What if you didn’t get your paycheck for the next 3 months?
If you happen to be a dual-income family, what if both of you stopped receiving your paychecks for the next 3 months?
That’s exactly what’s happening to us for the rest of the year – we’re not getting a paycheck deposited into our bank accounts, but – it’s part of our plan.
Since we decided to go into full-on retirement savings mode (the accumulation phase) and max-out our 401ks and IRAs, the only way to do this starting late in the year (to get the maximum effect) is to change our investment contributions to 100%. We technically won’t be able to “max-out” since there’s only so many pay periods left in the year (which won’t get us to the limit, but that’s our starting point.
Most people might find this extreme, risky, maybe even irresponsible?
Around my office it’s very “open-door” in terms of personal business (mainly because you can hear everything) so it’s hard to keep a secret. After changing my elections to 100%, I’ve heard several comments from our CFO such as “Seriously?” and “Let me know when you need a paycheck again!” to which I hear a few laughs. As I was signing the paperwork on the percentage line, he watched me write 1.. 0.. and then shock crossed his face as he saw the next 0.. to which he exclaimed “A hundred percent?!? … Okay…”
Mrs. Saturday also said her HR department actually made mistakes with the 100% election change, not taking into account other deductions that needed to be taken out since no one else had done this.
Is saving for the future really that extreme?
Can You Live Without a Paycheck?
Absolutely — if you have enough savings to carry you through the no-paycheck periods.
This is exactly what farmers have to do when they plan their planting and harvesting schedule for the year. If they’ve “invested” in one crop (read — not diversified), they might have long stretches of the year with no earnings. They have to make it through “grow-time” and then finally harvest the fruits of their labor at harvest if everything goes well.
We’ve tried to be very careful in our view of the future, taking into account serious financial trouble the country might end up in, and even more locally — losing a job. So what we’ve done is first made sure to save up an emergency fund. This can get you through the tough times when your car breaks down, something on your house craps out, or an unforeseen expense comes up that you just can’t avoid.
Another strategy that we completed was slowly paying our mortgage several months ahead of time. We’ve built up 4 months of padding, again — in case something goes wrong. This strategy might not be for everyone, but it satisfies our risk assessment and what we’re comfortable with.
The hardest part about doing all of this, really, is just having the discipline to not spend the money on something else that you think you want. Have you ever looked back and wished you hadn’t bought those clothes that didn’t quite fit right or that piece of electronics that you thought you wanted, but became outdated so fast (or you replaced it with something better)?
The great part, though, is once you build a solid foundation that can get you through emergencies or the little unexpected things life can throw at you, now you have options!
For instance, what if you just realized you have a retirement emergency and now is the time to start cramming cash into your retirement savings? Since we have a money-cushion to bridge the gap through the cashless periods, we now have the option of going ahead and maxing out those retirement plans before the year is out and just living off of our savings!
The big takeaway from this is to first build a stable foundation to give yourself a little breathing room which then can open up options for yourself to build the future that you really want. So how about you?