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Is Lying About Your Salary a Big Deal?

Hello everyone.  Today’s post is from Anum over at Current on Currency.  Enjoy!

 

While there seems to be a long-standing tradition of embellishing résumés, there is a fine line between that and lying during interviews. Making false or misleading statements may be one thing, but omitting important facts can be just as dishonest.

The root of the problem goes back to the competitive nature of job seeking in general and assuming that if “everyone else is doing it” to level the playing field, it must be okay.

This way of thinking is particularly evident in college graduates as a recent study suggests, but continues to be reinforced and even practiced in the later stages of one’s career when salary becomes an essential talking point.

A Stronger Focus on Screening Procedures

The rise of embellishments has led to increasingly comprehensive screening procedures, and employers are taking a closer look at the résumés they receive, according to new findings from CareerBuilder.

The survey involving 2,188 hiring managers and human resource professionals revealed that 42 percent of employers spend longer reviewing applications than they did previously, and 86 percent of employers now appoint the task to more than one employee before reaching a final decision.

The Importance of Discussing Payment

For most, there is nothing more daunting than discussing payment with someone who has the ability to make potentially life-changing decisions, but avoiding the subject could cost you $500,000 over the long term.

It’s therefore in your best interest to provide accurate facts and figures concerning your salary history on paper so that if you’re asked any follow-up questions in an interview-type setting, you’ll be able to do so without hesitation.

 Navigating Payment Negotiations

Ultimately, HR managers and recruiters are looking at past salaries to gauge who will be more or less receptive to an offer of payment, and this puts candidates in an unfortunate bargaining position for fear of leaving money on the table.

Often the best thing you can do in this situation is reframe any direct questions about your previous earnings and state your expectations using broader terminology. For example, try to answer with:

 

  • I’d like to keep that information confidential, but I’m looking for…

 

  • My previous employers consider that information confidential; however, I’m seeking…

 

  • I only share that information with my accountant, but ideally I’d like…

 

Another tip is to use active language for both your speaking and resume. Discussing your previous experience using active language will highlight the active role you played in your company’s culture. This is attractive to employers for future hires.

Fortunately, there is a wealth of information regarding salary negotiation tips designed to help job seekers land the interview and prepare them for landing the job.

The Role of the Verification Process

Salaries are used to determine value, and a prospective employer is well within their rights to conduct a verification process that includes requesting to view a recent pay stub or W-2.

Depending on the company, this process may be implemented after you’ve been handed the job as a formality, and if you have lied about your salary history or position, the offer could be rescinded as a direct result.

A Preferred Alternative to Outright Lying

The question then isn’t so much whether or not it’s okay to lie about your salary history, but whether there’s any real benefit to doing so.

Keep in mind that professional employer-employee relationships are founded on trust, and if you’re caught in a lie, expect there to be consequences, as rarely are there any second chances.

This is not to say that you can’t embellish certain things to present yourself in the best possible light, just that your past earnings shouldn’t be one of them. You’re far better off padding your CV with regard to the tangible skills you have developed over the course of your career.

 

Anum Yoon started and maintains her personal finance blog, Current on Currency. Sign up for her weekly newsletter to read about her financial journey and perspectives on money management, frugal living, and financial trends.

 

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Total Financial Diversification

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Not smart Mr. Bunny. Not smart at all.

I remember that great feeling I got when I received my first paycheck deposit as an optometrist.  It was more money than I had ever seen in my checking account at one time.  It was very cool to see such a big number, but then thoughts started creeping into my head:

“What if someone steals my ATM card and withdraws all of my money so they can make it rain?”

“What if my bank makes an error and loses all of my money?”

“What if I can’t remember my password?”

While most of these concerns came from the paranoid part of my brain, they all had the same thing in mind:  having all of your money in one place is really dangerous.  Not only is it risky walking around with thousands of dollars in your wallet, but leaving all of your money in one place is not going to allow you to reach your financial goals.  Let me explain.

We all have grand goals for ourselves.  Have a nice and comfortable retirement.  Being able to pay for our kids college.  Taking a nice and long European vacation.  All of these things are nice, but we still have to eat and be ready for emergencies that come our way.  This means our money needs to be in diverse places depending on when we need it.  All of our proverbial eggs should not be in one proverbial basket.

