Purchasing and Negotiation Training

Editor’s note: Steve Coscia is a frequent contributor to this blog.

During a recent business lunch with a prospective client, I felt that I wasn’t making enough of an impression. I had already listened carefully and learned about my prospect’s company and their operational difficulties. I had shared information about my background, the books I had written and my company’s proprietary training tools.

The conversation was slowing down and we were obviously running out of things to talk about. My prospect was being polite, but I could tell she was as uncomfortable as I was. If we didn’t do something soon, this lunch was going to plunge down into the pits.

Then I took a risk. I got personal. I shared a personal experience with the prospect. I told her that I had traveled to Italy about four years ago to do family research in my grandfather’s village and how I hoped that the material would evolve into another book. I told her about my ancestor’s emigration to the United States about 100 years ago and about how I interviewed my father during the last ten years of his life.

My prospect’s eyes lit up with excitement as I conveyed my family’s adventures and the new information that I had surfaced. Then, my prospect shared a story about one of her employees who had recently been to Ireland to look up her family roots. My prospect insisted that I meet this employee. The conversation reinvigorated with vigor, vitality and colorful stories as my prospect and I really got to know each other.

The prospect is now a client. This client has since referred me to other prospects who I hope to make clients. The referrals keep coming from this one client because she really likes me as a person.

In some business situations, more than acumen and expertise is required. Clients don’t care how much we know until they know how much we care. The things that we are interested in and feel passionate about will enable a person to exude genuine excitement that others want to be part of. C.S. Lewis said that friendship is born when one person says to another, “What you too? I thought that I was the only one.” It’s as simple as that. Building greater rapport with our clients and associates is possible if we are willing and courageous enough to let our guard down.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

The negotiation rulebook is not written because nothing is standard.  It also has a rather loose structure, like grammar, with its changing rules and exceptions.  How then do we bring some order to negotiation?  These tips will help. 

Buyer and Seller do not want the same thing 

What does the seller want from the buyer?  We could say, the sale, the profit, or in one word, the Money.  That’s what capitalism is about.  So, what does the buyer want from the seller?  We could say, the product, the service, or in one word, the Stuff.

Sellers want the money and buyers want the stuff.  Additionally, the bargaining process establishes standards acceptable to each side for quality, service, delivery and price.  Settling on these standards is what negotiation should be about.  Since we do not want the same thing, we need to expand the process beyond just price.  This fact forms the basis of Win-Win negotiation.

Negotiation is more like a journey than a destination 

The temptation is to see negotiation as an event, a sort of speed bump on the road to business happiness.  This is a mistake.  Negotiation is a process that evolves over time.  The learning and trust inherent to the process advance through time.  Since the customer’s stress on quality, delivery, service and price are bound to change, and because our priorities as sellers change too, the process is constant.

Concentrate on the importance, not the sequence of issues 

Write down thenegotiation  issues.  Prioritize them in descending order from most to least important.  Discuss issues in the order most comfortable for the customer.  If you plot out a magic sequence, your plan may be upset as the customer raises issues out of your rehearsed order.  If the customer brings up issues for which you are not prepared, admit that and ask for more information.  Refuse the tendency to ‘wing it’, as you will tend to lose both the negotiation and the buyer’s respect.

Find areas of agreement quickly 

Sales pros know enough not to ask the closing questions before conditioning the buyer to a series of affirmative decisions.  We call this principle ‘the theory of many little yeses’ and it reflects human nature.  Early agreement on small matters begets larger agreement on larger matters later.  Introduce issues to which both parties concur as you begin, and build on this framework of agreement.

Power

Inevitably, sellers believe that buyers have more power in the buy/sell setting.  If they have so much power, why are they negotiating with us?  Because we have something that they want!  Power, like negotiation itself, has very little definition.  Its many manifestations include clothes, titles, money, etc.  It is a matter of perception. Remember the all-powerful wizard of Oz?  He lost all his power when that little dog pulled open the curtain and altered our perception. 

