Is It Better To Get A Bigger Basic Salary Or A Bonus?

Given the same annual salary, is it better to have bonuses or a bigger basic salary?  They have different pros and cons but in the end, I guess it doesn't really matter. What's really important is how we use the money, and not how we receive it.
Given the same annual salary, is it better to have bonuses or a bigger basic salary?

I used to work for a company that gave out bonuses quarterly. Inevitably I'd hear different people express how wonderful that was. I remember all my coworkers would be excited whenever the bonuses were about to be paid out. Including me. Everyone loves bonuses, right?

Eventually though, people would move on to higher paying jobs. Usually those jobs would only have 1 or two bonuses a year, but annually they earned more.

But I always wondered, if everything else was the same, which "method" was best? They have different pros and cons...

Bigger Basic pros:
  • can invest earlier (even if the starting amount is less) and possibly earn more because of that
  • can attend to necessarily bigger needs (ex: for people who started a family)

Bigger Basic cons:
  • you can easily spend the money, and end up not saving anything

Bonus pros:
  • can be a form of forced savings
  • could be more tax-efficient since the first 30k is exempted from income tax (potentially the first 70k if they pass the pending bill)

Bonus cons:
  • Sometimes those bonuses aren't guaranteed; and if they are, sometimes the amount isn't fixed.

But in the end, I guess it doesn't really matter.

A person with a bigger basic salary can simply pay themselves first and in that way give themselves a bonus later on. And people can invest their bonuses (if appropriate) in an equity fund, pretty much negating the "advantage" of someone else who got their money and saved earlier.

Personally I'd prefer a tax efficient method (wouldn't you?) - maxing out the different ways to get tax exempt  income like de minimis and a bonus (if 30k or less). But I guess what's really important is how we use the money, and not how we receive it.


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photo credit: unloveablesteve via photopin cc

2 comments:

  1. I used to work with a company that does not give bonuses. I stayed there for 7 years. I got used to it. I receive bonuses now. Pakiramdam ko ang dami kong EXTRANG pera!

    I guess that's how all of us should treat it - just a bonus. Not part of our monthly financial budgeting. Since I failed to establish an emergency fund before, I'm glad that God gave me a chance to build it - through all my bonuses. The regular "pay yourself first" exercise comes monthly with the salary.

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  2. Hirap nga mag budget... may bunos ako dati sa previous job ko, but now naka include na sa pay off monthly kaya wala ng bunos daw.

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