Here is a list I came up with of possible places to put your money depending on what you need that money for:

Short term money

This includes money needed for day to day expenses like food, clothing, debt payments, insurance and any emergencies:

-Checking account:  This is the central hub of your finances, so make sure you have a good one that doesn’t hit you with any fees.  Your checking account should have enough money to pay any immediate bills and day to day expenses.  Checking accounts usually get minimal interest, but that’s okay since the main use of your checking account will be to serve as a control center to move your money to where it needs to go.

-Savings account:  This should be the place to park money for any emergencies or any goals that are a few months away.  Online savings accounts usually earn a little more interest than checking, which is nice, but the main benefit is that they are liquid and will allow you to withdraw money in a pinch.

-Health Savings Account (HSA):  An HSA will allow you to set aside some tax free money for healthcare expenses.  The emergency visit to the doctor or pharmacy will happen at some point, so it’s nice to have some tax free money to be able to use for those expenses.

-Roth IRA:  IRA literally stands for Individual Retirement Account, but a Roth IRA can be used as a last ditch emergency fund if needed.  Contributions to a Roth are made after taxes, which means that it is your money and you can withdraw it at any time penalty free.  I would recommend you don’t withdraw it unless needed, because earnings grow tax free, but it’s nice to know that you can tap it if you need to.

Medium term money

This money is for goals that are not that far away, but not exacctly around the corner either.  This could be for a house down payment or saving for a car or vacation.  You want this money to be liquid, but also be able to get some sort of return on it:

-Savings account:  While most good online savings accounts have interest rates around 1%, they have the advantages of liquidity and security.  You can usually withdraw from them at anytime and most online savings accounts are FDIC insured, meaning you are guaranteed to get your money back even if your bank goes out of business.

-HSA:  Many HSA’s have investment options, so investing in a “safe” portfolio of bond funds will give you a better return than just letting it sit in a cash account.  While there is not a 100% chance you will get your money back, keeping your investments conservative will give you the best chance that you won’t lose most of it.

Taxable investment account:  The company Betterment is a great example of how you can use an investment account to save for medium term goals.  With Betterment, you can let them know when you plan on using the money, and it will automatically adjust your portfolio.  If you need the money fairly soon, a conservative portfolio is chosen.  If you are saving for retirement, a more aggressive portfolio is picked.  You can do this yourself in any taxable investment account, but there is always the risk of losing money so always keep that in mind.

Long term money

This is mainly for retirement contributions.  Here are the best accounts for that:

-401(k):  Many employers provide the opportunity for employees to contribute to a 401(k) account, which takes out money before taxes and deposits it in a portfolio of mutual funds that you choose from a list.  Some employers also provide matching funds, making additional contributions on your behalf.  Conventional wisdom says to contribute enough to at least get the match, and then contribute as much as you can if you have a good plan with low fees.  You can use a website like Personal Capital or FeeX to see how the fees in your plan stack up.

If retirement is many decades away, you generally want to invest more in stocks than bonds, as this will provide the best potential for good returns.  As retirement gets closer, shifting into bonds is the smart thing to do as this will protect most of your money in the case of a stock market crash while providing a decent return.  Funds in a 401(k) cannot generally be taken out penalty free until age 59.5, so it forces you to use this money for the long term.

-Traditional IRA:  Anyone who is not offered a 401(k) can contribute to a Traditional IRA.  You still get to deposit your money tax free, but you can set the IRA up with any company you choose, providing much more flexibility than a 401(k) plan.  Similarly, penalties apply if you try to withdraw too early.

-HSA:  The HSA rears its beautiful head once again.  Before age 65, money in an HSA that is not used for healthcare purposes will be taxed and you will have to pay a penalty.  After age 65, you can use HSA money for anything, penalty free.  So it kind of turns into a Traditional IRA after the age of 65.  Since many HSA plans offer investment options, setting aside a portion of your HSA money for long term investment can be a good idea.

I like thinking about money as employees of a company.  Each dollar needs a job and needs to be put in the best position to do their job.  Putting your money in the appropriate place depending on when you’ll need it is the key to having a well oiled and diversified financial machine.  And in case you haven’t gotten the message, open an HSA if at all possible.

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