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Anchor Price Your Salary

: Image by Dalboz17 via Flickr

Conventional wisdom says that, when negotiating your salary or a raise, you should make whatever crazy ninja maneuvers it takes to get the other person to name a number first.

Horse pellets.

Have you ever watched an infomercial? Those masters of of impulse marketing geared towards insomniacs, invalids, and inebriates?

“How much would you pay for this fabulous meat tenderizer/eyelash waxer? $399? $299? No! If you call within the next 73 seconds, we will let you take this home for the low, low price of just $99.99!”

That’s the magic of anchor pricing.

The first number you hear is the number you will base all further numbers on. If you hear a high number, other lower numbers will feel much lower by comparison. The number doesn’t even have to be about money.

There was a study done that had the subjects compare a price to the last two digits of their social security numbers. Those with higher digits found higher prices to be acceptable, while those with lower prices only accepted cheaper prices.

What does an infomercial marketing ploy have to do with your salary?

If you are negotiating your salary and your potential employer gives a lowball offer, every higher counteroffer after that will much, much higher than than it would otherwise. On the other hand, if you start with your “perfect” salary, they amount you will be happy to settle for won’t seem to be nearly as high to the employer. At the same time, you will be less likely to accept a lowball offer if you set your anchor price high.

For example, if you are looking to make $50,000:

The employer offers you $40,000. $60,000 seems too high by comparison, so you counter with $50,000, then compromise and settler for $45,000. Or, you could start at $60,000, making the employer feel that $40,000 is too low, so he counters with $45,000, leaving a compromise at $52,000. That’s a hypothetical $7,000 boost, just for bucking conventional wisdom and taking a cue from the marketing industry.

How have you negotiated your salary?

Future Dreams

Relationships

While jogging with my wife a few days ago, we had a conversation that we haven’t had in years. We discussed our dreams.

It’s an important conversation for couples to have. What are your hopes? What are your dreams? Where do you want to be in 10 years? In 20? In 50? Planning for the future gives you a map for the present.

My wife and I hadn’t had this conversation in years. A few days ago, we did. Our life-goals are simple and achievable.

I want to leave the corporate world and support my family with writing and the training classes I do. I want a chunk of land outside of any major metropolitan area, but close enough for the entertainment and shopping. I want enough land to expand my classes on my own property, relying on no one.

My wife wants enough land to have some horses. It was unspoken, but I think she wants my goals to take off so they can support her goals, too.

We want a comfortable retirement and we want to help the kids with college.

We’re a bit behind the game for college funding. That’s ok, though. There is nothing wrong with a kid working his way through college and learning those life lessons.

We are also behind on the retirement. But, if I can support us doing the things I love, I don’t need $X million. Retirement isn’t a cessation of activity, it is taking the time to do the things you love on your own schedule. If writing a book while sitting on my private range is enough to fund our life, that’s the perfect retirement.

UFC: Salary or Prize Purse

Business

Ultimate Fighting Championship (Photo credit: ATempletonPhoto.com)

A gig in the UFC must be pretty lucrative, right? I mean, look at the top UFC earner Chuck Liddell. His lifetime total pay-per-view career bonus earnings since is estimated at over $4.3 million. Tito Ortiz isn’t far behind with just over $4 million. And what do the lower ranking fighters earn? Two thirds of them are estimated to make less than $100,000 per year. That’s gross salary. Take out insurance, taxes, equipment, and license fees and the payout isn’t as sweet at the bottom. Some office drones take home more money than UFC fighters do. And those drones don’t have anything close to the job hazards associated with the UFC.

So what gives? Why the huge discrepancy? They all get the shit kicked out of them at one time or another, right? MMA in general, UFC in particular, has been criticized for paying athletes much lower salaries than similar sports like boxing. The controversy led UFC President Dana White to defend the salary structure of UFC, in part saying that no one knows exactly how much top fighters earn because the fighters don’t want anyone to know how much they earn. He went on to say that the UFC pay structure “smokes” boxing’s pay structure, yet gives little insight into such insight.

So what do the fighters make? President White jumps around the issue in a Fox 11 Sports Interview from September 2012. While he insists that there’s a guaranteed amount, he dances around the question, insisting that “the guys get paid a lot more money than what you’re seeing on things.” He admits that bonuses and incentives make up part of the pay structure. Obviously the amount of the prize money correlates directly with the hype surrounding the fight.