The perception works this way.  If you think they have the power, they do.  If you think you have the power, you do. 

Two other facts about power appear in every negotiation.  The ultimate power is the ability to say NO, and live with the deal.  So know your walk away position.  Also, power flows away form those who want the deal most.  If you want it bad, expect to get it bad. 

Alter your selling style 

You would not consider selling every customer the same suit in the same size.  Why then would you sell in the same style to every customer?  This is simply a matter of effective communication.  Choose the approach with which the customer feels most comfortable, not you.  The emotional buyer prefers the relationship style, the matter of fact buyer likes the needs satisfaction style, and the executive type favors the consultative approach. 

The lack of firm rules for negotiation seems frustrating, but this flexibility is negotiation’s great beauty.  Every player can apply some of his own rules.  There is no referee, no audience, and no scorecard.  The whole object of the game is to get to the next objective with both parties happy.

Linda Byars Swindling, negotiation authority, former employment attorney, and author

Editor’s note: Linda Swindling is a frequent contributor to this blog. 

Win-Win negotiations were once  a goal but are now a necessity. Today’s times demand a Win-Win approach to achieve durable agreements.

 Offerings have expanded not retracted

Negotiating parties have a greater choice of partners. If one party doesn’t worry about your interests, you usually have the ability to choose another who does. Now, if an agreement doesn’t meet the needs and wants of each of the parties, you need just pick up a phone or surf the internet to find someone else to fill the requirement. 

The market is demanding customized solutions

Look at sales training. Scripts are out. Formulaic procedures to show benefits and push standardized offerings have been replaced by consultative selling. Consultative selling focuses on customized requirements and meeting individual needs.

Forcing agreements doesn’t work for the long haul

So many people say they understand the need for Win-Win but then diligently fight against it. They don’t share information and compete instead of solving problem. They don’t make the first offer and take unrealistic positions. This attempt to conquer or a Win-Lose approach destroys long-term relationship building. Applying force, going to someone’s superior and attempting to just deal with decision makers does not fit in the current professional environment. 

Win-Win negotiation strives for all the parties involved to get a better agreement by collaborating to meet each party’s interests. If the other party feels like its interests are represented or they made a bad deal, they may try to sabotage it or look for your non-compliance. People are far more likely to support something they created.

While Win-Win is an easy concept to intellectualize, it can be difficult to implement. You may need to remind those involved about the shared reasons for participation in the agreement or venture or to help the others achieve their results before ensuring you receive yours. In the end, you want an agreement people will support, have loyalty around and encourage.   Many professionals have to influence ‘internal customers’ to receive data, supporting materials, accounting information, and implementation help. These internal departments or teams have many people who are requesting the same type of information or support. For example, a benefits plan representative may rely on a partner outside the company like a financial advisor or insurance broker to sell the plan to a client’s human resources professional. This same benefits plan representative may need marketing materials from the marketing department to support the sales arm and then different information to inform the client’s employees once the plan is selected. The representative may need to co-ordinate the efforts of the IT department and the client company’s technology department to ensure that technical requirements are met. There may be a training arm for implementing the plan, customer service functions and, of course, billing to ensure payment. Most likely, that benefits representative is under a strict time frame and can only rely on good graces, past dealings, wit and an ability to influence to get those resources aligned correctly.

Click here for Linda's negotiation book

 The differences between influence and traditional negotiations 

Like the benefits representative, your success can depend on whether you can influence those people to process your requests first or at a high enough level of quality. You have no power over them and do not want to go around them if possible because you must continue to work with them in the future. 

Another common need for influencing is when your company has a partner or partners who are part of your supply chain. Perhaps they are distributors or take your orders or provide your customer support or service the equipment you manufacture. Once again, you do not have control over these other organizations’ performance and they may have competing pulls on their time. However, it is imperative that you persuade and partner effectively to do your job. Influencing effectively may be the only way to enhance performance with these partners. 

