The Money Class

by Suze Orman

  CAREER

  THE TRUTH OF THE MATTER

  The American workplace has been undergoing some dramatic changes—general trends that have been playing out over decades and painful contractions brought on by the recession that took hold in 2008. If you are among the nearly 15 million Americans out of work or the 9 million getting by with a part-time job as of late 2010, you are feeling the pain of these changes most acutely. But even those of you lucky to have work—and work you love, I hope—must recognize that changes in our economy will present new challenges over the course of your career as well.

  The American Dream of the last century seemed to promise jobs for everyone willing to work, a paycheck every Friday. That particular American snapshot, from where we stand today, indeed seems like it comes from a bygone era. In the simplest of terms, we have a far greater supply of workers than we have jobs, and this will not change for a long time. While I believe we have turned the corner in terms of job losses, it could be years before the massive backlog of people looking for work will find employment. As I write, the most recent jobs report cited a net monthly gain of barely 100,000 jobs. That is far less than we typically have during an economic recovery. But here’s what you need to understand: If new job growth were to stay at that monthly pace it would take more than a decade for everyone looking for work to find work. Even if we saw the pace of job growth rise to 250,000 a month the backlog would still take five years to work down.

  Here is the harsh reality: I do not believe we will see a dramatic acceleration in new job creation. In the private sector, employers are focused on getting more out of their current workforce—through technology and longer hours—to meet any pickup in their business. This is what is known as productivity. You better believe companies are more interested in boosting productivity before they begin to hire aggressively, and I expect this trend to continue in the coming years. And when employers do decide to hire, the reality is that many will be looking to fill holes with “temporary” contract workers who work full-time jobs, but without benefits.

  The situation in the public sector is even more dire. Given the political climate in Washington, it’s hard to envision any substantial expansion in the federal payroll in the coming years. And the severe budget deficits and reduced revenues that state and local governments are experiencing makes it unlikely they will be able to go on a hiring binge anytime soon.

  Adding to this job shortage is the fact that the workforce is growing older and people are staying in their jobs longer, so there is less turnover. The Bureau of Labor Statistics reports that the percentage of Americans age 55 and older still working increased from 29% in 1993 to a record 40% in 2010. And the BLS forecasts that trend will continue; it estimates 43.5% of the 55-plus contingent in 2018 will still be working. Many older workers are deciding they want—or need—to stay in their jobs past traditional retirement age—a move I endorse—in order to save more for retirement. That has the potential for creating a traffic jam on the career ladder; it’s harder to move up—and make more money—if the rung above you is still occupied.

  Will we see new jobs created in the coming months and years? Of course. Though we will no doubt face ongoing bouts of volatility in the markets, I do believe the worst of the economic slide is behind us. But all that means is that the patient—our economy—is out of the ICU but still has a long slow road of recovery ahead. When it comes to finding work and reaping the rewards of gainful employment in this current economy, I don’t think anyone would assert that the American Dream is alive and well. However, I am a firm believer that ingenuity and invention often spring from adversity. And I can tell, even from the calls and letters that come in to my CNBC show, that many of you are figuring out ways to bring about change for yourself. Small businesses are springing up; locally produced food and goods are in demand; people are heading back to school to acquire new skills or to bring more to the job they’re in. The American entrepreneurial impulse is strong—stronger now than it’s been in years.

  I felt it was important to account for work as we try to define the various aspects of the New American Dream because it was built into the American promise of opportunity: Hard work and dedication bring rewards. But there is, of course, no one-size-fits-all advice to be had in this category. You may be rising in your career but find that your job promotion came with more work and no increase in salary; or maybe you are frustrated that despite your strong performance, you haven’t gotten a raise in four years and instead are told you should feel lucky just to have a job in this economy; or maybe you are just plain exhausted from having to work two jobs to make ends meet. All of these various states of employment are affected in one way or another by our sluggish economy. It’s hard to think of an industry that has been untouched by the recession. And so no matter what your status, this is an opportune time to take stock of your working life.

