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I understand that a lot of the readers on this board have never received a sizeable bonus and the minority who do were already paid months ago back in June/July, but I hope this post is still helpful to some about how to manage the bonus that you receive from your finance job.

1. Pay off your student loans immediately. I don't care if your uncle approached you with an amazing idea that will return 5000% in a year which is more than your 6% Stafford Loans, pay off the debt! I know you're young now, but very soon you'll be looking to buy a house/apt or get married and the loans you need on a mortgage will be a lot harder to get ( or more expensive) if you have a bunch of student debt left over. There's always pressing capital needs, but 99% of the time, you should be clearing up those student loans immediately.

2. Luckily, some of us had scholarships or parents that took care of #1, so if you don't have any loans you need to be investing your money intelligently.

This means ignoring all the scam financial advisors that somehow got a hold of everyone's names at your BB and are cold calling 24/7 telling you they can help invest your money when really they're going to just buy the S&P and layer fees on top.

NO THANKS! Now everyone and their mother has an idea on what investing wisely means, so feel free to do a search and pick the best strategy for your risk appetite. For me, a mix of commodities, cash savings, and mid cap equities in a balanced portfolio fits my risk tolerance.

3. Don't blow it all at once. Obvious, but still many analysts every summer realize that they wish they'd saved more of their bonus. One large spend is usually a sweet vacation to a far away land. However, something my friends and I did back when we were first years was to find an interesting inexpensive hobby.

For us, that was poker. It helped that we were good at it, but we took a few thousand each to Vegas and had a great time. Worst case scenario, you lose 1k and get a comp'd room/food and create some great memories. Best case scenario you make 2-3x what you started with and get a free paid vacation PLUS some.

Luckily, there were a lot of fish back in the day so we all won a few thousand and basically had a free trip. Not to mention that Vegas packages are dirt cheap since they're all subsidized by the local casinos to bring people to gamble.

4. Don't be a miser either. Sometimes, blowing a little steam is what gets you through the next year of 100 hour weeks. All work and no play makes Jack a suicidal analyst. Just make sure you use that money intelligently so you're not regretting it when, god forbid, you get laid off or find a better job that requires you to leave before your next bonus.

Don't be afraid to take aside a thousand and spend it with the people you love most, best friends, significant other, and family. This doesn't mean necessarily buying people gifts but rather spending time with them and taking them out to nice places / restaurants. It's a great way to show appreciation and will provide you with relationship capital in return (which is always a good investment).

5. Be happy. I know bonuses are down across the street from the glory days of 2007 but keep your chin up. Most kids out there your age never get checks this large and won't until they're in their 40s. A lot more are unemployed or underemployed. Be happy and keep on trucking.

6

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Comments (40)

  • MFFL's picture

    Great post. A couple other comments:

    About paying your 6% student loans off, I like to think of it as a guaranteed return equal to your interest rate. Let's say you would take 5 years to pay off your loans doing a regular monthly payment. So your options with your money are to pay off your student loans, or invest the money. Comparing investments with similar risks, the closest thing to a guaranteed 5 year return you can get is the 5 year US treasury, paying roughly 0.80% interest per year. By paying off your student loans on the other hand, you're getting a guaranteed 6.0% per year.

    And about spending your bonus, there's uncertainty as to how much your bonus will be. I like to come up with a percentage ahead of time, say 80/20. I'll save 80% of the bonus, and go blow the other 20% on whatever I feel like. Makes it easier for me to accept that the 80% is "off limits", rather than trying to save all of it.

    "Well that's even more than less than unhelpful." - Jack Sparrow

  • Hayek's picture

    I think that the first priority should be saving up six months worth of living expenses in case you lose your job. After that, the invest v. pay off loans decision should depend on the interest rate of your loans. If you're looking at 6%+ then yes, pay them off fast (though I still think it's a good idea to put some money in a retirement account). If you're looking at 3% or so, I think you can hold off on paying them aggressively and put more money towards investments.

  • SECfinance's picture

    Great post SanityCheck. I gave you 2 SBs because I thought my browser wasn't working so I found another post of yours - enjoy.

