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