  I’ve organized the Career Class into three lessons that cover the gamut, in broad strokes:

  Advice for the Employed

  Advice for the Unemployed

  Starting (and Running) Your Own Business

  LESSON 1. ADVICE FOR THE EMPLOYED

  “Hope for the best; plan for the worst.” I put my faith in that credo. You might have heard me repeat it in the context of discussing the need for life insurance, but it is also an excellent guide for how to manage your career in this era of slow economic growth. If you are being honest with yourself you would look at the continuing fallout from the financial crisis—nearly one in five Americans is either unemployed or underemployed as of late 2010—and consider for a moment what if it were you. In fact, that may be the best career strategy for these times: Behave as if a layoff or furlough will happen to you. Hope that it never happens, but if you plan as if it will, you and your family will be well prepared to weather any setback and get back to work as fast as possible.

  BUILD YOUR PLAN-FOR-THE-WORST FUND

  Yes, I am talking about having an emergency savings fund that can cover up to eight months of your living expenses. Back in 2008, when I began to insist that everyone increase their savings fund to an eight-month cushion, I took a lot of heat. Why do I have to save so much when everyone else says three months is enough? you asked me. When I appeared on The Oprah Winfrey Show in January 2009 I suggested that families in which both adults were working should experiment and see if they could handle their expenses if they lived off just one income; for individuals my recommendation was to pretend you had a 50% pay cut and see if you could still cover your bills. I knew it would be a stretch, but I wanted everyone to understand what could happen if they faced a layoff. Besides, by making do with just 50% of your current pay you would be able to shovel more—faster—into an emergency fund. Oh, the pushback I got from so many of you! You told me I was being too pessimistic and dramatic. You told me that it was impossible, that you could never live on less than you are living on now. You told me that you had worked for 20 years for your company and there was no way you would lose your job. And then the unthinkable happened. I’m sorry to say, I was right. As of fall 2010, more than 40% of unemployed Americans have been out of work for more than six months, and nearly one-third have been unemployed for more than a year.

  That is why I asked you then and I am asking you now to build an emergency fund that could pay your family’s bills for at least eight months. Yes, I realize you may collect unemployment benefits, but typically these payouts cover just a fraction of your prior salary. Do not skimp on your savings because you think unemployment insurance will be all you need.

  I understand it will take time for you to build up eight months’ worth of expenses in your savings account. But don’t get overwhelmed and give up before you start: The immediate goal before you is to focus on how you can trim your spending so there is more left over each month to dedicate to your “plan for the worst” fund.

  LIVE BELOW TODAY’S MEANS

  I hope each and every one of you has uninterrupted career success that brings you a stea
dy stream of raises and promotions. But I never want you to base your current lifestyle on the notion of what you think you might be making years from now. There is no guarantee your salary five years from now will be appreciably higher than it is today. Maybe yes, maybe no. I want you to make financial choices today that are affordable based on what your household income is today, not what you hope it will be in the future.

  As an example, let’s all remember what was happening with real estate in 2005 and 2006. Buyers were guided into negative-amortization loans or option ARM loans that offered super-low initial rates that wouldn’t move higher for three or more years. The standard advice back then—advice I warned people not to heed, by the way—was that it was smart to get one of these loans because you would surely just refinance into a different mortgage before it came time for your mortgage to adjust to a higher rate, or you would be able to sell the house at a nice profit and walk away with money in your pocket. Except it never was a sure thing. And much of the housing crisis we are still dealing with—and will likely be dealing with for years—is a result of the fact that so many people who took out those mortgages and bet they would be able to flip or refinance before the adjustment lost the bet, big-time.

