Moneywise24 Personal Finance

In many countries, employees have the benefit of receiving a bonus, such as a 13th month’s salary, or an extra fixed sum for holidays. Often, these bonuses are paid one-off at some point during the year, which is welcomed by many employees.

Many people find this way of being paid an incentive very pleasant; it allows them to not spend the money throughout the year. Still, it might actually pay off to have any form of incentive split into 12 pieces, have it paid throughout the year, each month. Although it does require some discipline, the following should might be considered:

Mental Accounting

One-off bonuses are usually seen as it is, a bonus, or a little extra. Since you did not anticipate this, and it comes on top of your monthly salary, many people spend the money as quickly as they have received it. In fact, many people have a little trick going on in their mind, categorizing the extra bonus as being “extra”, and that spending this “extra” money does not affect their savings account or their investment.

This form of mental accounting is very deceiving. Bonuses, or parts of it, are just as any other form of income, they can be saved or invested as well, and do have to be spent on holidays or expensive gifts. Still, many people behave otherwise as a bonus is being detached from their other means of income.

Having a bonus or incentive split and paid out throughout the year each month makes it part of your monthly salary. By having it paid out on a regular basis, it allows you to see it more as part of what you earn monthly, and therefore make wiser decisions. In addition, you can better anticipate what you receive each month, and do your planning more accurately.

Interest

Any money that is earned has the potential of receiving interest; therefore, any money that is not earned has the potential of not receiving interest. As a result, people who are being paid bonuses one-off are missing out on interest, that could have been earned if part of the bonus would have been paid each month.

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Yesterday, I met up with a friend of mine for a coffee. As we exchanged some interesting topics, the topic started changing towards career issues. At a certain point, she stated:

“I don’t understand, I am a hard working employee, I deliver the best possible quality, I have been with the company for years, and meet all possible deadlines. And yet, this work is not getting me anywhere. My colleages get all the best options in the company, they get promotions, or new challenges”

Sounds familiar?

As our conversation progressed, I started to develop a better understanding of her situation. Her goal is to be fully committed to her work, and her manager. She wants to make herself irreplacable through the quantity and quality of her work, hoping management will see the great potential that lures inside of her.

The only problem is, that by having made herself irreplacable by all the knowledge she has and the hard work she delivers, management does not want her to leave her current position. She has become so irreplacable, that it has started to work against her. Whereas she has been taking upon all the work, others have had the opportunity to get involved into other activities and build a network throughout the company.

For anyone seeking an interesting career, it is essential to build a diverse network of contacts throughout the company, attend meetings, give presentations, or go for lunch with colleagues and managers. Extremely hard working employees will often skip such events in order to get some more work done. But this is an approach, which will work against you on the long run.

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