How much? Well, not all bonuses are made public. In fact, the athletic commissions didn’t even release prize purse information until 2004, so it’s impossible to account for UFC 45 back. And currently the only prize purse amounts that are released are Fight of the Night, Knockout of the Night, and Submission of the Night. The rest of the bonuses beyond that, including sponsorship money, pay-per-view cuts, and other “locker room” bonuses aren’t even publicly reported. But new UFC rules require sponsors to pay the UFC for the right to provide sponsorship for fighters, a stipulation that leaves less money that goes directly to the fighter.

Dana White says that the fighters are free to share their income figures if they like; their contracts do not gag them from releasing the amounts. Yet it’s difficult to pin down the exact amount the UFC grosses each year from ticket sales, pay-per-views, merchandising, DVD sales, and video games. Fighters like Jon Fitch and Tim Kennedy have publicly spoken out against UFC’s pay schedules. In fact, Kennedy stated that emptying trash cans pays better than the UFC. It’s further proof that it’s all about the purse.

Dreams

Finance, Life

Ever since she was a little girl, my wife has wanted to be a horse. Err, work with horses.

The problem is that most jobs working with horses pay horse-crap. It’s hard to raise a family on a stablehand’s income.

Her alternative was to own horses. This comes with a different set of problems. The biggest problem is that we live on 1/8 of an acre in a first-ring suburb. That’s not a lot of room to graze, though I would be willing to give up my spot in the garage.

I rock like that.

Boarding a horse costs a minimum of $200 per month. Two girls means two horses, otherwise, they won’t both be able to score in the saddle club. For the math challenged, that’s $400 per month, plus about $300 in preventative vet care per year.

$5100 for a year of boarding an extremely obsolete car.

Then, you need a trailer to get the horse to shows. You need saddles and reins and and short-legged stirrups and feedbags and muck-rakes and brushes and combs and hoof-cleaning-thingies and other stuff that will catch me by surprise for years to come.

Expensive.

My rough estimate is that it costs at least $10,000 to get into horse ownership, and that’s not counting the horse itself.

You can buy a horse for well under $1000 if you aren’t concerned about registration or speed. A 15 year old horse can last 10-15 more years, so it’s not money down the drain.

That’s $12,000 to get in and $5100 per year to stay in. Minimum.

Never let it be said that I’m not a pushover. Last month, we bought an SUV that can pull a horse trailer. Last weekend, we bought the trailer. That’s two major steps towards making my wife’s dreams come true. The rest of the plan culminates in a hobby farm in the sticks.

There are several steps in between.

I just need to put the brakes on every other step. We’ve been offered the free use of one pony next season, and we may be able to get another for the same price. Beyond that, we need to be patient. There will be no ponies purchased until the new truck and old mortgage are paid.

Period.

All About Tax-Sheltered Annuity Plans

Finance

This is a guest post.

If you’ve previously heard of tax-sheltered annuity plans but are unsure of what they are, let this guide help you. Here’s what you need to know about tax-sheltered annuity plans.

What is it?

First things first, what are tax-sheltered annuity plans? A tax-sheltered annuity plan, or a 403(b) plan, is a retirement plan for some employees of various institutions to participate. This plan allows employees to contribute a portion of their salary to the plan. The employer may also contribute to the employee’s plan.

Who is Eligible?

Eligible Code Section 501(c)(3) employees tax-exempt organizations may participate, an employee of a public school, a state college, or a university, and eligible employees of churches. Employees of public school systems organized by Indian tribal governments, Ministers employed by Code Section (501)(c)(3) organizations, and self-employed ministers may also participate. Ministers must be employed by organizations that are not Code Section 501(c)(3) tax-exempt organizations, and they must function as ministers in their day-to-day professional responsibilities with their employers.

What are the Benefits of a 403(b) plan?

In a 403(b) plan, contributions are tax deductible. Taxes are paid on distributions in retirement, which is when a lot of people are in a lower tax bracket. As mentioned earlier, employers can match 403(b) contributions on a pretax basis. Loans can be taken against a 403(b) plan, which will help in certain situations, like buying your first home.

