When it comes to spending money versus saving it, the answer massively depends on where the money came from. And more importantly – how! If you’re in a profession that’s renowned for its chunky bonuses (ahem, investment bankers) then you’ll know how it feels to get that money.

While I work in finance I do not get a bonus – not that I’m complaining since I do not schvitz nearly enough as the rest of them do. It’s also why those who get bonuses are infinitely more likely to gamble it away than I would with, say, a month’s salary. 

Why though? Why is it that when it comes to our bonus do we feel the massive urge to splurge it all? To do something reckless with our money. 

The answer lies with psychology. It’s the reason behind 99% of our money moves. 

Bankers who sweat out 80hr work weeks; consultants who are available night and day for their clients (I can testify to this: my friend casually hopped on a 5am call) and lawyers who bust their backside to keep their clients out of jail come to the year-end and are given a bonus. A thank-you of sorts.

A reward for their hard work. And a little (okay, I guess a big!) incentive for them to stay on and work some more. To take on more cases and to keep that momentum going so their firm can chug out more revenue, leaving more for the fat cats at the top.  Though more CEOs are quitting than ever before. What do the rich really want? 

Bonus = a reminder of all the (extra) hrs you put in

Bonuses are a clear reminder of how much work you’ve put in over the year. It hits you. All that money was once your time.

So you blow all that money. To prove to yourself more than anyone else that working all those hours was worth it. That those sacrifices you made was worth it. That coming home at 1am was worth it. You spend the money so you can breathe again. So you can keep on doing it all over again next year! Lovely. 

When I was a kid, we had these neighbours. They were in their mid-30s. The husband was an investment banker who specialised in M&As. He would come home at 1am night after night after night.

We hardly ever saw him since he was out before any of us were awake and got back when we were fast asleep. His weekends were spent at home playing his guitar – that was when we knew he was alive! Since during the week we really had our doubts over whether or not he existed.

This routine carried on until it didn’t. His wife told him he’s killing himself and she hardly ever sees him. So, he quit his job. By that point he was in his late 30s and had made a killing in banking working up the ranks and swapping loads of his time for oodles of money. 

Don’t forget why you’re doing it in the first place

He’d always had this dream to have his own bar and house by the beach. So they made it happen. Had his wife not have given him such a push he’d probably still be working those long hours or maybe longer hours as he made partner or whatever. Now, he’s happy (and tanned!) and living the life he always wanted to live. He’s been living out in Australia since the mid-2000s and he hasn’t looked back. 

My friend was telling me how the partner at her consultancy firm is available 24/7. She said with a 7-figure paycheck you can’t exactly log off at 9pm now can you. He’s gotta work for his bread and he knows that. If clients call/email him he’s gotta be around. Someone’s gotta do it! His responsibility is big and he’s paid big. So it’s a win-win I guess. Just imagine what his bonus looks like! 

The reason why people on high salaries with high bonuses gamble it faster than I can sprint to get ice-cream is because they have to prove it was all worth it. They have an emotional attachment to their 12 paychecks. The 13th paycheck is the present. The one they felt they didn’t really work for. Since they already got paid for their 12 months of (probably insanely-hard) work. 

So they splash out big because they feel like they haven’t schvitzed for that money. Not much anyway. It almost came out-of-the-blue. Even though this lovely ritual happens ever year. Though I suppose bonuses are not exactly guaranteed. Nor set in stone.

Last year, in 2023, thanks to the M&A drought what with high rates and inflation cramping investors’ style, these poor bankers found their bonuses had dried up to a bunch of soggy leftovers. That’s if they were lucky enough to get it to begin with.

No choice but to be tied to the economy

My guess is if things don’t start to turn around real soon, those M&A bankers are gonna be bonus-less. And you just gotta look at job losses sweeping the banking sector. Only yesterday, my friend told me how their firm had fired a bunch of her colleagues. She’s worried how she’ll be next so she’s on the run for a new job. 

See, bonuses are tied to a firm’s profit. The higher their profits (aka the more money they bring in) the higher the potential pool of bonuses. Good year = high bonuses; bad year = low bonuses.

The strength of the economy matters. And since no one really knows what next year lies in store, many simply spend their bonus all at once. They know they might not get one next year (or one not half as big) and they tell themselves how they just wanna enjoy that money. Which wasn’t their time btw! 

Time = money

The more we work, the more of our time we’re swapping for money. And our bonus is not time we’ve swapped for $$$. It’s “free”. It didn’t come about from us working our butts off.

So naturally since we didn’t feel like we actually worked for it, we’re not emotionally attached to it. It doesn’t bear the weight of all those lost hours (and days) we spent hunched over a screen, glued to our phones and stapled to our desks. Bonuses are extras. So we treat them as such. 

And honestly, while it’s the “financially savvy” thing to invest your bonus (like put it towards your pension), I’d say if you get one you’ve no doubt worked hard and you deserve that extra money. Spend it on stuff that’ll make you feel good about yourself, or at least a little more relaxed!

Something, something, spa. But perhaps give it some thought. Don’t just blow a hole in it before it even landed in your bank account. Think about the sort of things you like spending your money on. And if you’ve no clue, then you better experiment before that pile of gold lands on your lap. 

Bonuses just aren’t part of the budget

For loads of working people, their annual bonus doesn’t factor in to their budgets. They view this money as pure extra spending. Money that is there to treat yourself with. It’s boring to use it to pay down your student loan or credit card debt.

Because this money isn’t factored in to monthly budgets. It’s free money that drops on your lap once a year and you feel like you deserve to spend the whole whack.

So there’s zero guilt when you splash that money on stuff that is totally extra and during the year you would never dream of buying such outrageous things! A friend of mine has a ritual to buy a pair of Jimmy Choo’s with her bonus. Then, she splashes the rest on crypto. Why not right?

Since she feels that money isn’t part of her salary, she can gamble it away and enjoy it! Without having to worry about paying down debts or doing anything mundane with it. She looks forward to her bonus each year (I mean who doesn’t?!) and when it hits her account, it’s time to party!

Why people are spending (not saving) their bonuses than ever before

A lot of the younger gens feel like a house is out of their reach (though here’s how you can climb on the property ladder faster than you think) what with decade-high inflation making rents go through the roof so saving for a deposit is like walking up a downwards escalator. It feels totally useless.

And with interest rates at 5%+ we still haven’t seen a crash in house prices that would make desperate homebuyers be able to afford it.

So, we’re blowing our bonuses. Because YOLO. And the epic rise of our YOLO-spending has more to do with our lack of savings than too much savings! It can feel more than a little helpless so might as well have fun no?

Putting the economy aside (and all the uncertainty this year could bring), money is there to be enjoyed. But the more we earn the more we need to spend to get that same level of enjoyment we had when we were small-time earners.

So we have to up our game which often forces us to work even harder than we did before. Be careful not to overdo it.

But if you’ve worked hard, you definitely deserve that extra cash. Just don’t go spending it all at once! 

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.