  Don’t make the same financial bets with your career by living beyond your means today based on the risky assumption that you will be making a lot more in the future. I hope you will be making more. A lot more! And if that is what occurs, then you can revisit your spending when you in fact have that money. But please do not borrow more today than you can honestly afford today. I’d much rather you rent or buy a smaller, less expensive home, or purchase a less expensive car today, than stretch to buy something that you know deep down is an act of living beyond your means.

  VACATION STRATEGY

  I also want you to think through your vacation strategy. In these very challenging times, when you are being asked to do more than ever before at your job, there is no question that you need a break. My advice is to take every vacation day you are entitled to! Particularly if your employer is unable to give meaningful raises, then time off becomes a valuable currency. Time away from the job is important for your health and important for your family. But I am not giving you permission to spend whatever you want. Your vacation must be an affordable vacation. The cost is not “just” $1,000 or $2,000 or $3,000. That is $1,000 or $2,000 or $3,000 that isn’t going into your Roth IRA, your child’s 529 college plan, or your emergency fund. And don’t you dare take any vacation that you cannot at least pay for up front in cash. There is absolutely no excuse for planning an expensive vacation that you “pay” for by putting it on a credit card because you’re not able to pay for it immediately. I don’t care if that card charges you just 5% or 10% interest—though let’s stand in the truth and admit it, more likely you’re paying 15% or higher. Taking on debt for a vacation is an act of financial dishonesty: no ifs, ands, or buts. You are denied! Do you hear me?

  I am asking you to balance your vacation dreams against your other financial dreams. How about a less expensive vacation so you still have more to put toward your longer-term goals? I also want to recommend you think about a stay-at-home vacation. Pry yourself free of the BlackBerry or iPhone and make it clear to everyone you work with that you are indeed on vacation and are to be contacted only if there is a true emergency. Then plan every day just as you would a getaway. Yes, you are absolutely allowed to go to the movies and enjoy some meals out; it’s okay to spend some money. The goal is simply to spend a whole lot less than you would on a vacation that includes airfare, a hotel, and three meals out every day. If you happen to live in a big city, why not plan a few days doing all the things tourists do but you never seem to have the time for? Some of my most memorable time off is playing tourist when I am at home.

  GRAB YOUR FULL RETIREMENT BONUS

  Look, you and I both know, big bonuses have become rare in recent years. So tell me this: Why are so many of you turning down a guaranteed bonus every year because you aren’t being smart with your 401(k)? As I explain on this page, if your employer offers a 401(k) matching contribution, be sure you are contributing enough to get the maximum match. Do you see my point? That match is a bonus. Many plans offer a 50-cent match for every dollar you contribute, up to a set maximum. For example, if you make $50,000 and your employer offers a 50-cent match on every dollar you contribute up to the first 6% of your salary, that’s $1,500 a year in a matching bonus you could be collecting ($50,000 × 6% = $3,000; 50% of $3,000 is $1,500). Yet about 20% of workers eligible for a match do not contribute enough to earn the maximum match. It never makes sense to turn down free money; and in a world where raises and bonuses may be meager, making sure you grab the full matching contribution is crucial. Who knows, at your next job you might not have a 401(k) or maybe your employer will not offer a match. Take advantage of this great deal while you can.

  MAKE YOUR CASE FOR A RAISE AND PROMOTION THROUGH YOUR WORK

  I ask that you take a clear-eyed look at your attitude toward work and pay. Are you expecting to be paid more because of a sense of entitlement, because you’ve hung in there year after year, or because you are doing spectacular work?

  When I was a financial advisor I often had clients who came to me upset when they didn’t receive the raise or promotion they expected. When I asked them why they thought they deserved the raise they often said to me, “Because it’s been a year and I am working so hard.” Mind you, this was in the early 1980s when we were coming out of a recession. Though the situation was different back then—we were grappling with high inflation—there are some striking similarities between that moment in time and where we are, economically, today. One such similarity: Employers were cautious and conservative in how they spent money, just as they are today.

