Welcome back to another #3NoMoreThan5in5, The Business of Life series, Early Career edition. In my early career, I learned a hard lesson about managing my money and having enough set aside for expenses as well as emergencies. And that lesson came when I transitioned from an hourly employee to salary plus profit based bonus employee.
Like most hourly individuals, you work two weeks, you get paid two weeks. January, 1 to 15 hours, paid at the end of the month of January. Hours for the second half of January, paid in the middle of February. Well, when I got promoted to Assistant Branch Manager, let’s say that was March 1st, the last set of my hourly wages (let’s say that’s about $1,000) was paid to me on March 15th. Okay, typical! My first salary portion (so a little bit less that what I would typically make, say $500) also paid to me in the middle of March. So that’s about $1,500 and that felt good! That was pretty typical.
The challenge hit when at the end of March I no longer had my two weeks of hours paid and I only had $500 in salary coming in. That was a lot less than what I was expecting, and of course even though I was told “this is how it works,” I hadn’t prepared. I was definitely not prepared when my middle of April paycheck also only had $500 in it. Because the profits for March hadn’t been calculated yet that bonus wasn’t going to be paid to me until the end of April. So the profits are on month in arrears. That 4 to 6 week window of having only $500 in my checking account was a hard reality because I had to pay rent! I had to pay bills! I had to pay utilities! I had some hard lessons learned.
- I didn’t have enough to keep myself living paycheck to paycheck
- I made the mistake of relying on my credit cards to help transition me in this window because I wasn’t prepared
- I knew that I didn’t want to continue living this way because without some stability in my finances, I knew I would keep digging a hole for myself that would be really hard to get out of.
So what did I do to start to fix this problem? I set up 3 direct deposit accounts. To my checking, 80% of my paycheck went there. That way I can pay my rent, utilities, gas and other monthly bills. I was still using my credit card in the meantime because like I said I had no cushion. So savings account number one was set up with 10% of my pay. That account was intended to build something towards an emergency fund. If a big, unexpected bill came due, I wanted to make sure I had something set aside. And savings account number two was my third direct deposit that was intended to be my slush fund. So that was another 10% of my paycheck. With some going into a savings account that I intended not to touch at all, some going into a savings account that was no my slush fund, I hoped to balance out the ebbs and flows of profitability (because some months were really good, some were really bad).
It took me probably 6 to 8 months to stabilize my income and start to pay off some of that credit card debt that I built up because I was unprepared, but I knew that by setting this system up, I could now set myself on a path to some financial stability. And that financial stability paid off as we’ll talk about my mid-career edition of #3NoMoreThan5in5, The Business of Life series. Stay tuned to learn more about that. Until then, take care, be well, cheers!