Anytime you’re working together to promote each other or need to access shared resources you’ll see a need to influence. With the amount of people who are outsourcing services to other companies, locations and even countries, the need to improve persuasion and influencing skills has never been greater.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Business invests heavily in training of sales forces for a good reason; at a ten percent profit, every dollar sold brings in a dime.  Alternatively, for every dollar saved by purchasing, one dollar flows undiluted to the profit line.  In the words of a slogan, “Sell for a dollar, earn a dime; save the same dollar, earn ten dimes.”  While the math is obvious, implementation is not.  The engrained habit of chopping the low hanging fruit of price shrinks to insignificance compared to the strategy of reducing the costs.  

A cost reduction strategy called Total Cost of Ownership (TCO) states that TCO is the sum of its four elements: Quality, Service, Delivery, and Price (QSDP).  Using TCO, the formerly vague term “Best Value” is clearly defined as the lowest TCO. 

Price is merely one and only an initial element of QSDP.  In multiple annual surveys amongst professional purchasing associations and in trade publications, Price consistently comes in last in importance.  Depending upon the buy, Quality, Service, and Delivery will rank higher. For instance, Quality is constantly most important in health care, and Service is traditionally most important in the purchase of construction or professional service suppliers.

Sales organizations can deploy TCO to their profitable advantage by applying it to the consultative sell model.  By growing the customer’s revenues while keeping the costs constant or keeping revenues constant while reducing costs, the product or service is profit and the customer is eager to buy.  By reducing the customer’s TCO, and expressing that reduction in quantifiable dollar and numbers, greater profits are earned for both sides.

On the supply side, however, more work awaits to earn the greater return.  Instead of negotiating only on Price, examine the Quality, Service and Delivery cost elements.  Have the supplier break down its costs (Cost Analysis).  This will flush costs that may be unnecessary or could be more efficiently handled (transportation for one example) by the buyer.  In poorly trained purchasing departments, well defined cost parameters are not communicated to the supplier.  This encourages suppliers to include bells and whistles may be unwanted, drive the price up, or add inefficiencies that force down profit on the transaction for supplier and customer.  Both parties are paying too much and netting too little because the costs are too high.  Does this make any sense?

Robert Menard addreses Alabama Governor's Business Conference

So what can we do about it? 

1. Retrain your purchasing staff in TCO.  Proven effective procurement training is rarer than good sales training but the greater reward makes the search worth while. 
2. Develop measurable standards for qualifying suppliers.  Those with a high TCO may not merit the risk. 
3. In RFPs and RFQs, state the criteria and the weight of each category of QSDP.  Ideally, you should specify a percentage. 
4. Evaluate supplier proposals based upon these criteria. 
5. Measure the performance of suppliers to determine if it is actually delivering on its promises.  For instance, some organizations allow late deliveries; others do not permit early deliveries.  Six sigma production firms ascribe such high costs to quality that poor performers can be de-barred…
6. Meet regularly with key suppliers and customers to review performance measures and discuss how to improve.  Encourage input from both sides.  Partner customers and suppliers in particular are in a good position to reduce costs when they split the cost savings.  

So, in the words of the old adage,  “What’s In It For Me”?  The strategic approach of TCO increases profits for buyer and seller.  These profits are found money as the excess costs are already in the system, ready to be harvested and moved to the bottom line.  You do not have to increase prices, sales, or capital investment to increase profit by great margins.  At ten percent, saving the dollar earns ten times the profit of every dollar sold.  If you earn five percent, the increase is twenty times!  In the words of another popular expression, “You do the math.”

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note:   This is Part II of a two Part series.  Click here for Part I

On the subject of pronouns

Try to limit the use of these fuzzy parts of speech in your spoken vocabulary.  After hearing the second “it” or “she” in a sentence, confusion reigns in the listener’s mind.  Substitute proper nouns, preferably names and titles.  At home besides me are three daughters, a wife and a dog – all females.  Once when I had my back turned, I heard one (of the humans) say, “Did you see what she did to her?  It was impossible to determine “who” was on first.  Even “they” had no idea “who” “she” or “her” was. 

