Comments on: How (Not) To Spend a Bonus

By: Manshu

Manshu — Mon, 27 Jul 2009 20:28:34 +0000

I’d also like to think that I’d just save all of it but in reality that rarely happens. Every time I find extra money, there are needs that arise that I wasn’t aware of earlier.

By: TIE

TIE — Mon, 20 Jul 2009 12:11:05 +0000

@Joel – I agree. A proper accounting amortizes the cost over the duration of benefit.

By: Joel

Joel — Mon, 20 Jul 2009 08:05:52 +0000

Perhaps in buying, using and depreciating a durable good you are consumption smoothing? i.e. just because you buy a washing machine today doesn’t mean you use up all its value…you consume its value over the life of the asset.

By: TIE

TIE — Thu, 16 Jul 2009 17:34:23 +0000

@Rick – It is darn near impossible to say ex post whether or not you would have consumed in the same way without the bonus. That’s why I was careful to write that I think I save most of a bonus. In practice I think it is unclear. I’m now spending a lot after having received a bonus. But there are confounding factors (my wife is expanding her business, I need/want a new cell phone because my Palm died, etc.). Would I spend this way without the bonus or is the bonus making me feel richer so I spend more? Impossible to be sure.

By: Wai Yip Tung

Wai Yip Tung — Thu, 16 Jul 2009 17:26:09 +0000

Easy. I just throw the money into my home equity line. In my case it a big hole that’s not going to be filled anytime soon. It has absolutely no impact on my consumption. Friedman’s theory easily describe my behavior.

By: Rick

Rick — Thu, 16 Jul 2009 16:08:46 +0000

Heck, I just went out and bought a power washer (man toy) with my bonus.. go figure!

By: SJ

SJ — Thu, 16 Jul 2009 15:00:11 +0000

Usually they are irrational. But you have to consider the possibility of getting hit by a truck;
I mean, we only have a probabilistic idea of how long we will live. Looking backwards it’s easy we should have spent XX then, saved YY then, etc.

KInda like a bird in hand is better than two birds in a bush. Or at least that’s the common psychological argument =)