It’s that time of the year again, and a lot of employees have either received their annual bonus or are anticipating getting one. A little extra pay for your hard work all year and at the perfect time, too — the start of the new year, where deals and discounts are abundant and spending money is almost too easy.
But do you have a plan for your bonus, or do you find the thrill of deal hunting too tempting?
The first thing to consider when receiving any sort of influx of money is “How much of this should I be saving?” Retirement, future college costs for the kids and any large future expenses are all good areas to keep in mind when you’re thinking about where to allocate your savings. Paying down any outstanding debt is another good area to consider.
But this is exciting! You just received a bonus and you want to treat yourself!
After you earmark a specific piece of your bonus towards savings, start thinking about what you need versus what you want. Depending on how time-sensitive your needs are, you may have to spend that money right away. When it comes to your wants, you can be more strategic with your purchases.
New year sales and deals are enticing, but it is important to be thoughtful and purposeful in your purchases and not make them all at once. Try to avoid bad spending discipline, or spending money shortly after you receive it with putting little to no constructive thought into the purchases. Spending money isn’t hard. We see a significant number of advertisements daily that tell us how we should be spending our money or how we should be living our lives.
Shopping around and making purchases releases the “feel good” hormone called dopamine. If we get into a habit of anticipating an influx of money, such as a bonus, and spending it shortly after, we will receive a large spike of enjoyment quickly followed by anticipation for the next large spike. If you spend your entire bonus, it could end up being a long time down the road before you get another income surplus. When we do this, we are training ourselves to be short-sighted spenders. This “quick thrill” can also cause us to get less enjoyment out of smaller, more sensible, purchases. Not only will these more predictable purchases feel less exciting, but there is a chance we will feel the desire to outdo our initial spendthrift session, chasing that original level of enjoyment.
Find Your Discipline
When we understand how our purchases make us feel we can use that knowledge to train ourselves to be more disciplined with our money and potentially create a longer lasting and more sustainable level of enjoyment. Instead of making a significant level of purchases in a short amount of time, consider breaking up these purchases throughout the next couple of months or the remainder of the year. By doing so, you won’t receive a huge spike of enjoyment followed by the itching feeling of waiting for your next bonus a year from now. Instead, you will receive more modest spikes of enjoyment but on a more consistent basis. Moreover, instead of anticipating your next big payout, you will be anticipating the next time you choose to reward yourself because you will still have some of your bonus left to spend. You can even take this strategy to the next level and reward yourself only after you accomplish a specific goal for the quarter or for the year.
The moral of the story? Don’t spend it all in one place! It may be an old saying often used jokingly, but there’s a lot of truth behind it.
Contact Alex Rupert to learn more about this topic.
330.255.4342 | firstname.lastname@example.org
This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. The opinions expressed do not necessarily reflect those of author and are subject to change without notice. Diversification cannot assure profit or guarantee against loss. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. Sequoia Financial Advisors, LLC makes no representations or warranties with respect to the accuracy, reliability, or utility of information obtained from third-parties. Certain assumptions may have been made by these sources in compiling such information, and changes to assumptions may have material impact on the information presented in these materials. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.