Another obtuse pronoun is the pronoun ‘we’.  Did you ever notice how many people say “I” when claiming credit, resort to “we” when blame is assessed.  “We” tends to be less personal than “I” in relationship selling.  Use “we” when you visit the buyer with your boss.

 “Are you talking to me?”

Listening skill is essential.  Take a course or study up on listening skills  Give the customer every opportunity to speak by asking short questions that require explanatory answers.  Ask the customer for permission to take notes.  “Could I take a few notes to be sure that I get everything right?” suggests respect and care.  This tells the customer that he is important and forces us to pay close listening attention.  Read the most important notes back to the customer to be sure that he agrees. 

One of the greatest faults in listeners is tuning the speaker out because we assume that we know what the buyer is going to say.  Closing one’s mouth and taking notes automatically eliminates this problem.

Beware of verbal clues that indicate wasted, or perhaps untrue statements.  The trite “I’m sorry” phrase diminishes one’s viewpoint by apologizing for it in advance.  For instance, consider, “I’m sorry, my lab people differ with that conclusion”.  Unintentionally, we convey weakness of conviction and insincerity.  Honest disagreements need no such justification.

Click for Bob's 3 CD set

Watch your language 

The use of the word “but” erases everything that follows.  When someone says, “I’m no expert in purchasing, but”, expect to learn all about what an expert he thinks he is.  “But” is also heard as whining, as in “But you promised”.  Instead, substitute “and” to avoid the erasing effect of “but”.

And, of course, never use “I’m sorry” and “but” in the same sentence.  If you say “I’m sorry, but”, you apologize for your statement, and then erase it in the process. 

Lastly, loose the expression “to be honest with you”, or, “to tell you the truth”.  We may mean to signify important content.  The listener however, may wonder if we have been untruthful all along.  And why should you be trusted now?

 The minefield of Communication Deficit Disorder need not explode into disputes and lost sales.  Since nearly all purchase and sales negotiation is done verbally, it makes great sense to concentrate on how we speak and listen.

Part I has more.

It’s crunch time, several deals are in almost boated but have been swimming away as buyers delay decisions. Every good sales manager asks, “What can the company do to help close the deal?”

Build Relationships with Customers

Above all, build relationships with customers.  First determine if your customer’s primary personality style is “left brain” or “right brain”. Right brains and left brains approach the closing decision from different hemispheres. Left brains are more objective and look for the tangible benefits in your products and services. They are likely focused on the task and look for business benefits over personal benefits. Left brain’s personality styles are either Green or Gold. Right brains are more subjective about their decisions and look for intangibles and personal interests. They will be concerned with how people will regard the decision they make. Yet they are also concerned with how this decision will affect others in their organization.  Rights brains are either Orange or Blue personality styles.

Urgency

How much “urgency” is attached to their decisions? Myers-Briggs classifies both the Blue and Green styles as “Intuitive”. Their decisions rely less on what their five senses experience so there is less of an urgency about making final buying decisions. With a Blue you must find someone on their team who will suffer if the decision is delayed. With a Green you must show an improvement that cannot wait to be implemented. Intuitive personalities do not like to be pushed to a decision; however, you can remind them of the next logical step in the sales evaluation.

Orange and Gold personalities are classified as “Sensory” in the Myers-Briggs model. They are concrete thinkers generally using their five senses to make a decision. Concrete thinkers are more bottom line driven. When an Orange sees an immediate benefit they act. When a Gold sees strong financial justification they act. And when either style reaches a decision, they will stick with it. If you read their expectations correctly, and position the product or service so they understand that it meets these expectations, the Orange or Gold personality will proactively move the sale forward.

