Welcome to Part II in our “What if” series! If there is one thing consistent in life, its change. Being prepared (as much as we can be) can mean the difference between calm and crazy stress. I know which side I want to be on. 😉
Getting a bump in your income?
Maybe you got a promotion with a nice salary increase. Maybe you got an excellent annual review and a pay increase. Either way, if you are seeing a bump in your pay, Congratulations!! Hard work pays off! That is always a good feeling.
So now what? What do you do with this increase in pay?
I am glad you asked, here are a few things to DO (and NOT do):
Things to DO
In the beginning, do nothing. See what your “new” paycheck looks like and then pay yourself first. After all, you worked hard for that money, why not gift it to yourself? That’s right, give yourself 1) the gift of peace of mind, or 2) the gift of financial independence, or 3) the gift of early retirement. These are all 3 different gifts and none of them happen overnight. Let’s talk about each.
The Gift of “Peace of Mind”
Peace of mind is having a fully funded emergency fund. The amount of an emergency fund is personal and not a one size fits all. When trying to figure out how much you need, calculate from your expenses, NOT income. This is a mistake most people make (myself included for a long time).
If you are not sure how much you spend in a month start recording your spending. Be honest. There is no right or wrong. It is what it is, and it's only a point in time.
If you think you know your spending but don’t record it, then write down how much you think you spend and for the next month record all of your actual spending. Compare the two. I have yet to have one person have things match up. But, if you are that person, I want to hear from you. PLEASE leave me a comment below or email me. 🙂
The Gift of Financial Independence
If you have already gifted yourself Peace of Mind, good for you! You deserve it! Sounds like you are ready for something a little nicer, like the Gift of Financial Independence (FI).
The Gift of FI is an amazing one because it gives you options. Options to take a job or leave it, take a sabbatical for yourself or time off to care for a sick family member. Options give you breathing room to take the path that is best suited for your life and family.
To give yourself the gift of FI it means that your emergency fund is fully stocked and you have a nice amount put away for retirement (because you have been maxing out your 401k and ROTH IRA, as well as taxable investments for years).
It doesn’t mean you stop working altogether but it does mean you have more control over the type of job you take.
The Gift of Early Retirement
Well now, this is the grand poohbah of gifts. I can’t think of anything better than knowing you would not need to work another day in your life and still not want for anything. It’s important to note that not needing to work and wanting to work are different things. Working at a job for pleasure is payment enough. Getting a paycheck on top of that is just an added bonus.
The trick to getting to early retirement is more than having a fully funded 401k and nicely stocked Roth IRA and emergency fund. It also means having cash investments that are outside of retirement accounts. This is critical if you have a ways to go before reaching official retirement age. How much to have in your non-retirement accounts is dependent on a few things, i.e. what your monthly expenses are and how close you are to actual retirement (i.e. How much to save to generate $1,000/month?).
We all know these gifts are not created in a day. They are big gifts that take time to create. Think about this:
The Eiffel Tower was built in 2 years
The Empire State Building was built in 1 year and 45 days
The Hoover Dam was built in 5 years
Even the renowned Hamilton took 6 years to write.
My point is, if you work at it daily, there is nothing you can’t gift yourself.
Things to NOT DO.
Don't jump into bed with lifestyle creep. No need to get that bigger house, car, upgrade in clothes, cell phone, etc… Love the life you are with. Appreciate the little things. Enjoy time with your friends and family. The more crap you have the more responsibility you have to take care of it – with time and money.
Don't forget your budget. Budgets are your friend and can tell you where spending has increased (for what might be no-apparent-reason).
Don't use your emergency fund as a vacation/shopping spree fund. Just don't.
Don't leave debt unpaid… that only grows with interest and penalties.
Losing your job?
If you are secure in your job, great! I would still encourage you to read further. Many a person have been secure only to find themselves at the unemployment office. It never hurts to be prepared should the unexpected happen. Life happens right? What separates you from the rest is how you handle it.
If you have already lost your job, I am sorry. This can be a scary time especially when yours is the only income. I know, I have been to unemployment 3 times in a 5 year period as a single mom of 2 no less. Here is what I have learned based on my own experiences and listening to others to make the process a little less painful.
While you have a job, always:
Have your resume ready to go. Update your resume as you have new achievements and while it is still fresh in your mind.
Keep your network up to date. This will ensure you hit the ground running and not lose any time.
Pay your credit cards off at the end of every month. Make sure you are not carrying any debt of any kind. If you are, pay it off immediately.
Have that emergency fund – funded. And here is where that first gift comes in handy. You will thank yourself.
When you lose your job:
If you get a severance package know everything that is included. Many employers will pay for you to have your resume updated and even help you find other employment.
Know your unemployment benefits. Call their office or check out their website.
Cut all unnecessary spending – immediately. I am serious. Live the simple yet full life.
Postpone any big purchases until you secure a new income stream. Wanting to remodel your bathroom or purchase new appliances? No need for any of that right now.
Find temp work to hold you over until that right job comes along. If the job market is tight, this might be a nice time to find a part-time or temp job just to help pay the bills. Who knows, they may like your work ethic and hire you for something bigger, better. You never know when opportunity is going to knock.
Lastly, if you have the gift of Peace of Mind or Financial Independence, losing you job may be the universes way of saying, it’s time for a break. Take care of you. In between job interviews, go for a walk, make meals at home, catch up with friends, and/or volunteer at your kids school. These are all things you can do while hunting for the next job.
Remember to be kind to yourself, there is only one of you.
What tips do you have?