It's probably a good idea. Does sort of think about that,

0:11:07.720 --> 0:11:11.120
<v Speaker 2>you know, is your pantry stocked? Do you have these

0:11:11.120 --> 0:11:14.520
<v Speaker 2>things that are gonna make your life? You know? Okay,

0:11:14.720 --> 0:11:17.400
<v Speaker 2>if if say you you know, have a bad illness

0:11:17.440 --> 0:11:19.960
<v Speaker 2>and you know, like during COVID times, we needed food

0:11:20.040 --> 0:11:23.440
<v Speaker 2>to just stock up on that. So some of these

0:11:23.920 --> 0:11:28.319
<v Speaker 2>smaller things. You know, do you have a like a toolkit?

0:11:28.600 --> 0:11:30.080
<v Speaker 2>You know, I know a lot of people that maybe

0:11:30.080 --> 0:11:32.200
<v Speaker 2>you probably don't have that in their New York apartment.

0:11:32.320 --> 0:11:34.840
<v Speaker 1>Now when everyone has a toolkit, everyone has a toolkit.

0:11:35.920 --> 0:11:39.160
<v Speaker 2>Well, I don't know people my age. I'm I'm you know,

0:11:39.200 --> 0:11:43.680
<v Speaker 2>in my late twenties. Now I think maybe maybe some don't.

0:11:43.679 --> 0:11:46.000
<v Speaker 2>But it's you know, investing in a cod is a

0:11:46.040 --> 0:11:46.400
<v Speaker 2>good idea.

0:11:46.440 --> 0:11:48.440
<v Speaker 1>Want you to go out and spend some of your

0:11:48.440 --> 0:11:49.560
<v Speaker 1>bonus on a toolkit?

0:11:49.720 --> 0:11:52.840
<v Speaker 2>Okay, noted, I will definitely do right.

0:11:54.720 --> 0:11:56.600
<v Speaker 1>In the UK, of course, we did a podcast last

0:11:56.600 --> 0:11:59.079
<v Speaker 1>week with an energy consultant, and listening back to that,

0:11:59.240 --> 0:12:01.080
<v Speaker 1>I can tell you that there's a very strong chance

0:12:01.080 --> 0:12:03.680
<v Speaker 1>of blackouts coming in the UK relatively soon. So everyone

0:12:03.720 --> 0:12:06.080
<v Speaker 1>is going to want to have torches, candles, a couple

0:12:06.120 --> 0:12:07.840
<v Speaker 1>of weeks worth of food, et cetera, because you just

0:12:08.120 --> 0:12:10.360
<v Speaker 1>never know when that kind of thing is going to come.

0:12:10.400 --> 0:12:12.200
<v Speaker 1>So there's a lot in there. Now. One thing I

0:12:12.200 --> 0:12:14.440
<v Speaker 1>would say and to ask you about is that this

0:12:14.480 --> 0:12:16.920
<v Speaker 1>isn't really just about bonuses. Is that we're not really

0:12:16.960 --> 0:12:19.960
<v Speaker 1>talking about bonuses. We're talking about any lump sum you

0:12:20.080 --> 0:12:22.840
<v Speaker 1>might come into suddenly. So everything that we've discussed holds

0:12:22.840 --> 0:12:25.000
<v Speaker 1>for an inheritance for example as well, doesn't it.

0:12:25.960 --> 0:12:28.880
<v Speaker 2>M Yeah, that's a great point too, any sort of

0:12:28.960 --> 0:12:30.880
<v Speaker 2>random sum of money that you come into. And I

0:12:30.880 --> 0:12:34.120
<v Speaker 2>think that's also a great point because I know way

0:12:34.160 --> 0:12:36.560
<v Speaker 2>too many people that think of their bonus as part

0:12:36.559 --> 0:12:39.839
<v Speaker 2>of their salary and that's a dangerous mindset because it's

0:12:39.880 --> 0:12:44.320
<v Speaker 2>not guaranteed, so you shouldn't be counting on that. But yes,

0:12:44.400 --> 0:12:46.600
<v Speaker 2>great point with if you have an inheritance, if you

0:12:46.720 --> 0:12:49.560
<v Speaker 2>have if you come into any kind of money sort

0:12:49.600 --> 0:12:51.080
<v Speaker 2>of randomly.