The good news here is that 84% of the population is either Orange or Gold and only 16% is Blue or Green. The odds are in your favor that the CFO or CEO is either Orange or Gold. Communicating a clear immediate benefit or a strong risk arising from delays should influence them to decide before year’s end. 

Technology

Unfortunately, if you are in the world of technology sales, most CIO’s and CTO’s are Green. This helps explain the long sales cycles in Technology. Speed their decisions by appeals targeting their secondary color which might be Orange or Gold. The rarest of personality combinations is the Green/Blue mix. They will look at every possible angle when evaluating a solution. Speed up their decisions by showing that a consensus of others in their team favors the product or service.

It’s our job in sales to recognize the characteristics of our customers and relate to them from “their perspective” not ours. Develop a strategy for bringing the sale to closure by emphasizing the business or personal side based on their personality. Then consider if they are intuitive or concrete in their thought process. Adjust your sales approach to fit the speed of their comfort in making decisions quickly (concrete) or less urgently (intuitive). Focus on the needs of their personality style and your forecasting accuracy will improve as well as your win rate for closing business!

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: This is Part I of a two Part series on communication troubles afflicting negotiation.  Click here for Part II

 What do these statements have in common? 

• “You don’t listen to me.” 
• “Do you know what I mean?” 
• “I’m sorry, but…”

The speaker probably meant one thing while the listener heard another.  We could call this common affliction Communication Deficit Disorder. 

To make this point in training sessions, I will start speaking French without warning.  The audience’s mood degenerates from curiosity, to amusement, to annoyance.  The moral of the story is clear.  We must communicate with the buyer in the language and style to which he is accustomed. 

No one is immune

Suppose we carelessly utter to the prospect, “Do you know what I mean?”  The message she just heard from us was, “How could you possibly disagree?  It was expressed so eloquently, and with such impeccable logic that only an intellectual pygmy would not agree”.  A more respectful offering is, “I want to be sure that I express this thought properly; so may I clarify?”

How about when the buyer poses the same question to us?  Seize the opportunity to clarify the exchange of ideas by responding this way.  Look into the buyer’s eyes and state inquisitively, “No, I do not quite understand.  Could you tell me more?”  Doing so saves us from making unwarranted assumptions that could derail the interchange.  This may also persuade the customer to state its position in a way that might reveal critical motivations.   

 Addressing the motivation gets us to agreement far quicker than battling the position.  For instance, if someone says that a position is non-negotiable, do not agree nor challenge.  Instead, say something positive like, “I want to be sure that I understand your position because this seems to be important and I want to respect that.”  You then make the prospect comfortable enough to expound upon its defensive posture. 

Click for Bob's 3 CD set

 You may then probe the underlying motivation and deal with it.  For example, suppose the prospect says, “We can discuss anything but price.  That is non-negotiable”.  The position is fixed price, but what is the motivation?  Do budget constraints make spreading out the order over time an acceptable option?  Can we substitute a solution that fits in the price range?  The buyer sees this communicative approach as customer concern and not simply overcoming objections.

When ‘I’ is better than ‘you’

Two short words make all the difference in relationships.  They are “I” and “you”.  Consider the impact of these two equivalent statements.  The “I” statement says, “If I understand your position, a lease with purchase option would be preferable to you.  Do I have that right?” The “you” statement verbalizes the same message, but in a gruff tone.  “You mean to tell me that you would rather lease than buy”.  The “you” statement points the accusatory finger and backs the other party into a defensive foxhole position.  The “I” statement off loads the onus of misunderstanding onto our shoulders and asks for clarification.

Part II has more.

Steve Hague, author, speaker, and Certified Purchasing Manager

Editor’s note: Steve Hague is a frequent contributor to this blog.

The majority of car salespeople are not paid very well, pushed hard to sell cars, and they may feel badly about the way they are trained to deal with you the customer.

