There is a cycle of life in the workplace … it begins when you get your first job, and hopefully it ends when you retire.
At least, it used to, when people worked their way up from the shop floor to the executive penthouse by working hard and staying with the same company.
By saving as they could, and relying on a good company pension plan (indexed at a reasonably high percentage of their ‘ending salary’) these loyal, hard-working folk could look forward to a reasonably relaxed retirement at the age of 65.
Not so any more …
A news release published in August 2006 examined the number of jobs that people born in the years 1957 to 1964 held from age 18 to age 40.
According to this report, these younger baby boomers held an average of 10.5 jobs from ages 18 to 40 (In this report, a job is defined as an uninterrupted period of work with a particular employer).
Sometimes, this is because of new/better employment opportunities – or simply due to a change in life circumstance – but, all too often, it is due to being laid off.
This brings me to a recent post on Get Rich Slowly that asked “What To Do If You’re Laid Off?” … I’ll let you read the post and the comments, but I can’t help thinking that you need to put in place a ‘backup’ plan (something a little more meaty than the usual “save up a 3 month savings buffer“).
And, I think that the whole process should begin as soon as you get your first job …
… so, I was pleased to see this really cool post on The Simple Dollar, for all you college kids or school drop-outs out there [AJC: this is an equal opportunity ‘get rich(er) quick(er)’ site!].
The article was called About To Enter The Workplace For The First Time? Try The 50% Solution which really boils down to:
– We all know that Paying Yourself First 10% – 20% of your gross salary is a really cool thing, so
– Starting your very first job by Paying Yourself First 50% of your gross salary must be a really, really, really cool thing?
Read the post for more details, but TSD is absolutely right … why?
A. If you’re used to living on NOTHING, then living on 50% of SOMETHING has gotta be a snap 😉
B. If 10% of your gross salary compounded for, say, 40 years can give you $730,000 then 50% compounded for the same 40 years should give you $3,700,000 [AJC: It won’t be WORTH $3.7 mill. but that’s another story!].
But, as some of that post’s commenters pointed out, it can be very hard to start saving 50% of your starting salary, even if you lived on nothing before, because now you need to buy: food, shelter, transport, and so on.
But, the principle of setting your target much higher (TSD suggests 60/40 … spend 60% save 40%) when you start out and trying to maintain your momentum holds water.
Here is what I think that everybody who is still working for a living should do, regardless of source and amount of income, or their age:
1. Use this post, and the others that I have referred to, as a wake-up call that your job is NOT secure … therefore, your life is NOT secure until you take your future security into your OWN hands.
2. Once you realize that you are taking a financial risk every day at work, it becomes much easier to think about ways to break free. Start by putting as much behind you as quickly as possible, in case the ‘worst’ happens:
i). Commit to an maintain a Pay Yourself First mentality that may be as little as 10% of your current salary or as much as 50% – anything less is not enough … anything more and you are a miser 😉
ii). For any future increase in salary – commit to saving 50% of the increase and putting it to work in your Investment Plan
iii). For any future ‘found money’ including bonuses, tax refund checks, overtime payment, spouse back to work, etc. – commit to saving 50% of the increase and putting it to work in your Investment Plan
iv). Start a part time business – or find another way to increase your income – commit to saving 50% of the increase and putting it to work in your Investment Plan.
Take these actions with the eventual aim of firing your boss before he fires you!
I couldn’t agree more with trying to put away up to 50% of your salary or income, except I don’t think going over 50% makes one a miser (or at least I don’t consider myself one…).
@ Fiscal – “…. Fiscal Musings excepted!!” 😉
Seriously , saving 50% is mega and is plenty for MOST people – generally, I advise that if you need more money (even for debt reduction), put more effort into EARNING. Let’s swap ‘guest posts’ on this subject … might be fun?!
this is an excellent point, and very timely, since I just got a raise. .. er I mean… ‘what raise?’ 🙂
@ blogrdoc – Show Me [50% of] The Money! :))
I have often said to people in conversation that not saving money is like deliberatly putting other people in control of your life. I have always advocated paying myself first, even though I’m in debt while paying it off and keeping expenses low.
For those who are single and young but still want to live a halfway decent lifestyle, should really consider communal living. Roomates, bunking with family, etc to keep individual expenses low I think is the way things were and will soon be returning to.
@ Swan – Sensible strategy – my parents had to PUSH me out the door … something about free food/board seemed VERY attractive to me 🙂
I’ve been meaning to get you a guest post, but I haven’t yet gotten around to it. Hopefully I will soon…
Agreed with all these statements. It’s not a matter of “if” but more “when” you will be laid off or fired. It’s the way it is.
I live debt free. Several years ago I paid off all my credit cards, all car debt, everything. The only payment I make each and every month now is my mortgage. And, that was a 20 year mortgage 13 years ago. Not much left. haven’t bought a new car since 1988. I buy two-three year old cars in PERFECT condition for about 1/2 of what some fool paid new. Let everyone else take the initial depreciation. Oh, and I pay CASH for cars. No debt. Salespeople at car dealers hate me. I don’t give them any profit on the financing or leasing side. They can’t “sell” my note to a bank, or anyone else cauze there isn’t one!
If I were laid off or fired today I would say: Alleluhia!! My spouse, a state employee of 18+ years carries our benefits. All I have a this employer – where I’ve been for 11.5 years, is my 401k AND Pension which is pretty heavy. I would walk out of here SMILING and HAPPY. Not wondering how I was going to pay this months bills.
I have about four months emergency fund saved and am ready for what we all know is coming.
@ Fiscal – I’ll look forward to it, because I am happy to admit that I am a better earner than saver, and it’s guys like you who are leading by example on the ‘saving’ bit.
BTW: I am an expert on ‘delayed gratification’ 😉
@ Slim – Looking good! Sounds like you are laying a great, solid foundation … but, don’t be afraid to incur debt to leverage your investments, though, IF you need a larger Number (and/or sooner) AND you have the stomach/aptitude for business and/or investing.
I don’t know on what planet you guys live but in my part of the galaxy I’m paying for daughter’s college, medical bills etc.
Realize your time with employer is finite and always be looking for another position and grooming your resume’ to make the job.
Employers do not reward loyalty, just production.
@ Joe – and, your point … 😉
My point was to accept the reality that the bills WILL keep coming – but, to prepare for the inevitable. By all means, hop into another job, but maybe you can also take steps to avoid needing ANY JOB (then eventually ANY WORK at all)? Thanks for your comment!
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