0:12:52.080 --> 0:12:55.520
<v Speaker 1>Or undeservedly, should we say undeservedly.

0:12:55.040 --> 0:12:59.320
<v Speaker 2>Yes, yes, great point. And so you know, you could

0:12:59.679 --> 0:13:01.920
<v Speaker 2>have sort of a balanced approach to that. You could put,

0:13:02.040 --> 0:13:04.880
<v Speaker 2>you know, some to retirement. I think a smart paying

0:13:04.920 --> 0:13:08.160
<v Speaker 2>down bad debt, very smart, maybe if you have kids,

0:13:08.160 --> 0:13:10.800
<v Speaker 2>putting it in their college fund, and then maybe a

0:13:10.840 --> 0:13:14.640
<v Speaker 2>little bit to treat yourself and maybe to take a

0:13:14.679 --> 0:13:18.120
<v Speaker 2>vacation or travel. That's a good investment in yourself too,

0:13:18.360 --> 0:13:22.000
<v Speaker 2>so experiences. It's that balanced approach I think is really important.

0:13:22.559 --> 0:13:24.160
<v Speaker 1>If you've got a huge bonus and you could take

0:13:24.200 --> 0:13:26.200
<v Speaker 1>any trip you wanted to go anywhere in the world,

0:13:26.240 --> 0:13:27.600
<v Speaker 1>you wanted right now, where would it be?

0:13:28.760 --> 0:13:31.040
<v Speaker 2>You know, that is a great question because I'm actually

0:13:31.080 --> 0:13:34.360
<v Speaker 2>about to do a three month job swap in Hong Kong,

0:13:35.000 --> 0:13:37.600
<v Speaker 2>so I leave a week and a week and so

0:13:37.920 --> 0:13:41.400
<v Speaker 2>I it's great timing because i have a couple of

0:13:41.400 --> 0:13:44.400
<v Speaker 2>trips planned that are kind of once in a lifetime trips.

0:13:44.400 --> 0:13:49.559
<v Speaker 2>I'm going to Japan and I'm going to Thailand, so

0:13:49.880 --> 0:13:52.680
<v Speaker 2>that that's actually is where my bonus money is going

0:13:52.720 --> 0:13:53.199
<v Speaker 2>this year.

0:13:53.400 --> 0:13:56.199
<v Speaker 1>It's fantastic. Well claim, thank you so much for joining

0:13:56.280 --> 0:14:01.680
<v Speaker 1>us today, really really useful information. Thank you, thanks for

0:14:01.720 --> 0:14:04.160
<v Speaker 1>listening to this Bonus Maren Talks Money. We'll be back

0:14:04.240 --> 0:14:07.040
<v Speaker 1>next week. In the meantime, If you like us, show, rate, review,

0:14:07.080 --> 0:14:09.480
<v Speaker 1>and subscribe wherever you listen to podcasts. And if you

0:14:09.520 --> 0:14:11.800
<v Speaker 1>have a personal finance issue you'd like us to talk about,

0:14:11.840 --> 0:14:14.200
<v Speaker 1>to get an expert on to talk about, let us know.

0:14:14.520 --> 0:14:17.040
<v Speaker 1>This episode was hosted by me Maren Sunset Web. It

0:14:17.080 --> 0:14:19.920
<v Speaker 1>was produced by Summersati and Tiffany Choi. Additional ending by

0:14:19.960 --> 0:14:22.560
<v Speaker 1>Rishi Badjacal. Special thanks to Claire Valentine