    MM IB -> Corporate Development

  • In reply to Hayek
    rufiolove's picture

    Hayek:
    I think that the first priority should be saving up six months worth of living expenses in case you lose your job. After that, the invest v. pay off loans decision should depend on the interest rate of your loans. If you're looking at 6%+ then yes, pay them off fast (though I still think it's a good idea to put some money in a retirement account). If you're looking at 3% or so, I think you can hold off on paying them aggressively and put more money towards investments.

    This is a good point, and is what I do. I have a ~6 month rainy day fund in the event of a layoff or major life change that causes a gap in employment. I choose to pay down my debt over investing it in the market for the reasons the OP outlined (the alpha on the return generated from paying down debt vs. another riskless investment is just incomparable to what I could get in the market), but I don't neglect my retirement savings either. I make sure that I at least contribute to my 401k up to the maximum amount my firm will match, and typically try to max it out, assuming that I have enough breathing room for my expenses and lifestyle. To that point, I actually found that if I were to significantly reduce my contribution percentage, (say by half, for example) that my monthly savings is marginal (mathematically it's half of what the expense would have been but it absolute terms it makes no difference to me in terms of what I could do with that money). For this reason I typically just view my 401k contribution as my actual "investing," and my debt pay down is icing on the cake. YTD, my 401k return is ~17%, and with loan interest at ~6%, I'm essentially getting an annual return around 20%, but the risk is much lower than if that were all tied up in the market.

    This seems to work for me, and once I reach the point where my debt is erased, I think I will be comfortable bearing much more market risk because the only expenses I will have will be rent / food / T&E.

  • BTbanker's picture

    I'm so lucky my parents are paying for school and made me open an IRA when I was 15 and got my first job. Add 401k contributions and a discretionary account once the IRA ceases to offer a tax benefit, and you're pretty much guaranteed to be a millionaire by 30. Definitely going to do the same for my kids.

  • petergibbons's picture

    Definitely excited for the bonus. Just finished up #1 a few months back, so I think it's 60-70% savings (time to start the down payment on a condo fund), 10% on my parents, brother and girlfriend, and 20-30% on travel this summer.

    Life, liberty and the pursuit of Starwood Points

  • Disjoint's picture

    What to do with your bonus?
    Do whatever you fucking please!

    Buy a nice car, you get laid off? Sell it, at least you can look back on those nice memories.
    Now going all models and bottles with a 5K+ bill for a few nights might be a bit over the top, but if that's what you get a kick out of, do it.

    I remember saving a lot of money before '07 in all the odd jobs I had, when I lost most of it in 2008 I regretted not having bought that car, or having had that nice food at that nice restaurant.
    I had an 8% interest rate on all my loans, I sorted that out with my first couple bonuses, but that's just because that rate was silly in my opinion. Now people get 3% loans etc... That's barely inflation, keep the free money and do something with it and keep the loan.

    What I am trying to say is: if you have made it that far, you probably don't need anyone telling you what to do with it, and you won't listen anyways. I have a friend who works 200 hours a week, who still blows it all on stupid shit, yet has worked close to 5 years in M&A and barely has anything saved. At least he gets his kick out of all of it, and it's not for me to tell him "no, no, don't buy those stupidly expensive shoes..."

    I am good with my money, but that's my choice. You might get 100x more utility out of your money if you blow it than if you were to save it...

  • In reply to Disjoint
    Ultima-RDK's picture

    Disjoint:
    What to do with your bonus?
    Do whatever you fucking please!

    What I am trying to say is: if you have made it that far, you probably don't need anyone telling you what to do with it, and you won't listen anyways. I have a friend who works 200 hours a week, who still blows it all on stupid shit, yet has worked close to 5 years in M&A and barely has anything saved. At least he gets his kick out of all of it, and it's not for me to tell him "no, no, don't buy those stupidly expensive shoes..."

    .

    200 hours a week lol

    Sometimes lies are more dependable than the truth.

  • In reply to Ultima-RDK
    SkyfallFox's picture

    Ultima-RDK:
    Disjoint:
    What to do with your bonus?
    Do whatever you fucking please!

