Saturday, March 17, 2012

Why everyone should be worried that bankers are worried about smaller bonuses

Via wmtc, bankers worrying that their bonuses are smaller than in previous years.

This has been circulating because it's kind of tragically hilariously tonedeaf, but this is actually something that everyone should be worried about.

Bankers have types of income: predictable income (i.e. their salary) and unpredictable income (i.e. their bonuses). The problem is that some of the people quoted in this article are relying on their unpredictable income to pay regular, recurring, important expenses, like tuition and housing.

A responsible way to manage money in this kind of situation is to keep your regular, recurring, important expenses within the budget of your predictable income, and treat your unpredictable income as found money. Pay tuition with salary and use bonus money for a vacation. Get a mortgage that you can afford on your salary, and dump the bonus into the principal every time you renew to pay it off sooner. If you'd like to take on more regular, recurring, important expenses than your salary can handle, then the responsible way to do this is to invest your found money in an annuity or something similar so it provides you with regular income. Which they should totally be able to do, being bankers.

And that's the point here: they're bankers. Their job is to manage money. Collectively, they manage basically all the money. And here they are making poor decisions about what kinds of expenditures to use salary for vs. what kinds of expenditures to use bonuses for, and loudly announcing it to the media.

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