Some are excellent. They’re friendly, courteous, and knowledgeable. Others can be rude, obnoxious, and pushy. They’re the reason that the profession has such a taint associated with it. Let’s talk about how to deal with these others.

To deal successfully with the “other” car salespeople, take control from the minute you meet. You need not adopt any of the characteristics, but you must establish control of the relationship.  By doing so, you’ll be preventing the salesperson from acting like… a car salesperson.

Here is a script to follow when dealing with a car salesperson. This script assumes you are interested in test driving the car you want to purchase. You won’t be rude, obnoxious or demeaning, just confident.

YOU: – introducing yourself to the salesperson: Hello my name is (first name only), and I’d like to test drive the latest model Mean Machine.

SALESPERSON (SP) Nice to meet you I’m (Super Car Salesperson). Let’s go to my desk so that I can take some information from you.

YOU: Thank you, but I don’t have much time and I’d really just like to take a test drive.

SP: OK, I’ll have the car pulled in front and we can take a quick ride. I’ll need a copy of your driver’s license for insurance purposes.

Steve Hague How To Buy Your Next Car ebook

YOU: You can have a copy, as long as you seal the copy in an envelope and leave it in a secure place. I don’t want to be on a mailing list and I don’t want it used for any other purposes. Identity theft can result and I am sure you don’t want to be part of that.

SP: That’s fine. While we’re waiting for the car to arrive, where are you in the process? Are you ready to buy if you like the car?

YOU: I’m definitely not going to buy today whether I like the car or not. I’m going to test drive (their top competitors brand) and decide after that.

SP: (Once in the car) – Isn’t this a great ride? Listen to the sound system (turns on the radio).

YOU: (Turn off the radio) – I’d really like to listen to interior noise, wind noise, and the engine so I’ll need to turn the radio off.

SP: What are you looking to spend as far as a monthly car payment?

YOU: When I’m ready to buy, I’ll do so based on the negotiated price of the car not a monthly payment.  Also, if you don’t mind, I’d like to ask the questions since I don’t have a lot of time and I do want to concentrate on the test drive.

SP: (When back at the dealership). So what did you think?

YOU: (Unless you really didn’t like the car, say this.) It’s OK, not exactly what I’m looking for, but I’ll still consider it. (Even if you loved the car and it’s exactly what you want, don’t show the emotion to him.)

SP: Great can I have your phone number to call you next week in case there are any specials in this model?

YOU: Thanks, if you give me your card I’ll call you if I’m interested.

The same type of script can be used when you’re ready to buy. By taking charge of the situation, you’ll stop a lot of the sales tactics and have the process played by your rules.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

The 20^th century philosopher, Yogi Berra observed, “You can sometimes see a lot just by looking.”  Whether your task is a plant visit or due diligence audit, knowing the purpose, what to look for, and what to ask will produce better outcomes. 

Purpose

If the supplier is new to your organization, a primary goal is to validate claims made in sales presentations and proposals.  If the supplier is already an incumbent, your task may be the annual renewal evaluation or a cost reduction negotiation.  Whether a cross functional team or just one experienced purchasing manager conducts the visit, purchasing should always lead. 

What to look for and where

If a supplier claims upgraded capacity, determine if the reason is personnel or equipment and demand a demonstration.  Insist on speaking freely with employees.   For instance, you may ask a machine operator in a one-on-one talk about how the new equipment works and how it contributes to increased production. 

Go to the receiving dock.  You will see names of suppliers and quantities of raw materials.  Compare information received from cost analysis negotiations to what you observe on site.  If credit or financial stability is a question, you’ll have the names of major suppliers to contact.

At the shipping dock, you’ll see the condition of finished goods, how shipments and are handled, efficiency and timeliness of order processing, etc.  You’ll also have the names of other customers to contact about the supplier’s performance.

What to ask and why

Ask the sales staff  how orders are received, entered, and queued for production/fulfillment.  Are electronic notifications to customer available at every step or in the process or is your order somewhere in a mound of paper? 

