Pinching Pennies
Did you feel fortunate just to get a 2 percent salary increase this year? If so, you have a lot of company. With the downturn of the economy and the rise of health care costs, many companies are offering smaller raises -- or none at all.
According to a survey conducted last summer by Mercer Human Resources Consulting, companies studied claimed that they plan to give raises averaging 3.3 percent to 3.5 percent, the smallest average raise since the 1970s. At the same time, inflation is expected to be about 2.7 percent this year. Tom Potts, professor of finance, insurance and real estate in Baylor's Hankamer School of Business, offers some suggestions for what employees can do in economically challenging times.
1. Seek other ways to create wealth.
Now is the time to make wise investments that will benefit you in the future. Sometimes taking a second job may be necessary, but it is best to avoid this if possible to bypass additional stress in your life.
2. Consult a financial planner.
"They can help you to articulate your goals and objectives and prioritize," Potts says. Consultants also can help you locate expenditures that can be reduced or postponed until more lucrative times. For example, instead of buying a new car, prolong the life of your current vehicle. Those who usually take international vacations can take domestic trips or scale back their plans. Plan and save for large purchases.
3. Guard against too much debt.
A common pitfall during a slow economy is to borrow money in order to maintain a certain standard of living. Instead, eliminate unnecessary expenses and be cost-conscious when making purchases.
4. Keep saving for the future.
"People tend to trade off the future for the present. They've been making contributions to their 401K [retirement plan] but then they decrease that; in the long run, this affects their ability to retire," he says. Instead, continue planning for the future and ask a financial planner to help you keep long-term goals in focus -- the short-term discipline will be worth the future benefits.
5. Evaluate your employment circumstances.
Good questions to ask are: Is this small raise a short-term or long-term phenomenon? Will my job continue to be limited? Listen to what your employer is saying about the future of the company and then evaluate it for yourself. "If you see the CEO getting a 20 percent raise and you are getting a 1 percent raise, that's a problem," Potts says.
6. Negotiate for other perks.
Take advantage of other incentives that employers offer, such as job security through labor contracts, to counter the lack of a raise. You even may be able to negotiate for other privileges such as extra vacation time or personal days.
Receiving a meager raise or none at all can lower morale, but keep in mind that many people are experiencing the same thing. "Especially in today's job market, I think most employees are more understanding of lower raises because the economy is not that strong," Potts says. It is likely your employer also is receiving less and is working to raise compensation, Potts says. Keep this in mind as you plan for the future and steer your focus from present difficulties to a brighter future.