Grab that Cash with Both Hands and Make a Stash

In the first installment, we talked about first principles: Defining your important goals in life, and viewing money as a tool that you can apply to those goals.

All well and good. Odds are that any goal you pick will require you to have some money. In some cases, it may be a modest amount - perhaps the only thing you really care about is teaching children, in which case you can meet your goal so long as you have a job that allows you to do that. In other cases, you may need quite a bit more - perhaps you want to live a flashy life in New York City, or maybe you want to spend all your time painting. If you aren't lucky enough to already have a trust fund, then you can still reach your goal by essentially creating a trust fund for yourself. That may not sound fun, but by keeping your goal in mind, every choice you make will be easier.

I can almost guarantee that anyone reading this blog will have the same primary method of generating income: a job with a paycheck. This is so common that we don't even really think about it any more, but the basic idea is that you are exchanging your time, effort, and expertise in exchange for cash (and, hopefully but not necessarily, personal fulfillment and enjoyment). These checks that come in every so often probably represent the bulk of your income.

One quick note: Throughout this series, I'll occasionally use the word "cash". Unless I say otherwise, I'm using "cash" to refer to the bills in your wallet, the money in your savings and checking account, and other funds that are almost immediately available to you.

Because your job is your most powerful earning tool, you should spend a lot of time thinking about it. If the job itself is part of your goals, then congratulations! Enjoy it! If it isn't, then that's still fine - it's a tool for you, one that you can hopefully come to appreciate. If you haven't gotten a job yet, then do spend some time thinking about how it fits into your goals. If you're hoping for a leisurely lifestyle, then that 80-hours-a-week high-paying law firm position will not leave you much time to enjoy it. If you're hoping to save up enough money to travel the world, then that cool and fun library position will probably not provide you with enough money for a lavish vacation anytime soon. A reality check before the start of your career is a great idea, and it's something that you should revisit periodically. (Not every month, though. All jobs have good days and bad days, people cycle between happy and depressed, and you shouldn't make rash decisions based on a short timeframe.)

I don't believe in the perfect job. Your job might be fun, well-paying, and have lots of good people; but that does not mean that there is not another job out there which is even more fun, pays more, and has other good people. I don't say this to make you feel envious - good jobs are rare and worth holding on to. I say it because I know from experience that it's easy to become overly comfortable in a job, and forget that there are other opportunities out there.

Since your job is your largest source of income, the biggest actions you can take on your financial picture are to switch careers or to switch jobs. These are huge decisions and should not be taken lightly, but the right choice can bring you to your goals far more quickly than any investing decision you'll ever make. How should you decide whether switching makes sense? Here are a few thoughts.

