Social media post: Would you rather be paid annually or daily?

[katethekitcat]

I asked my social media network, as a thought experiment: would you rather receive your salary in one large chunk on January 1*, or in 365 daily chunks throughout the year?

Answers I've gotten so far include:

• "Why is this even a question? I don't understand the point."
• "I see no advantage to being paid annually."
• "Being paid annually would require knowing much about what you want to do. I can't plan that far ahead."
• "Annually, absolutely. I'd rather have it all upfront and deal with it once and plan ahead."

I'm intentionally not throwing my own opinion in there (so far no one has pointed out you can earn interest throughout the year if you have the capital available) but I'm learning a lot about assumptions people make about money.


*If you quit your job halfway through the year, you'd half to pay half back.

[MonkeyJenga]

Annually is the only logical answer. Even if a person is inclined to blow any available money, how are they going to pay their bills each month if they only get 1/30 of their monthly income on the 1st?

[solon]

What an interesting question. Please keep posting the responses you get.

And good point, MonkeyJenga. Daily pay might actually require more planning than annual pay.

[ysette9]

I'd love to be able to front-load all of my investments for the year on 1 January!

[Parizade]

It depends, are we talking about getting paid annually in advance or after the fact? If it's an advance I would say yes to annually. If it's after then I would choose daily instead so I could be investing or at least collecting interest.

[erutio]

I'd become quite annoyed at all the transactions appearing on my bank account if I were to be paid daily.

[bacchi]

It depends, are we talking about getting paid annually in advance or after the fact? If it's an advance I would say yes to annually. If it's after then I would choose daily instead so I could be investing or at least collecting interest.

This is the correct answer.

Being paid annually begs the question: are you committed to a one year contract? What happens if you decide to quit in, say, April?

[solon]

I feel like a few of you need to read the OP.

[RWD]

Given the assumptions annually. But I can't imagine an ongoing scenario where an employer would actually pay you for a year of work up front.

[GuitarStv]

It depends, are we talking about getting paid annually in advance or after the fact? If it's an advance I would say yes to annually. If it's after then I would choose daily instead so I could be investing or at least collecting interest.

This is the correct answer.

Being paid annually begs the question: are you committed to a one year contract? What happens if you decide to quit in, say, April?

Good responses, these are both things I wondered when hearing the question.

[MonkeyJenga]

It depends, are we talking about getting paid annually in advance or after the fact? If it's an advance I would say yes to annually. If it's after then I would choose daily instead so I could be investing or at least collecting interest.

This is the correct answer.

Being paid annually begs the question: are you committed to a one year contract? What happens if you decide to quit in, say, April?

Good responses, these are both things I wondered when hearing the question.

In advance, based on the below.

I asked my social media network, as a thought experiment: would you rather receive your salary in one large chunk on January 1* [...]

*If you quit your job halfway through the year, you'd half to pay half back.

[deborah]

I get paid annually. Where I live, I have to take a certain amount out of my retirement accounts each year. So I get paid once a year, when I know how much I should take out. Occasionally, this figure is too low, and I have to get another payment later on. This is my preferred method. The later I get paid, the more interest I earn.

[katethekitcat]

Annually is the only logical answer. Even if a person is inclined to blow any available money, how are they going to pay their bills each month if they only get 1/30 of their monthly income on the 1st?

Interesting - not a SINGLE person brought this up, including the people were were worried they'd blow all their available money if they got paid at the beginning of the year. But apparently they trusted their ability to save up to pay bills at the end of the month.

Overall, the discussion landed on the consensus of: if you're in a strong financial position, get paid annually; if you're living paycheck-to-paycheck and don't know what's going to pop up, you should choose daily. Even after a few people did bring up the point of earning interest when you receive it all at once at the beginning of the year, a few people held out and said they'd have no way to know what bills were coming and how to budget for them. This also unintentionally gave away who is aware of their current levels of spending and who isn't.

What I found most intriguing overall is that people seemed to be unable to comprehend how to manage their money if they got it all at once, even though it was the same amount total. Their budgeting seems to depend on the short-term flow of income, not the big-picture view of their capital.

(To clarify the original question, as several other posters suggested: in this hypothetical, you get paid upfront. Obviously then if you leave early you have to pay some back.)

[ketchup]

Big check on January 1, absolutely.

[Linea_Norway]

I would like to receive my whole year brutto income ahead in January and not paying any income taxes in advance before I need to file my tax papers in april the year after. In practice, this last thing is not possible, as I tried it once.

Employers will never do that, because they have no guarantee that you will stay the rest of the year. There is a reason that many companies in my country pay out halfway during the month. And in America with only 2 weeks notice, they pay twice a month and that makes sense.

[Metalcat]

[quote author=katethekitcat link=topic=105938.msg2401991#msg2401991 .

What I found most intriguing overall is that people seemed to be unable to comprehend how to manage their money if they got it all at once, even though it was the same amount total. Their budgeting seems to depend on the short-term flow of income, not the big-picture view of their capital.
[/quote]

Oh, absolutely.

I remember back in the day, before I understood anything about money, I couldn't possibly understand the value of anything unless it was broken down monthly, because that's all I had ever known.

It wasn't until I started investing and trying to understand larger annual values that they made any sense to me.
Salaries, car purchase prices, home prices, etc, none of it made an ounce of sense to me unless broken down monthly.

Now, nothing makes any sense to me unless seen from a lifetime value, but that's only after years of completely changing the way I look at money. Although, I do still automatically calculate what a mortgage payment would be monthly whenever I look at total cost.

I can totally see most people having absolutely no grasp of what they "can afford" to spend without seeing it broken down monthly/bi-weekly. It's why cars don't have prices anymore, just payments.

[moof]

Many school districts default to spreading your pay over the entire year in equal checks, and most teachers prefer it that way to getting bigger checks for 9 months.  If you can trust yourself to manage your money, then yes absolutely lump sum is better.  If you manage your spending by trying to just barely avoid bounced checks all the time you are better off with monthly or biweekly checks.

I am betting that for a lot of folks daily pay would be a nightmare, it would force them to "save" up for rent, where as most folks time their rent check to coincide with their paycheck clearing, matching lumpy income to lumpy expenses.  Basically people use the minimum balance on their checking account as a crutch to avoid truly managing their money.

The result can be seen on full display when a windfall like an inheritance or lottery windfall occurs.  Despite individuals being otherwise intelligent, all too often the windfall is blown within a year or two.  Money in the bank becomes something that needs to be spent until they hit near zero again.