Save Your Annual Bonuses, and Rename Them Too!
September 23, 2009 – 5:32 amNaming things can have a powerful impact. Having a kid for example and calling the little one “baby” is common until you know the gender or have decided on names. But when “baby” becomes “Michelle” or “Brandon” the kiddo becomes much more real and a real connection develops.
The same is true when it comes to money, and I’d like you to consider naming extra money you receive in advance. A budget can be described as the process of assigning a name to every dollar before the week or month begins. Likewise I recommend deciding what to do with any extra or potential money you receive before you receive it, and preferable before you even know how much it will be!
Take an annual bonus for example. A lot of people have jobs that are bonus eligible these days. Sometimes the bonus is a few hundred dollars, sometimes is 40% or more of your annual pay (or used to be if you were an investment banker).
Since this money isn’t guaranteed I think it’s best that you:
- omit these funds from your budget if possible
- decide what to do with the bonus at the beginning of the year, not AFTER you find out how much the bonus will be
The advantage of doing this is that you’re less likely to spend the “freshman college tuition fund” on a fancy vacation or set of toys than you are to blow a $15,000 annual bonus. Similarly the “freedom from debt” savings program carries more weight than an unnamed $400 that you received for helping a few friends file their taxes.
Decide what you’ll do with extra funds at the beginning of the year and you’ll be more likely to follow through when the funds arrive.
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2 Responses to “Save Your Annual Bonuses, and Rename Them Too!”
Sound advice. Naming a certain amount of money surely would give us second thoughts buying things on impulse. It somehow denotes irrevocability which makes us think twice of spending it.
My Well Of wealth
By Peter Luke on Sep 23, 2009
I like this idea a lot. There is great power in what you call something and how you define it.
In fact, I recently renamed my online money market “Emergency Fund” to my “Opportunity Fund.”
By Brad Castro on Sep 27, 2009