What types of contributions can be made?

In a 403(b) plan, you can have several types of contributions:

Elective Deferrals – These are contributions made by the employee under a salary reduction agreement. This allows an employer to withhold a certain amount of money from an employee’s salary to deposit it in their 403(b) account.
Nonelective Employer Contributions – These are any contributions to the 403(b) plan that were not made under a salary reduction agreement, which include matching contributions, discretionary contributions, and certain mandatory contributions that were made by the employer. The employee will pay income tax on all of these contributions, but only when they’re withdrawn.
After-Tax Contributions – These are contributions made by an employee, which are reported as compensation in the year they were contributed and are included in the employee’s gross income for income tax purposes.
Designated Roth contributions – These are elective deferrals that the employees elects to include in their gross income. The plan must keep separate accounting records for all contributions and for all gains and losses in the designated Roth account.

Can Employees Exclude Employees From Contributing?

Absolutely. The 403(b) plan must allow allow employees to make elective deferrals under the plan, but under the universal availability rule, if the employer permits one employee to defer salary by contributing it to a 403(b) plan, they must extend the offer to all of their employees. The only exceptions are employees who would contribute less than $200 annually, those employees who work less than 20 hours a week, employees who participate in a 401(k) or 457(b) plan, or students performing services that are described in Code Section 3121(b)(10).

So When Can Employees Get the Dollars?

Employees may withdraw from the 403(b) plan when the reach the age of 59 and a half, have a severance from employment, have a financial hardship, or become disabled. Money can also be taken out if an employee passes away. The employee will have to pay taxes on the amount of the distribution that was not from designated Roth or after-tax contributions, and they may have to pay an additional ten percent early distribution tax.

Are There Rules for In-Service Transfers or Exchanges?

Yes. Contract exchanges with a non-payroll slot vendor are permitted only if the plan permits it, the accumulated benefit after the exchange is, at the very least, the same as before the exchange, if the employer and the non-payroll slot vendor agree to share information regarding the plan’s terms, if any pre-exchange benefit restrictions are maintained after the exchange, and if the vendor complies with the terms outlined in the plan.

How Much Can be Contributed Annually? Does the Employee Have to be Current?

As of 2013, the maximum combined amount that an employer and an employee can contribute to a 403(b) plan is $51,000. That number may go up, depending on the annual cost-of-living.

If the plan allows, an employer can contribute up to the annual limits for an employee’s account for up to five years after the date of severance. No portion of the contributions can come from money that was due to be paid to the former employee, and these contributions must cease if the employee passes away.

There’s much more to learn about a 403(b) plan, but these are the basics. Does your company have a 403(b) plan?

Saturday Roundup – Holiday Edition

Misc

Merry Christmas.

Or, Happy Saturday, as the case may be.

T0day, we are herding all of my nieces, nephews, brothers, sisters-in-law, and parents into my house for a second Christmas dinner and gift exchange. It’s the first holiday we’ve hosted. It should be interesting.

On a side note, we’ve gotten so much snow, I’ve almost lost my grill, sitting on my deck. Another 2-3 inches, and my patio table will be just a white mound of cold.

Best Posts

Here is a great story about waking up the Christmas spirit. That’s spirit, not spirits. We’re not discussing booze.

Think you can retire on a million bucks? Think you can get to a million bucks?

I’ve recently realized that I’ve spent more time on the hiring side of the interview table than the out-of-work side. I’m nowhere close to 500 hires, though.

Oooh! Shopping for money! That’s something I’m going to look into. Nothing like turning habits into cash.

This is some serious travel hacking. 15 flight, 16 cities, 9 countries, 35000 miles for $400.

LRN Timewarp

This is where I review the posts I wrote one year ago.

The secret to fearless change? Just get started. Everything else will follow.

I also wrote a post about one of my core values. Without integrity, what can you really have?

Finally, a post on how distractions will kill your productivity.

Carnivals I’ve Rocked

How Much Should You Tip? was an Editor’s Pick in the Festival of Frugality. Thanks!

Shaving for Real was included in the Carnival of Money Stories.

Anchor Price Your Salary was included in the Carnival of Personal Finance.

Thank you! If I missed anyone, please let me know.

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That’s all for today. Have a great weekend!

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