Asking for a Raise? Now?

In tough economic times many companies are resorting to aggressive cost cutting measures, including pay freezes, benefit reductions and lay-offs. However, some folks still feel that they need or deserve a raise, and one such anonymous reader recently found his way to Money and Such. So here is my take on the reader's query: how should you ask for a raise in a tough market? I'll break the question down into several topics:

Should you ask for a raise when the economy is in decline?

The short answer is "probably not". The more detailed and nuanced answer is that it depends on your specific circumstances. Obviously, not all companies are cut from the same cloth. While some are struggling to survive, others are actually thriving in this kind of market. If your company is one of the ones struggling, asking for a raise is the equivalent of wandering around a firing range with a target on your back: prepare to lose your job. However, if your company is one of those who is doing well in the current conditions, asking for a raise might not be a bad idea. Even if that's the case, be aware that when unemployment is high and headed higher, companies feel that they can easily replace team members who decide to leave. They also consider it less likely that employees will quit over compensation issues. After all, it's going to be difficult to find another job. Bottom line - your negotiating power in this kind of market is pretty limited.

Consider Your Specific Situation

Before you hit the boss for an increase, you should consider your specific situation. If you are well respected in your organization and are considered a star-performer, your chances of getting a raise are obviously better. If you are a marginal player? Forget about it. Unfortunately, I find that many marginal players have an over-inflated sense of personal worth (this is one of the things that makes them marginal players to begin with) - so try to be honest with yourself.

Other cases where I would consider asking for a raise are if it was previously promised to you; if a compensation review is part of your employment contract; or if you were recently promoted.  Even so, think twice before insisting on a salary increase. This may backfire.

How to ask for a raise if you decide to do so?

If you decide to ask for a raise, remember that your chances will improve if you build your case well, and if you are tactically sophisticated in how you go about getting that increase. Here is some advice on how to ask for a raise and how not to ask for a raise. Finally, here are some suggestions about what to do if you don't get the raise you wanted.   

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iPhone: It's Worth Every Dime

Last summer I bought me a brand new and shiny iPhone 3G - and even though I paid $300 for my cool new phone - I think I am absolutely getting my money's worth. This only goes to show you that value is not so much a question of price as it is of cost effectiveness. A couple of weeks ago when we went shopping for furniture on a random Sunday, I too note of what I was using my phone for and here's the full list:

eMail - big deal. Pretty much any smart phone will do that for you.

Real Time Traffic Reports - checking google maps while on our way to San Francisco, I decided to take an alternate route when I noticed some congestion up ahead. Unlike many GPS devices that charge you a monthly fee for integrating real time traffic, traffic data comes free with the iPhone.

Finding Lunch - when we stopped for lunch at a local TGIF that we have been visiting for years, only to find out that the place was out of business, it took us all of 30 seconds to find a new family restaurant in the area, using an iPhone application called "Around Me".

Furniture Pictures - out shopping? Taking pictures of the furniture and sending it to folks for their opinion or to yourself to remind you what you've seen or what you actually purchased, is very useful.

Identify Music - sometimes when I am out or simply driving around I hear a cool song and I tell myself I have to buy it next time I go on iTunes. Of course, I always forget. No more. While shopping at Macy's two fun songs came on the store speakers. I didn't recognize them, but "Shazam", an iPhone application that identifies songs it hears, sure did. Songs purchased on the spot, while still in the store.

Keep Up on the News - standing around in the store waiting for my wife to finish browsing I can check out the NY Times or some other newspaper. No more being bored.

Free Pod Casts - there is a tremendous amount of free audio and video content available on iTunes, including many university lectures, and personal finance podcasts, including a monthly podcast from Bill Gross of Pimco, which I listen to regularly.

Did I mention that thing also works as a phone? Although I do have to admit that I still suffer from dropped calls and periodically I have to restart the device to make sure it works properly. Another downside is battery life - the phone needs to be recharged daily. My service plan costs about $80 a month, but happily, my monthly cell phone bill is covered by my employer. Can you tell I really love this machine?

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Future Concern: Run on the Dollar

The current global economic crisis is causing governments around the world to take aggressive measures to mitigate the downside risk. One of the most aggressive is the US government which has basically thrown the kitchen sink at the problem. What didn't we have? Bank bailouts; auto bailouts; reduction of interest rates to 0%; massive stimulus packages and tax rebates; you name it, we got it. AND we're not done yet. The problem is that all the money for the bail-out needs to come from somewhere, and the main sources for spending? Debt and good ol' fashioned money printers. All of this leads me to be concerned about the value of the greenback. 

What is a "run" on a currency? Much like a run on a bank, where investors all try to take their money out while the bank does not have enough liquid assets to satisfy everyone, a run on a currency is a case where investors panic and try to quickly pull their investments out of a particular currency and move to a currency that is perceived as being stronger.

How could a "run" begin? The government is raising incredible amounts of money by selling its debt to individuals, corporations and foreign governments. Essentially, our government is taking a huge mortgage on our future. But here is where it gets scary: what if people start to get scared about lending to the US government? What if folks suddenly realize that we Americans are living well beyond our means and maybe our IOUs are not worth all that much? What if they decide that the US is too risky of an investment and that all this money that's being pumped into the economy and printed up by the Fed is going to cause inflation and erode the value of their investments? If that happens, they might decide to get the hell out of the market, while their investment is still valuable. If enough investors attempt this at once and head for the exits simultaneously, all trying to sell their dollar denominated investments in favor of other currencies, we could see a sharp drop in the value of the Dollar.