    What I am trying to say is: if you have made it that far, you probably don't need anyone telling you what to do with it, and you won't listen anyways. I have a friend who works 200 hours a week, who still blows it all on stupid shit, yet has worked close to 5 years in M&A and barely has anything saved. At least he gets his kick out of all of it, and it's not for me to tell him "no, no, don't buy those stupidly expensive shoes..."

    .

    200 hours a week lol

    Where can I sign up for 28.5 hour days?

    Surely BBs haven't figured out how to bend space and time to make their analysts work longer hours... Yet.

  • therealweinstein's picture

    What to do with your 10K bonus?

    Head down to Mexico
    Buy 3 Kilos of pure coke, preferably in Southern Mexico (9K)
    Bring it back, cut it up (1K)
    Re-sell in America at 400% markup.

    Arbitrage biatch

  • greengohome's picture

    Pay off credit card debt.

    I was raised to feel like CC debt was just the most embarrassing, worst thing I could possibly have associated with my name.

    I had a lot of fun racking it up, but now I just feel like shit whenever I remember about it.

    Whatever's left, save it to speculate on mining properties. Seriously.

  • In reply to SkyfallFox
    Going Concern's picture

    SkyfallFox:
    Ultima-RDK:
    Disjoint:
    What to do with your bonus?
    Do whatever you fucking please!

    What I am trying to say is: if you have made it that far, you probably don't need anyone telling you what to do with it, and you won't listen anyways. I have a friend who works 200 hours a week, who still blows it all on stupid shit, yet has worked close to 5 years in M&A and barely has anything saved. At least he gets his kick out of all of it, and it's not for me to tell him "no, no, don't buy those stupidly expensive shoes..."

    .

    200 hours a week lol

    Where can I sign up for 28.5 hour days?

    Surely BBs haven't figured out how to bend space and time to make their analysts work longer hours... Yet.

    LOL, it's only a matter of time (no pun intended).

    “The new day brings new hope. The lives we’ve led, the lives we’ve yet to lead. A new day. New ideas. A new you.”

  • CompBanker's picture

    Don't forget the mental freedom that comes with having money in the bank and no debt. I was fortunate enough to graduate college with no debt and a hefty sign-on bonus. Still, I've managed to live a pretty luxurious lifestyle full of fancy international vacations, an expensive wardrobe, and very nice apartments all while saving nearly all of my bonuses. For me, the key has been to avoid living in expensive cities and limiting the amount I spend on weekends out. The result is that I have approximately 6-years of middle-class living expenses (pending this year's bonus) saved up, which gives me tremendous peace of mind. There is nothing better than not having to worry about how I'll pay the bills if I get fired tomorrow. This alone is a pretty compelling reason to pay down your debt asap and accumulate a nice cash reserve, even if it comes at the expense of a new boat or models & bottles.

    CompBanker

  • In reply to CompBanker
    SanityCheck's picture

    CompBanker:
    Don't forget the mental freedom that comes with having money in the bank and no debt. I was fortunate enough to graduate college with no debt and a hefty sign-on bonus. Still, I've managed to live a pretty luxurious lifestyle full of fancy international vacations, an expensive wardrobe, and very nice apartments all while saving nearly all of my bonuses. For me, the key has been to avoid living in expensive cities and limiting the amount I spend on weekends out. The result is that I have approximately 6-years of middle-class living expenses (pending this year's bonus) saved up, which gives me tremendous peace of mind. There is nothing better than not having to worry about how I'll pay the bills if I get fired tomorrow. This alone is a pretty compelling reason to pay down your debt asap and accumulate a nice cash reserve, even if it comes at the expense of a new boat or models & bottles.

    Great post, though I wish Boston was a cheaper city :)

  • In reply to SanityCheck
    CompBanker's picture

    SanityCheck:
    CompBanker:
    Don't forget the mental freedom that comes with having money in the bank and no debt. I was fortunate enough to graduate college with no debt and a hefty sign-on bonus. Still, I've managed to live a pretty luxurious lifestyle full of fancy international vacations, an expensive wardrobe, and very nice apartments all while saving nearly all of my bonuses. For me, the key has been to avoid living in expensive cities and limiting the amount I spend on weekends out. The result is that I have approximately 6-years of middle-class living expenses (pending this year's bonus) saved up, which gives me tremendous peace of mind. There is nothing better than not having to worry about how I'll pay the bills if I get fired tomorrow. This alone is a pretty compelling reason to pay down your debt asap and accumulate a nice cash reserve, even if it comes at the expense of a new boat or models & bottles.

