Careers October 10, 2006, 7:25PM EST

Bonus Babies: Digging Into the Lifestyle

You've got the business degree, the I-banking job, and now, that first annual bonus. Here are some tips on how to save, or spend it

by Julie Gordon

If you feel sorry for investment bankers because of their long work hours, you can stop right now. Analysts hired last year received their bonus checks this summer, and the average numbers were large enough to alleviate the pain of 60-plus-hour weeks (see BusinessWeek.com, 5/11/06, "Jammin' Like Crazy at Goldman").

Bonuses for first-year analysts in the period between summer, 2005, and summer, 2006, ranged from about $40,000 to $78,000—on top of an average $55,000 base salary, according to research from Vault, a media company focused on careers. Of course, bonuses at bulge bracket firms tended to be on the higher side, while some employees' checks, especially those at smaller companies, came in below the $40,000 mark.

For most new I-bankers, a first end-of-year bonus is the largest chunk of change they have ever received at one time—prompting a plethora of questions and options. Splurge on a new "toy?" Save for a down payment on a house or apartment? Pay off credit card or student loan debt (see BusinessWeek.com, 6/8/06, "Graduating? Time to Look at Your Loans")?

You've had some time to ponder the options, now it's time make those all-important decisions. Here are five smart ways to invest or spend that newly acquired dough:

Create an Emergency Fund. Most analysts have two-year contracts, which do not automatically get renewed. After this summer's bonus allocation process, employees know where they stand with their companies. "The bonus is the report card. If you think it's not, guess again," says Brian Drum, president of Drum Associates, a global executive search firm in New York City. "It is also an encouragement to stay with the organization. Or it can be a discouragement."

If a bonus was on the low end of the scale, an employee should hoard a significant portion of it, since future employment is questionable. But even if a bonus was average or outstanding, recent graduates can never be too careful and should always err on the side of caution.

Today, several potential crises can affect job security, including layoffs and company mergers and acquisitions, says Mitchell Smith, managing partner of Florida-based independent financial group Gaines & Smith. Smith suggests keeping three to six months' worth of expenses in a reserve "emergency" fund. The money should be liquid.

Think About Future Goals. Are you looking to buy a home within the next few years? Relocate? Start a business? Before deciding how to spend your money, lay out goals and upcoming major purchases, says Gregg S. Fisher, president and chief investment officer for Gerstein Fisher, a financial advisory firm in New York City. Then, some of your bonus money can go toward a venture that might be more difficult to finance otherwise.

A separate savings account—preferably a higher-yielding, online account—is also helpful in making sure socked-away cash stays that way. Bard Malovany, a certified financial planner with Sagemark Consulting in Annandale, Va., recommends going online because most online accounts allow users to set up a systematic debit from a checking into a savings account.

That way, it's easy to start the regimen of regularly saving whatever leftover money you have. "And then whenever you get a raise in the future, target most of that raise to systematically go into your savings account," Malovany says.

Consider Paying Off Debt.Credit card and student loan debt are two different ballgames (see BusinessWeek.com, 6/27/06,

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