In this video, AnnaMarie Mock, a Certified Financial Planner™, focuses on the second step in her series for pharmaceutical executives, emphasizing the importance of cash compensation in financial planning. She compares compensation to a banana split, with cash compensation as the essential component. Mock advises managing lifestyle expenses based on a stable salary rather than variable bonuses and highlights the need for a spending plan. She also discusses ways to address insufficient cash compensation, including reducing discretionary expenses and negotiating with employers. The video concludes by underscoring the significance of considering cash compensation in relation to overall lifestyle for effective financial decision-making.
Introduction
Speaker Introduction
Hi, my name is AnnaMarie Mock, and I am a fee-only Certified Financial Planner™ Wealth Advisor at Highland Financial Advisors.
Invitation to Subscribe
If you like my content, please click on subscribe below, and you'll get notified of any new videos.
Series Overview
Target Audience and Series Aim
I started the series by explaining to pharmaceutical executives how they can take control of their overall Financial Health.
Recap of Previous Steps
Step one was really centered around looking at human and investment capital and how that plays a part in the overall financial plan.
Current Focus: Step Two
Introduction to Step Two
Today, I'm going to address step two, which is about compensation. There are three main types of compensation: cash compensation, non-cash compensation, and stock compensation. Today, I'm going to focus on the cash compensation and address the other two in a separate video.
Understanding Compensation
Importance of Compensation
Compensation is the main driver of wealth creation. It's the capital needed to fund your current lifestyle and save for the future.
Compensation Analogy
Think of compensation as a banana split. Yes, you heard me, a banana split. What's one thing that all Banana Splits have in common? The banana. In this instance, that's the cash compensation. It's steadfast, and you know that you are going to get that. However, there are many varieties of ice cream flavors and toppings depending on your taste, and depending on your company, your position, and your industry, your non-benefit compensation and your stock compensation can come in a variety of different options.
Cash Compensation Breakdown
Combining Compensation Types
So, you really have to take your cash compensation and your non-benefits compensation and put them together.
Details of Cash Compensation
But just looking at cash compensation in isolation, it's really broken down into your salary and your bonus. Your salary is fixed and usually comes on a regular cadence, for example, every two weeks in the same amount. But your bonus is discretionary; it's typically a percentage of your salary and comes a little less frequently, you know, quarterly, semiannually, or annually.
Financial Discipline and Lifestyle Management
Managing Lifestyle Expenses
Because of the inconsistency with bonuses, you want to make sure that your lifestyle expenses are being tracked just on your regular fixed salary, not based on your discretionary bonus. Being disciplined with this will ensure that you're not overspending or relying on high-interest-rate debt to fund your lifestyle. In other words, this is living within your means.
Defining Lifestyle Expenses
But you might be asking yourself, what encompasses lifestyle expenses? It all starts with creating a spending plan.
Creating and Following a Spending Plan
The Concept of a Spending Plan
A spending plan is a blueprint that gives you actionable steps on how you can spend intentionally without fear or guilt.
Tracking Expenses
And this becomes a habitual practice of tracking your expenses within the spending plan. Think of it this way: a business needs to track its revenue and expenses to calculate profit, and without that very simple calculation, a business wouldn't survive. But your household isn't any different.
Expense Analysis
So, start by understanding your cash compensation. How much money am I taking home each month? Next, categorize your expenses by savings, fixed, and discretionary. Over time, you'll be able to see if you have a monthly surplus or deficit; in other words, do I have money left over at the end of the month? And by looking at this and reviewing it on a regular basis, you'll be able to course correct along the way. And this is one of the most important steps.
Addressing Insufficient Cash Compensation
Options for Compensation Management
But if you've gone through this exercise and you feel like your cash compensation is still not enough to support your lifestyle expenses, there are a couple of things you can do. The first is to reduce your discretionary expenses, but you'll only be able to do that if you've been tracking your expenses along the way.
Investing in Human Capital
The second is being intentional with your human capital, which is about investing in yourself, advancement in education and knowledge, and the relationships you bring to the company.
Engaging with Employers
But you can also have a conversation with your boss. Quoting a pay scale is just going to turn into a yes or no conversation. Instead, have an open dialogue with them, explaining the path you want to grow in the company and the value you bring. I guarantee that'll be a better conversation and a more desirable outcome for your pay.
Conclusion
Key Takeaway and Final Words
So, the main takeaway of the first part of step two is to look at your cash compensation through the lens of your total lifestyle to make good financial decisions. Thanks for watching. I hope you enjoyed it.
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.