    Great post, though I wish Boston was a cheaper city :)


    I hear ya. When I worked in Boston, I lived out in the suburbs with my girlfriend because our commutes went opposite directions. We had a three bedroom house and my portion (we didn't go 50/50) of the rent was $1,000. Living in the city would have been a lot more expensive.

    CompBanker

  • qweretyq's picture

    SanityCheck:

    1. Pay off your student loans immediately. I don't care if your uncle approached you with an amazing idea that will return 5000% in a year which is more than your 6% Stafford Loans, pay off the debt! I know you're young now, but very soon you'll be looking to buy a house/apt or get married and the loans you need on a mortgage will be a lot harder to get ( or more expensive) if you have a bunch of student debt left over. There's always pressing capital needs, but 99% of the time, you should be clearing up those student loans immediately.

    Student loans are some of the cheapest money you will get. I graduated in 2011 and my loans were about 4.5% not 6%.
    I only had a small amount of loans after I graduated, so there is no reason to pay it all back when I am only paying 4% on it, even though I had that whole amount in my bank account after sign on bonus+a couple paychecks. Instead, I chose to put that amount in the market, and am glad that I did.

  • In reply to qweretyq
    rufiolove's picture

    qweretyq:
    SanityCheck:

    1. Pay off your student loans immediately. I don't care if your uncle approached you with an amazing idea that will return 5000% in a year which is more than your 6% Stafford Loans, pay off the debt! I know you're young now, but very soon you'll be looking to buy a house/apt or get married and the loans you need on a mortgage will be a lot harder to get ( or more expensive) if you have a bunch of student debt left over. There's always pressing capital needs, but 99% of the time, you should be clearing up those student loans immediately.

    Student loans are some of the cheapest money you will get. I graduated in 2011 and my loans were about 4.5% not 6%.
    I only had a small amount of loans after I graduated, so there is no reason to pay it all back when I am only paying 4% on it, even though I had that whole amount in my bank account after sign on bonus+a couple paychecks. Instead, I chose to put that amount in the market, and am glad that I did.

    Yeah, with those interest rates, I would do the same thing. My weighted average cost of debt is a little over 6%, so I am paying of the loans that are in excess of 6% first and then will see about letting the interest run on the lower ones

  • In reply to greengohome
    sonibubu's picture

    greengohome:
    Pay off credit card debt.

    I was raised to feel like CC debt was just the most embarrassing, worst thing I could possibly have associated with my name.

    I had a lot of fun racking it up, but now I just feel like shit whenever I remember about it.

    Whatever's left, save it to speculate on mining properties. Seriously.

    bingo

  • 7x5.5vb's picture

    All of this is good execpt that investment portfolio. Laughable. Vague commodities, cash, and mid-caps? Hahaha... and the mention of risk tollerance was buetiful... please sir/madaam, quantify the risk in that mix?

  • SanityCheck's picture

    It's actually the exact mix of a very well respected MD on the street who I had the pleasure of working for. I kept it vague on purpose. Thanks for creating a new account just to troll and misspell "beautiful". Seriously that has to be the worst butchering of the word I've ever seen. You didn't even get the right letters in there! Oh man, that post is really something.

    Thanks for the laugh on a Friday, heading out now.

  • ThaVanBurenBoyz's picture

    What's the recommended method for thanking your bosses for a particularly generous bonus? Handwritten note, just verbally, or both perhaps?

  • In reply to ThaVanBurenBoyz
    Disjoint's picture

    ThaVanBurenBoyz:
    What's the recommended method for thanking your bosses for a particularly generous bonus? Handwritten note, just verbally, or both perhaps?

    I hope this is as much of a joke as the original post. You don't thank your boss for a bonus, maybe politely say thank you in the room but that is it. Although sending flowers can be a good gesture with a bottle of nice Proseco....