1. Be realistic. Most of us have a gut feel for how in-demand our skill set is. If you're lucky enough to be a green energy expert, then dozens of companies will want you. If you are an HR representative, then unfortunately you'll be seen as more expendable. And for all of us, being in a recession means that there is less hiring than there was last year.
2. Gather data. It used to be that employers had all the data; now, with the Internet, employees can also get some idea of what various positions pay. Sites like PayScale.com and Salary.com will show you roughly how much people in your field earn. An even better, if more awkward, source of information is directly from other people. Co-workers are usually extremely reluctant to discuss salaries, but you may find more willing partners at trade shows, on forums, or through your church or social groups.
3. Ponder the data. Don't sell yourself short - if you're really good at what you do, then you can earn more money than the average, probably quite a bit more. Don't sell yourself long - if you're just showing up to punch a clock and not really into the job, you'd be lucky to get the average. And, of course, factors like geographic location and unusual situations are important too. Don't be surprised to see a large salary from someone in New York, or someone who works for their father.
4. Consider your current situation. Are you enjoying it? Does it pay much less than you think you might be able to make somewhere else? Has it changed since you first joined, and if so, are those changes bringing you closer to or farther from your goals?
5. Consider what it would take for you to stay. If the answer is "Nothing," then you're done. If it's something specific - like an extra $5,000 a year, a more flexible schedule, or not needing to share a cubicle with a particular co-worker - then it's worth talking to your management to see if they can make it happen. It's very hypocritical of me to be writing this, because I'm really shy and have never done so myself. But if you can, then it could be a wonderful way to save yourself the hassle of a job search and keep all the things that you like. A few words of warning: Be prepared to negotiate (what will you say if they offer you $2,500 instead of $5,000?); be extremely polite, respectful, and honest; and be cognizant of the repercussions. If you present your attitude as "I'm going to quit unless you meet these demands," then they may very well let you go immediately. Even if they do provide what you asked, depending on the culture of the organization you may be "on notice," and your manager will always wonder when you are actually going to leave. Because of these issues, you might be better off postponing any direct talks with your management until you either feel confident about getting another position or are prepared to be unemployed for a while.
6. Decide if you want to go. Based on all the above, would another position help you achieve your goals better than the current one?
7. Decide how to go. For almost everyone, it is better to look for work while you're still employed than when you're not. Recruiters know that you're already valuable to someone, valuable enough to earn a regular paycheck, so you look better as a candidate. You're getting a steady paycheck, which makes you less likely to take a bad job out of desperation. The down-side that a job hunt can take a really long time, and scheduling interviews is really difficult. Additionally, you may feel uncomfortable if you're continuing to work after deciding you want to leave. Decide early on what your strategy will be, then stick to it.
8. Get hired! Yeah, this requires a whole separate blog post, which I'll probably do at some point. But for the purpose of this discussion: all the talk of averages and such up until now has all been abstract. It's once you get an actual offer that it becomes real. One of the maxims of economics is that things are worth what people will pay for it. If someone offered you $50,000, then congratulations - you are worth $50,000. At this point you can make more concrete decisions, confident in what you've learned in the process. Don't feel compelled to take the first better offer that you get - remember, there's no such thing as the perfect job. If you reasonably think that you are worth more or another position aligns better with your goals, by all means pass on or negotiate the offer.
9. Enjoy! If the result of all this is an increased salary, then you may reach your goals that much more quickly. If not, then don't worry about it - everything changes, and you may enter a better situation in the future.
10. Repeat as necessary. Changing jobs is stressful, but can be a powerful step.

Perhaps you're interested in changing careers entirely. The same basic ideas apply. Do some research first - figure out what the employment market is like, what you can expect to earn, and what steps are required (additional schooling, etc.). Examine your own current situation; is a new career better? Why? Come up with a plan for the change - will you do night school, or quit your job, or do something else? Then carry out the plan, and enjoy the results.

The title of this section is "income," which is more than just a paycheck. Here are some other ways you might make money.

• Second job. Perhaps you'll complement a part-time job doing something you love with another part-time job that pays the bills. Unfortunately, secondary jobs often don't pay very well, but you may get lucky, and at least they tend to be pretty reliable. In a tough economic climate, having a second job will automatically help protect you if you lose your first job.
• Intermittent work. This might cover occasionally working as a ski instructor on the weekends, or accepting payment to drive loads in your pickup truck, or writing short articles. These aren't as reliable as a paycheck job, but the money can be quite good. If it's something you enjoy doing, all the better!
• Windfalls. Several times in your life, you may be lucky enough to receive an unexpected sum of money. This might be an inheritance, a prize, a bonus at work, or something else unusual. As with intermittent work, you can't plan for this, and shouldn't include it in your budget. (Just because you got a $2,000 bonus last year does not mean you'll get it this year. You might get bupkus, or you might get $5,000.)
• "Free" money. Perhaps you're lucky enough to have a trust fund that pays you some money every month. Later in life, you might get money from a pension or Social Security. The sums are usually relatively modest, but very predictable.
• Investment. This will be the subject of a lot of the rest of the series. Investment is money that comes from money, and not from work. You can get a little investment income from putting money in savings; you might (might!) get a lot by buying a stock. Depending on the investments you choose, it may be very reliable or not reliable at all. And eventually, the main argument of this post will cease to be true: a majority of your income may come from investments rather than your paycheck.

That won't happen automatically, though. If your personal goals include a time when you no longer have to work (some people call it "retirement"), then you'll need to invest. That means taking money from your paycheck or other sources of income, and ensuring that you don't spend it all. That will be the subject of the next post.