Your list of questions should be specific about business transactions, while others should be more open ended.  For instance, ask about the churn rate or employee turn over and the duration that has management been with the company.  Sign a confidentiality agreement approved by your lawyer so you may peruse their financial statements and business plan.  Ask the line employees about morale.  Raise and resolve any concerns uncovered in your visit with management.  The supplier will respect your thoroughness and you may well minimize any festering problems that might otherwise erupt later.

Ask the supplier how you can be a better customer 

Expect the standard responses of more orders and quicker payments but the supplier’s suggestions may surprise you.  For instance, one supplier explained that the customer’s policy of not receiving deliveries after 3 PM caused unnecessary expense of demurrage and lost driver productivity that added a few percentage points of cost to a thin margin product.  The obvious solution was to make an exception for this partner supplier.

Packaging, handling, shipping, electronic means, and all other costs are on the table.  Seize the opportunity to explore how to mutually reduce costs.  You are on their turf, so they may more comfortable and give you productive, useful answers. 

You may be treated like a visiting dignitary but your task is to reduce the cost of doing business and ensure mutual profitability for the long term.

Author, Speaker, Inventor and Consultant, Max Jaffe, CPA, helps individuals keep more of the money they make

Editor’s note: Max Jaffe is a regular contributor to this blog

Many in this economy who have not lost their corporate job have suffered reduced income.  Most employees would agree to take a cut in pay than have layoffs, as that cut might just be them.  This thinking stretches across the entire rank and file spectrum, from management all the way to assembly line workers, including union members.

Not just large and small companies are reducing pay for their employees.  Revenue for state and local governments has been drying up, as foreclosures mean property taxes aren’t being generated from those homes.  Spending has been curtailed by many individuals who have jobs and fear losing them, to say little of a depleted spending pattern for those who have indeed lost their jobs, all of which mean less sales tax revenue.  To make up the difference, teachers, police officers and firefighters have had their wages cut or have had to take unpaid furloughs.

The cut in pay doesn’t necessarily have to be a decrease in income.  It could take the form of decreased benefits; specifically, it could be an increase in the employee’s share of health insurance, which may as well be a decrease in pay, as net pay is smaller as a result.

As if that weren’t enough, in order to remain competitive in a global economy, most employers have reduced, if not eliminated entirely, their contribution to employees’ 401(k) accounts.  Old fashioned pension plans, where a retiree receives a monthly stipend (called a defined benefit) is a thing of the past, as only about 16% of American workers are still entitled to a defined benefit pension plan.  Translation: saving for retirement is now totally in the hands of the employee.  You really think Social Security is going to take care of you?  Think again!

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With this tidal wave hitting every day Americans, there’s all the more reason to cut back on spending.  The ONLY way to accomplish this is to track your spending as you are spending, in real time.  This does NOT mean getting a report at the end of the month to see what you’ve done.  The key word here is done; you cannot go back and change it; it’s not unlike looking in the rear-view mirror.  You need to start looking through the windshield, so you can see where you are going.  That way you can make adjustments to your spending as you are spending, thereby allowing you to reach your goal.  So, you spent too much on groceries, and you find that out at the end of the month, what are you going to do next month?  Not eat?  I don’t think so.

Most people say, “Okay, that’s great, but how do I start a budget?”  Good question.  The best way is to write down everything you spend for two to three weeks; yes, I mean EVERYTHING.  That way you’ll know where your money goes.  That will form the basis for your budget.  You’ll see the error of your ways once it’s on paper.  You’ll see certain extravagances that you can easily live without, but you won’t know those things unless you write it down.  Throwing down the credit card at every purchase will not alert you to what you’re spending.  You think you’re going to examine that credit card statement when it comes?  Think again!  Even if you did, remember, it is in the past.  It is done.  You can’t change it.

If you find yourself in this pay cut squeeze, you might want to try your hand at a budget because you really need to make that paycheck stretch.

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