What would a run on the Dollar mean for you? A dramatic weakening of the Dollar could have some alarming consequences. For one, the government would feel obliged to try to defend the currency. It may be able to do so by offering significantly higher interest rates which will encourage folks to stay in the market. Unfortunately, higher interest rates tend have a weakening effect on the economy, since consumers and businesses find it harder to borrow money at higher costs and therefore need to scale back consumption and investment. At the same time, a weakening of the dollar would make imported goods more expensive in the US. For example, if the Dollar falls compared to the Euro, and European exporters do not reduce their price in Euros, American buyers will need to pay more in Dollars to meet the same price. Our purchasing power abroad, and therefore our standard of living, will decline. 

More ominously, one of the key things about the US currency is that many governments around the globe use the Dollar as a reserve currency - i.e. they save their spare cash in Dollar denominated investments or simply hold large amounts of US currency. If the Dollar weakens, it is very possible that some countries will decide that this is no longer a good solution and that it may be better to diversify into other currencies. This would have implications that go well beyond the scope of this post, but they are not good.

The good side of a weak Dollar. As the Dollar gets weaker, American goods and services become more competitive in the international markets. This can lead to an export led recovery, and reinvigorate such sectors as manufacturing, which have been steadily losing jobs to foreign competition. So, it's not all bad, but let's try to not go there anyway...

Is this a likely scenario? God knows. I don't. However, there is increasing chatter from economists who expect that the Dollar will weaken significantly once the global economy stabilizes, unless the US government is aggressive about soaking up any superfluous liquidity and vigilantly combats inflation and deficit spending.

How you can protect yourself from a worst case scenario. Well, a relatively easy solution is to diversify your portfolio into foreign denominated investments. For example, E*Trade offers investors the opportunity to open up brokerage accounts in one of several foreign subsidiaries and these accounts are denominated in the local currency. If you are not into opening up such an account, a simpler solution may be to invest a significant chunk of your portfolio in foreign stocks, or the stocks of American companies that get much of their revenue internationally. This is our preferred solution: we try to maintain 25% to 30% of our portfolio in international funds.

I sure hope such a scenario will not come to pass, but with the dramatic global economic turmoil, nothing seems impossible these days. 

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Life is Short, Precious and Often Sad

Last week I got another piece of news that reminded me that life is short, precious and often sad. A friend of mine was killed in a traffic accident. Jason and I weren't close friends - we worked for the same start-up several years ago. Even though we did not stay in close touch, we did talk several times in recent years and I last saw him during one of my business trips to Denver last year. I will remember Jason as a smart, talented, humble, kind and good natured person. He was an educated and open minded individual. He was someone that folks liked to be with.

Today Jason is being put to rest. He is survived by his wife and two small kids, and my heart goes out to them.

Such events always remind me how fragile and delicate life really is. You could be saying goodbye to one of your loved-ones in the morning only to never return or never see them again. Thankfully, and I mean that, I am quickly able to get back to my normal way of thinking and forget the knife's edge we are all balanced on every day. People are not meant to live in constant fear and worry. However, while this perspective remains, it is important to do everything in your power to ensure that if the unthinkable happens, your loved ones are well taken care of:

1. Is your life sufficiently insured to support the needs of your family?

2. Do you have a will? We don't.  We need to get one.

3. Does your spouse know where all important documents are located and sufficiently understands the family finances? 

Thinking about the worst case scenario is not something any sane human enjoys, but it is simply something that needs to be done.

I will not be able to attend Jason's funeral today, but Jason and his family will be in my thoughts. If I believed in god, I would offer a prayer. Since I don't, all I can offer are my condolences and my modest contribution to Jason's kids' newly opened college fund. 

Rest in piece, buddy.

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What to Do with Old Furniture

Yesterday I wrote a post about all the new furniture that we purchased last weekend. Our furniture will be delivered in about two weeks, and to make room for it, we need to clear away our old stuff. There are five options that come to mind:

Selling - financially this is the most attractive option. It is conceivable that we could sell the furniture for a few hundred dollars. Even though our sofa has a big hole clawed by our cat, the sofa is structurally sound and is very comfortable. My wife thinks that someone could buy it, cover it with a low cost slip-cover and give it a whole new lease on life. I am not a believer. On the other hand, our armchair and dining room table and chairs are in good condition and are of decent quality. It is conceivable that these can be sold. To be honest, I don't have the patience to try to sell used stuff. I guess I am too lazy to go through the hassle.

Donating - we could donate most of the furniture, but I am not sure whether charities would consider the sofa good enough to take. Then there is the question of transportation. Some charities, including Goodwill are typically willing to pick-up donations, but if they don't accept the sofa we need to come up with another solution. Donating would give us a tax credit worth a few hundred dollars, so there is that upside to consider.

Giving - with Craig's List giving stuff away has never been easier. Typically if you advertise free furniture, someone will e-mail you within minutes and agree to pick up the thing. The advantage here is that we don't need to worry about transportation and clearing out the stuff.

Curb-Siding - similar to giving, we could turn our furniture into curb-side freebies, by putting it out on the street with a big sign saying "FREE". Of course, it would be pretty embarrassing if no one bothered to collect them, in which case we would also have to figure out a different way to accomplish the goal.

Dumping - that's not a very green approach to take, but we could always call the local waste management company and ask them to pick up the items. This may require us to pay for the benefit of having the furniture removed, which seems like a waste given that selling or donating the items can actually make us some money and giving the items away is cost free.

Anyway, I asked my wife to lead the charge and figure out the strategy. I'll keep you posted. Regardless, I will be very happy to see this old furniture go and the brand new, shiny furniture being delivered. We kept this old furniture well past its time to go. Frankly, it was embarrassing to me to have people come over and see the sorry state of our living room. This will be a big improvement.

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