Tuesday, December 20, 2011

The Difference Good Performance Can Make


The Difference Good Performance Can Make
Posted: 20 Dec 2011 12:45 PM PST
Yahoo includes the following information in a recent post on how to earn more without giving up your whole life:
There are real rewards for a company's best workers. Top performers received average base-pay increases of 4.4% this year, compared with 2.8% for average performers, and 0.4% for the lowest performers, according to Mercer, a human-resources-services provider. Further, with most employers seeking to increase performance-based pay differentiation, even greater rewards could be in store for top performers.
Let's take this information and look at the life-long impact of being a good, average, or poor performer. Not that these numbers will be exact throughout a working career (in a good economy, for instance, they'd all probably be higher), but they are likely relative to each other and provide a good comparison for the difference in earnings based on performance.

We'll start with three guys, "Good", "Average", and "Poor" starting their working careers at 22-years-old just out of college. They all make $25,000 as a starting salary. They all work until they are 65. And they all get annual raises as described above: 4.4%, 2.8%, and 0.4% respectively.

Here's where they end up at age 65:
  • Good: Career earnings: $2.6 million; Final year salary: $134,048

  • Average: Career earnings: $1.8 million; Final year salary: $73,396

  • Poor: Career earnings: $1.1 million; Final year salary: $29,212
Big difference, huh? These are exactly the points I was making in How to Maximize Your Lifetime Earnings and Making the Most of Your Most Valuable Financial Asset.

The numbers above show why it's so important that you work at growing your career. No other asset you have is as valuable, and if you consistently strive to grow it (by excelling at your work), you will be handsomely rewarded financially (and, by the way, it's more likely that you'll enjoy what you do if you are doing it well.)

So, do you have a plan to grow your most valuable financial asset?
Posted: 20 Dec 2011 10:37 AM PST
I'm in the process of picking the best post of 2011 from the winners of the Best of Money Carnival. I've narrowed it down to these five, but I need your comments on them. (I'll still pick the winner, but a well-thought-out comment could sway me one way or the other.)
Here they are in alphabetical order and without comment from me:
Which do you like best? Why?
Posted: 20 Dec 2011 10:02 AM PST
Just a note for those of you who are looking to make an end of year charitable contribution and want to help families who are less fortunate: the FMF $20k Challenge is still on until December 26. Up until that time I will match, dollar for dollar, contributions to the Salvation Army, up to a grand total of all contributions of $20,000. For details, go to this link.
Thanks for your consideration and here's wishing you all the best of holiday seasons.
Posted: 20 Dec 2011 07:45 AM PST
Forbes has an interview with a top job recruiter and lists his top tips for a great resume. They are:
  • Avoid the fancy-schmancy layout, font, and other special effects. Stick to traditional font of Times New Roman, 9 to 12 point size, and black type against a white paper.

  • Prepare it in a simple Word format that can easily be viewed on most computers.

  • Use a reverse chronological order.

  • Get rid of objectives and summary and all that silly stuff.

  • Skip personal information such as married with three kids.

  • Stories sell. Numbers, statistics, percentages get attention if you put in bold type. Increased profit by this 28%. Came under budget by 30%. If you were born and raised on chicken farm, note it on your résumé.

  • Fuzzy key words and phrases should be avoided.

  • Get the photos off your résumé. You are looking for a job, not a date.
In other words, you want your resume to be the standard, formal, middle-of-the-road document. No bells or whistles, simply information that tells what you did and how well you did it (which hopefully is "very well").

A few extra thoughts from me:
  • I like and recommend the black ink on white paper look best. I've tried grey and beige paper, but neither looks as good IMO.

  • Focus on action words. After I list the title of each position and the dates I held it, I have bullet points listed with accomplishment after accomplishment. Each of these bullet points begins with an action word like "led", "created", "developed" and so on. These snippets demonstrate that I'm a person of action who can accomplish a wide range of tasks (and do them well.) This is exactly the point you want to make.

  • I don't like objectives, summaries, or anything similar on resumes either. IMO no one reads them anyway so they simply take up space you could use to sell yourself.

  • Personal info is a clear no-no -- unless it's something truly amazing and neutral. Example: you won the Olympic gold medal or raised $10 million to fight cancer. Other personal info (spouse, kids, etc.) can only hurt you (in most situations), so why include it?

  • I'm not so sure about the "stories" he lists above, unless it's a story about how you made the company $1 million last year. Yes, stories are interesting, but do I really care that you were raised on a chicken farm? Not really. And maybe I hate chickens and everyone associated with them. Plus, how do you really tell a story in the short, bullet point format of a resume? Hard to do well.

  • Make every word work. That's why you need to eliminate fuzzy words -- because they take up space that could be used on words that advance your cause/employment.

  • Photos? Really? Do people really submit photos with their resumes these days? I guess if you were very attractive it COULD help. But even if Miss America or Mr. Universe included a photo, wouldn't it bring into question their professionalism (which is never a good thing to raise doubts about in a hiring process)?
To note, these are tips for "standard" jobs. Of course you may want more flair if you're a designer or include photos of you're a model. But for 99% of the jobs out there, I think these tips are solid and won't steer you wrong.
Posted: 20 Dec 2011 01:29 AM PST
The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

Next in the series is FMF reader BG. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I am a 27 year old male from the South Central US. My wife of 3.5 years is 26 years old. We both graduated from a state school about an hour's drive from the city in which we now reside. We both grow up in the same hometown which is in the opposite corner of the state that we still live in. We met in high school and dated for about 6 years (all through college) prior to getting married. I graduated college one year ahead of my wife, and we got married about a month after she graduated from college.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

Presently, my wife and I both work full time jobs. I am a commercial lending officer for a locally owned bank and my wife is a team supervisor for the local housing authority (section 8 housing). Our average monthly take home pay is about $7,000 per month. This does not include bonus income, which can vary from a few thousand to tens of thousands of dollars per year (bonus income is from my job).

