You've been told the amount of your salary increase for the coming year, and you are not happy. What to do?

Get out your budget, look it over carefully, and find some places where you can trim spending. The purpose of saving isn't just to provide for an old-age retirement. Saving yields financial freedom, and financial freedom is something you need at all stages of life. Becoming a good saver will give you the self-confidence you need to negotiate effectively with your employer on all sorts of matters.

The usual advice given to those negotiating the terms of a pay raise is that the employee has to be firm in standing up for his or her rights, but at the same time not cross the line at which the employer comes to think of the employee as a complainer. It's good advice so far as it goes. However, it ignores an important part of the dynamic of pay negotiations--the employer holds a far stronger negotiating position.

The reason is that the employer has so much less at stake if things go bad.

The employer would prefer not to have to go through the hassle of replacing an employee who walks. But the loss of one employee will not do serious damage to the company that employs him. In stark contrast, the job is everything to the employee. The job provides the paycheck that funds progress on all of his or her most important life projects. It is the paycheck that provides for the desired addition to the house. It is the paycheck that gets the kids schooled. It is the paycheck that provides for the long-anticipated Vermont biking trip.

The typical employee is simply not in a position to make firm demands about what he or she should be paid. He or she can make requests, and enlightened employers generally make it a practice to grant requests that are backed up by a history of good job performance. But in those cases in which the employer is paying less than he should, there is not much that the employee can do about it.

The employee who has won for himself a good measure of financial freedom is in a far more appealing situation. He can walk if he absolutely needs to.
Most effective savers never threaten to leave their jobs. But the fact that they could if they needed to provides them an added measure of confidence in their negotiations over pay increases. I have heard several stories from participants in the Financial Freedom Discussion-Board Community in which effective savers said that their employers began treating them better after they developed more effective money management practices. The employers did not know that these workers had saved more than most. The workers began demonstrating more self-confidence and the employers picked up on it and changed their behavior in response.

Self-confidence counts and self-confidence cannot be faked. Having money in the bank provides the employee with self-confidence in pay negotiations.

My personal experience with this phenomenon was in negotiating the terms of a new job that I was being placed in on receiving a promotion. I was happy with the pay that would be provided in the new job, so that was not an issue in the negotiations. But I wanted to be sure that higher-ups would be actively involved in getting the new department successfully launched. I was able to negotiate from a position of strength because my saving practices left me relatively unconcerned about what would happen to me in the event that my pushing for concessions caused those on the other side of the table to view me as being too assertive.

Financial freedom should be sought not just for what it can do for the employee when he retires, but also for what it can do for him throughout his working life. The confidence it gives him in pay negotiations is just one of the "New Luxuries" that can be obtained today not through spending, but only through effective saving.

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