  It wasn’t always an easy conversation with my clients, but what I told them back then is the truth I ask you to stand in today: No private-sector employer has to give you a raise. No one is obligated to dole out a bonus. As valued as you are by your employer, the reality is that there are a lot of very talented people who could replace you among the unemployed and underemployed. Please do not think the reason they are out of work is that they aren’t as good at their job as you. There are literally millions of extremely talented people who are out of work. The financial crisis and recession didn’t merely clean out the deadwood; it took a lot of hardworking, competent, professional workers with it too.

  I hope this doesn’t cause you to become paranoid and make you afraid of ever asking for a raise or bonus. Here’s what I used to tell my clients:

  Make those you depend on for a paycheck dependent on you. What you want to do is make yourself so valuable, so close to irreplaceable that your employer is doubly motivated to make sure you are happy in your work, and your pay. When you overdeliver on every part of your job and exceed expectations, you are making your case loud and clear to be compensated for your work. When I wrote The Money Book for the Young, Fabulous and Broke in 2005 my advice for 20-somethings was to just put their heads down, work super hard, and not sweat the pay. Build a reputation, make your mark, put in the effort, and you will be on solid ground. That advice applies to all ages today. You must double down on making yourself an absolutely essential piece of your firm’s success. That should be your goal at any time, but in these times of economic stress it is imperative. It is how you keep moving forward in a very competitive job market.

  I am not suggesting it will protect you from ever being laid off. But I can guarantee you that if you are laid off because your firm is struggling, your reputation will precede you and your manager will likely help your efforts to find a new job by providing a glowing reference. It will also likely put you at the top of the list for being rehired when the company rebounds.

  Now that said, I realize at a certain point you may in fact feel your nose has been to the grindstone plenty long enough and you know you have put in the work to merit a raise. Okay, be smart here. Do not request a meeting with your boss, s
tomp in, and simply state, “I deserve a raise” or “Can I have a raise?”

  I want you to be more tactical and frame the conversation by making your expectations clear.

  HOW TO ASK FOR A RAISE

  Start by preparing a one-page presentation that documents all your accomplishments—exactly how you contributed and continue to contribute to moving your employer’s business forward, and how you have delivered specifically for your manager. Make sure your manager has that document at least forty-eight hours before the meeting. Next you need to decide how much of a raise you want. Let’s say you want a 5% raise. When you are sitting with your boss, start the conversation by saying, “Given my accomplishments and ongoing contribution to our business model, I would like you to consider a raise of 5 or 10 percent.” You make the amount you want the lower of the two choices. In any case, make them no more than five percentage points apart. Now, why do I want you to do this?

  This goes back to a lesson I learned when I started out as a commission-based stockbroker in the early 1980s. I was trained to be a professional salesperson to call up clients, and after sharing an investing idea with them, I would ask, “Would you like me to buy five hundred shares or one thousand shares?” The rule was never ask a yes-or-no question, because if they said no there was nothing else I could say. I want you to do the same when discussing your salary with your boss. When you walk in and say you want a raise of 5 or 10%, you have just shifted the conversation about whether you deserve a raise to how big a raise you deserve.

  Save Your Raise

  If you are living below your means but within your needs, you will not need to use any part of a raise to cover your existing expenses. But you and I both know that if you aren’t careful you will soon find your expenses rising to meet your new, higher paycheck. Please don’t squander your raise. If you have yet to amass an eight-month emergency fund, I want you to aim to save 100% of your raise. If you already have the eight-month emergency fund taken care of, I want you to aim to still put at least 75% of your raise toward any of your other saving and investing goals or paying off your credit card debt. The balance you can use as needed. So let’s say you get a 4% raise. That means that at least 3% must be earmarked for your savings goals. The other 1% is yours to spend. Remember: You are standing in your truth when the pleasure of saving is equal to the pleasure of spending. My suggestion that you save the majority of a raise is not to be taken as a punishment. I am showing you how to realize your dreams.