3 Secrets to Save More of Your Christmas Bonus
Which money is someone more likely to spend? A) Regular income OR Christmas bonus? B) A reimbursement OR Christmas bonus. If you answered “bonus” for each question, you are correct! But why is this so? Also, how will this information reveal the secrets to investing a greater portion of our Christmas Bonus? Read on:
1. We Must Perceive the Money as a Reimbursement NOT a Bonus/Extra Money: In 2006 Nicholas Epley, a professor of behavioral science at the University of Chicago, conducted research, in which, Group A members were each given US$25 as a “reimbursement/rebate”, while Group B members also received US$25 as a “bonus." In the case of Group B, they spent over 400% more than Group A. Why?
Reimbursement/rebates are seen as returning us to our previous financial state; therefore, by spending that money we perceive ourselves as worse off. However, we are more likely to spend a bonus because spending “extra money” does not make us worse off.
Secret 1: Think of the bonus as a reimbursement of some of the costs associated with going to work (e.g. transportation costs) rather than extra money.
2. We Must Perceive the Money as Earned Rather Than Gifted: In a 30-year-old study by Hal Arkes, psychology professor at the Ohio State University, “Group A” was promised payment of “X” dollars for taking part in a survey. “Group B” was not promised a payment but were surprised with the same payment of “X” dollars. Most of Group B, chose to spend it, with most of them spending twice as much as Group A. But why?
When our brain sees a direct correlation between our labour and our earnings, we more consciously associate the effort (time, sweat, frustration etc.) needed to earn it. Therefore, if we spend it unwisely we deem it as a loss. However, a bonus is normally regarded as a “gift” NOT contractually earned.
Secret 2: See the additional lump sum as your earnings for unclaimed overtime payment for the year.
3. We Must Perceive a Specific Opportunity Cost: According to Marie Beasley of the Duke University’s Center for Advance Hindsight, “The rational way . . .to approach spending decisions is by thinking about opportunity costs.” So, if we spend $10,000 on a bag today, we can’t spend it on a shirt tomorrow. However, the $10,000 could really have purchased an infinite combination of other items, such as hair products, a pair of slippers and lunch, 3 books etc. When identifying the specific opportunity cost becomes more difficult, the money becomes easier to spend.
Secret 3: Let JMMB help you to Identify Your Goal and How Much It Costs.
If you are saving/investing $50,000 monthly towards the down payment of a house, you will be conscious that spending $10,000 on a bag decreases the amount towards your down payment. Doing your FREE JMMB Goal Planning Session allows you to be specific about your goal and how much you need to invest each month.
If you want to increase your chances of keeping more of your Christmas Bonus, please give us a call today on (876) 998 -5662.
Written by: Michelle Sinclair-Doyley, Manager, Group Financial Partnership Support & Financial Education