  • In reply to qweretyq
    mxc's picture

    You realize that 4.5% is Libor+420? For a loan that you can't bankrupt yourself out of? Govies are yielding negative rates. Cheap money, what the fuck are you talking about?

  • In reply to CompBanker
    mxc's picture

    I do exactly the same. I have 7 years worth of rent saved up. Recession, come at me!!

  • In reply to Disjoint
    ThaVanBurenBoyz's picture

    Disjoint:

    I hope this is as much of a joke as the original post. You don't thank your boss for a bonus, maybe politely say thank you in the room but that is it.

    Weird, because the partner who broke the news suggested I thank the other partners, as well. Perhaps things work a little differently for you in IB.
  • In reply to ThaVanBurenBoyz
    Disjoint's picture

    ThaVanBurenBoyz:
    Disjoint:

    I hope this is as much of a joke as the original post. You don't thank your boss for a bonus, maybe politely say thank you in the room but that is it.

    Weird, because the partner who broke the news suggested I thank the other partners, as well. Perhaps things work a little differently for you in IB.

    The whole idea is that if you are satisfied and are jumping around the room because of your bonus, they will know they have paid you too much and might not give you the same next year. A simple polite "thank you, I really appreciate" when they give it to you is all you should give them. You've worked hard, you earned it.

    In PE you are right - it's probably a bit different, as the bonus is coming straight out of the partner's pocket, so in essence he is giving you his cash. I'd go with what the other partner told you; but you omitted telling us that's what you were suggested to do!

  • cphbravo96's picture

    So let me get this straight? Don't invest your money, instead pay off your loans that can generally be stopped if you are unemployed, have reduced payments if underemployed and potentially deductible interest? Instead, make wise financial decisions like gambling?!? LOL.

    If you can reasonably return a rate superior to the loans, then go that route...just be aware of the risk.

    As Comp said, live below your means and spend wisely and that will all pay (figurative) dividends later on. Also put money aside because you never know when the pink slip might show up.

    Regards

    "The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so."
    - Ronald Reagan

  • SanityCheck's picture

    My main point is that 22 year olds have their future ahead of them and most are not sophisticated investors. Spreading comps all day does not make you a great investor, so for the majority of 22 year olds, paying off debt is recommended, but of course if you have that amazing insight go right ahead and invest. All I know is that out of my analyst class, the kids who paid off debt now own houses/condos while the ones that didn't are unable to get loans and are still renting expensive apartments.

    And hopefully your comment on "gambling" is tongue-in-cheek because obviously my anecdote is around finding a cheap vacation and having fun with friends that don't involve 5k+ trips to Europe or Fiji/tropical islands. If fellow posters enjoy poker (which a lot of my fellow finance friends do) then it's a great alternative for a free/cheap vacation with limited downside and potential upside. How many vacations can do that?

    Regards

  • QuantKing45's picture

    Just curious... working in banking in NY/SF/LA, what could you expect to have saved by 25? Assuming you are pretty conservative with your spending

  • In reply to mxc
    qweretyq's picture

    mxc:
    You realize that 4.5% is Libor+420? For a loan that you can't bankrupt yourself out of? Govies are yielding negative rates. Cheap money, what the fuck are you talking about?

    I don't understand the part about LIBOR. Can you explain this a bit more? I guess you are saying, that risk free rate is lower than inflation so its not cheap?

    Where else can you borrow money at 4.5%? That is what makes it "cheap" for me.

  • mxc's picture

    It means that 4.5% is very high these days. You will NOT find a low-risk fixed income investment that yields so much (in USD). It is silly to think you can achieve a better rate than that, so that it makes sense not to pay back your student loan. Or are you going to buy equities? That leverage is way too dangerous, and equities can be financed a sub 1% levels on the street right now, so you don't have any sort of edge.

    Moreover, those loans were probably contracted in a higher rate environment (i.e. pre-2011), which only supports my point above.

  • In reply to mxc
    qweretyq's picture

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  • senoralpha's picture

    Ordering a salad at McDonalds is like paying a hooker for a hug.