Is there such a thing as a secure job in this day and age? Even if you are a top performer at your current company, is your position truly safe if a natural disaster can wipe out your company’s revenue for months at a time? The harsh reality is that with the current state of the economy, there’s always the possibility that you could lose your day job and thus put your household finances in a major pinch.

Sometimes losing your job is voluntary though. Do you hate your current profession? Do you have other priorities? There could be more important things in life that require you to quit your day job, even if it means taking on additional financial risk.

How do you prepare if you are facing a 50% pay cut? I want to share with you how Steve, one of our readers, handled it.
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Sandy knows she is growing her savings by having a surplus each month and putting it in high yielding online savings accounts. When she was puzzled about budgeting, she wrote in to ask:

I have $100,000 saved up in bank accounts by following good frugal practices that you and others outline. I however don’t budget and never keep track of my expenses. I know I’m saving money because my account grows every month. Why should I budget?

Good question Sandy.

I know it’s tedious to keep the expenses tracking up-to-date. Plus, it’s not like neglecting to enter all the data has any immediately noticeable impact on us anyway. However, maintaining a budget is like maintaining a bridge. There may not be problems even if you neglect maintenance for a long time, but consequences can be disastrous when an accident finally occurs. There are many reasons to make a budget and keep track of all expenses aside from growing a surplus. I list a few below for your consideration:
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Did you know that part of the recently passed The Coronavirus Aid, Relief, and Economic Security (CARES) Act lets you withdraw $100,000 from your retirement funds without incurring the 10% penalty normally applied for early withdrawal? For a typical family with two working adults, that’s up to $200,000 of funds the government is letting you tap into without being penalized.

The provision didn’t get much coverage in the media, and that’s why not everybody knows about it. Still, having access to this money right now must be very tempting for those who are in limbo because of the shutdown. Is withdrawing now worth it? What are the details?

Raiding Your Retirement Account Due to Coronavirus

Basically, you are allowed up to $100,000 in distributions from qualified retirement accounts for reasons due to coronavirus in 2020 and the IRS won’t levy the typical 10% early withdrawal penalty.

To further sweeten the deal, taxes based on the withdrawal can be spread out over three years to lessen the tax load for any particular year.

And as if the incentives aren’t enticing enough, you also get to contribute the amount you withdraw back into another eligible retirement plan within three years if you so choose.
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Of course you can.

If celebrity culture is teaching us anything, it is that yes, you can have lots of money and still be miserable, so miserable in fact that you ruin your life with addictions, even lose your life to them.

I recently watched an interesting movie on DVD, Meet Bill. Not a masterpiece but certainly entertaining and also thought-provoking. The guy, Bill, married into a rich family. He works in the family business, lives a life of luxury, and you would think he has a great life – except that his father in law, his brother in law and his wife all disrespect him. He’s bored, unfulfilled, miserable, and desperately wants to make it on his own.
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Imagine that you are shopping for a used car and see a nice one on the lot. After negotiating back and forth with the salesman, you manage to agree on a price that’s several thousand dollars less than the list price. I bet you would sign the title feeling like you got a great deal. Now imagine if the list price was a few thousand dollars lower to begin with, but the salesman refuses to negotiate.

You end up paying the same price, but the feelings you have about the purchase is probably quite a bit different.

This is one of the mental money traps you can fall into.

There are a few more, and this is a long read. So grab some coffee, and let’s get into five of these today and what you can do to avoid the pitfalls.

Mental Money Trap #1: Outsmarting the Anchor-Price Comparison Trap

The used car lot example is called price anchoring. By having a relatively high list price on used cars, customers will remember that price tag and decide whether they got a good deal or not based on that initial price.

The tendency to use the first piece of information we hear or see as our “anchor” for making subsequent spending decisions is called the anchor price comparison trap (some also refer to it as the relativity trap or focalism). This happens most frequently in categories that are new to us, where we have nothing to compare to the prices we encounter.

Whatever you choose to call this behavior, it’s a verifiable bias built into our mental wiring, and it can cost us a lot. The good news is that you can outsmart your own tendency to create pricing anchors with a few simple strategies.
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Money Isn’t Everything

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Being Frugal and saving money is generally always the preferred choice. Week after week, I write articles to help you figure out how to make every dollar travel a bit further so you can retire just that much earlier.

And it’s not just me either. If you keep up with all the articles circulating the web, you will definitely get the impression that saving money makes sense at all times, every time.

Yet, there were moments in my life when saving money wasn’t the right choice. I remember years ago when I was flying back to attend my grandfather’s funeral. Airline tickets were very expensive, as the event was so sudden and I had to leave on short notice.

That funeral fell on a Saturday too. I could’ve saved money if I left the night before but the chances of flight delays was just not worth the extra savings. Making the event was priceless, so unless the difference in airplane fares were so much that I couldn’t afford the cost, there was no way I would try to save money and risk missing the chance to see my grandfather one last time.
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