Take home pay is after we contribute 10% of my gross pay (my employer matches 3%, so total for my 401k is 13%) and my wife contributes 6% of her gross pay (with an 8% match, 14% total). We also contribute a full $10k per year to ROTH IRA's.

Monthly living expenses are about $4,500 per month (not including ROTH contributions or cash savings/investments). Total monthly budget looks like this:

$7,000 - take home pay
  • $1,300 - mortgage payment (PITI)
  • $300 - utilities
  • $400 - food/groceries
  • $85 - cell phones
  • $115 - cable
  • $500 - auto expenses (fuel/maintenance)
  • $580 - auto loan payments (most funds used for investments)
  • $250 - giving
  • $40 - gym membership for me
  • $500 - golf club membership (includes golf & dining)
  • $400 discretionary spending
  • $832 - ROTH IRA Contributions
  • $1,700 cash savings/various investments
A few notes on my monthly expenses:
  • I am a golf nut and pay a premium to belong to a very nice local club. As a banker, this is a tool I use frequently to help grow my career by entertaining clients.
  • We have to 2 auto loans of which most of the funds were used for various investment opportunities. The rates on each of these are 3.49%. You can see below that we could fully pay these off if we wanted to, but decide not to since investments earn much more than 3.49%.
Our household net worth is approximately $210,000. This includes the following (this is all net of debts):
  • $60,000 in cash
  • $50,000 real estate partnerships equity
  • $50,000 retirement assets
  • $30,000 stock/options in the bank I work for
  • $20,000 - other private investments, home equity, vehicle equity, etc.
What are the current financial issues you're facing (saving, paying off debt, etc.)?

The main financial goals that we have right now are growing our overall investment portfolio, focusing more on investments outside of retirement assets. We put a good chunk of money into retirement accounts each month, but I don't think too much about these accounts. I do spend a good deal of time each month focusing on our other investments, which are focused in real estate investments and a few other private company investments (insurance company, etc.).

Working as a banker, I have the opportunity to see all different types of businesses and work with the most wealthy and successful business people in my city. This allows me insight on and access to investments that many people would not.

I own 7 rental properties (some personally and some with a partner). These are all condos so they are fairly easy to manage, and me and my partner handle all management ourselves.

I also just recently had the opportunity to buy a chunk of stock in the bank I work for. I've worked here for about 1.5 years and have moved up quickly, which is beginning to open up solid equity opportunities (both in buying shares and getting options).

I am not too concerned about paying off debts at this point, as they are all at low rates. Debts consist of the following:
  •  $190,000 home mortgage @ 4.50%
  •  $30,000 in auto loans @ 3.49% (all but about $10k used for investing purposes)
  •  credit card balances usually are around $1,000 and are paid in full monthly
What are your plans for the future. (retire early, build your career, etc.)?

My wife and I plan to have children in the next 2-3 years at which point we plan for her to become a stay at home mom. She is not as career focused as I am, and we both believe it will be worth the sacrifice for her to be able to stay home. Her take home pay represents about $2,000 of our total $7,000 monthly income. I believe that my income growth from my job over the next 3 years combined with growth in investment income should come pretty close to covering this gap by the time my wife quite her job. Thankfully, we spend much less than we currently earn so this should be easily doable.

My goal is to be "retired" from having an 8-5 job by the time I am 45 years old. I plan to focus very heavily on investing over the next 15-20 years. My investments to this point have been heavily focused on real estate. My goal for 2012 is to make a sizable direct investment into the oil and gas industry by either acquiring some royalties or some working interests in various wells. I am heavily involved in lending to the oil and gas industry and have developed a good working knowledge of the industry. My mother is also employed in a small oil and gas firm and will help to provide me access to some investment opportunities.

I've been heavily focused on my non-retirement investments for about 2 years now, and I've built an income stream of about $600 per month (net of associated debt service - not included in take home pay described above). I realistically believe I can build this to about $15,000 per month by the time I am 45 years old. I typically amortize any debt on investments very rapidly, so once debts are paid off, my income stream will increase quite a bit. Still, I'll have to acquire a lot more assets in order to eventually reach my investment income goals.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

My general philosophy on personal finances is generally one of being aggressive (focus more on offense than defense). I work very hard to grow my income and to create new income streams. I also don't shy away from debt when it provides me the ability to own an asset that will increase my wealth and income over time.

Keeping spending under control is important, however, to me its not fun to spend your whole life preventing yourself from spending money on things you want to spend money on (see country club membership above). Money is only a tool that can be used to acquire things, or to invest to earn more money.

I'm not shy about wanting big things out of life, but I also try to be smart about creating a plan and working extremely hard to execute in order to reach my goals.

My main piece of financial advice (more like "life advice") - don't let anyone tell you that you can't do something you want to do, or have something that you want to have. People achieve big things every day, and the people that achieve big things are the ones that believe in themselves. Some people think having money or nice things is evil, which is fine. But I don't believe that, and I am not afraid to strive hard for success.
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