What if you didn’t get your paycheck for the next 3 months? (We doubled down. Check out our update to this post!)
If you happen to be a dual-income family, what if both of you stopped receiving your paychecks for the next 3 months?
That’s exactly what’s happening to us for the rest of the year – we’re not getting a paycheck deposited into our bank accounts, but – it’s part of our plan.
Since we decided to go into full-on retirement savings mode (the accumulation phase) and max-out our 401ks and IRAs, the only way to do this starting late in the year (to get the maximum effect) is to change our investment contributions to 100%. We technically won’t be able to “max-out” since there’s only so many pay periods left in the year (which won’t get us to the limit, but that’s our starting point.
Most people might find this extreme, risky, maybe even irresponsible?
Around my office it’s very “open-door” in terms of personal business (mainly because you can hear everything) so it’s hard to keep a secret. After changing my elections to 100%, I’ve heard several comments from our CFO such as “Seriously?” and “Let me know when you need a paycheck again!” to which I hear a few laughs. As I was signing the paperwork on the percentage line, he watched me write 1.. 0.. and then shock crossed his face as he saw the next 0.. to which he exclaimed “A hundred percent?!? … Okay…”
Mrs. Saturday also said her HR department actually made mistakes with the 100% election change, not taking into account other deductions that needed to be taken out since no one else had done this.
Is saving for the future really that extreme?
Can You Live Without a Paycheck?
Absolutely — if you have enough savings to carry you through the no-paycheck periods.
This is exactly what farmers have to do when they plan their planting and harvesting schedule for the year. If they’ve “invested” in one crop (read — not diversified), they might have long stretches of the year with no earnings. They have to make it through “grow-time” and then finally harvest the fruits of their labor at harvest if everything goes well.
We’ve tried to be very careful in our view of the future, taking into account serious financial trouble the country might end up in, and even more locally — losing a job. So what we’ve done is first made sure to save up an emergency fund. This can get you through the tough times when your car breaks down, something on your house craps out, or an unforeseen expense comes up that you just can’t avoid.
Another strategy that we completed was slowly paying our mortgage several months ahead of time. We’ve built up 4 months of padding, again — in case something goes wrong. This strategy might not be for everyone, but it satisfies our risk assessment and what we’re comfortable with.
The hardest part about doing all of this, really, is just having the discipline to not spend the money on something else that you think you want. Have you ever looked back and wished you hadn’t bought those clothes that didn’t quite fit right or that piece of electronics that you thought you wanted, but became outdated so fast (or you replaced it with something better)?
The great part, though, is once you build a solid foundation that can get you through emergencies or the little unexpected things life can throw at you, now you have options!
What if you woke up this morning and realized that no one is going to take care of you when you’re old? On top of that, what if you’ve saved zero dollars for retirement? My friend, you have an emergency on your hands! A lot of people have to play catch up by cramming cash into their retirement savings. We’ve built a money-cushion to bridge the gap through the cashless periods to give us the option of maxing out our retirement accounts before the end of the year and living off savings.
The big takeaway from this is to first build a stable foundation to give yourself a little breathing room which then can open up options for yourself to build the future that you really want. So how about you?
It’s funny…I was just thinking about this yesterday. We’ve already maxed out our tax advantaged retirement accounts, but for next year, what if we increased our withholdings to 100% to max them out completely in the first one or two months? I don’t necessarily see the advantage in this, but we could easily live the rest of this year on no income. In fact, being that we’re about a year away from early retirement, we HOPE to be able to live the next 50+ years without another paycheck!
Good on you for this aggressive savings schedule! The more you save now, the earlier that you’ll be able to retire later. Your future self will thank you, big time. 🙂
Thanks Steve! We’ve seen others like you so far down the road on the path we want to be on and decided to go ahead and get the ball rolling as fast as we could.
When next year rolls around, we were thinking that we could “front-load” and max-out our 401ks and IRAs early in the year to get it invested right away. We’ll see how that works out, but in the end, the main goal is freedom.
Steve, good to meetcha – the ‘Stache sent me to you – and to the Saturdays. Quick thought on maxing out your retirement account in the first part of the year is that you make the additional dosh from having it in there earning interest 9 or 10 months earlier. 🙂
True that. And my company doesn’t really have a good matching program anyway. In fact, it’s downright atrocious. But, they make up for that in healthy bonuses throughout the year, so…
But yup, the quicker our money enters the market, the quicker it begins to grow! 🙂
I just started my new job last week & am looking forward to my first paycheck, rebuilding my savings & a slow & steady 401k contribution. 🙂 I have seen it mentioned that some employers with a % 401k match, front loading may not yield a true % as paycheck by paycheck, but I am not yet ready to experiment.
It sounds like you planned well for this. Wishing you success!
Thanks Jacq! Congratulations on the new job. I’ve seen a few places where front-loading might make sense so you can get your money working for you right away, but the market does feel a little overbought at the moment.
For us, we were thinking since we didn’t take advantage of reducing our taxes throughout the year, we might as well get it done at the end to drop us into lower tax brackets. Our main goal was to stop paying so much in taxes. We might front-load it at the beginning of next year also, but we’ll have to revisit that.
YES! LOVE!!
I did the same thing for 3 years straight maxing out my 401(k) (only the most I was allowed to put in was 90%) and it was awesome. And then when you’re maxed out your paychecks get huge haha…
It’s especially good if your employer matches your contributions too! Just make sure you’re getting them all and not leaving any on the table if there’s weird restrictions there.
Thanks J. Money! I’ve enjoyed your awesome blog. I wish my employer-matched but no luck there. I’ve heard about the situation where you max-out early on in the year which then leaves employer-matched funds on the table.
I’ve thought about that toward the end of the year where then you have to decide where to put the money. I’m guessing it’ll go in a brokerage but we’ll see when we get there!
Awesome! I did this in 2014 when I left my job to be a stay at home mom and writer. I only worked five months of 2014, but I made sure to max out my 401k first! I had pretty small checks those last few months, but by then we were well prepared to go down to one income and we were just saving all the money from my checks anyway. Good for you!
Wow, that must’ve been just a little scary leaving your job to be a stay at home mom. I know a lot of people are doing it but taking the plunge must’ve felt exciting. It’s great to see our retirement accounts grow!
In years past before my income grew to where it is today, as a measure to manage cash flow, I would contribute just enough for the company match during the first 6 months of the year. Then creep it up during back half to make sure I maxed out the 401K.
During this time I was working for an employer that only allowed up to 80% of your paycheck. I don’t think I ever got up to 80%, but I do remember putting the contribution at 50% one year for the 4th quarter.
3-months without an income is definitely doable for us. Would be weird though if it wasn’t because we were maxing out investment accounts…and I think it would actually effect our spending, even if we knew that income would be back on in the 4th month.
Cheers!
I can see how making sure to get that company match could be a problem if you max-out too early. We’ll see if we front-load everything at the beginning of next year or spread it out a little. I’m leaning more towards getting it all in right away but it’s a balance! It’s great to have the option to be able to do it though. Having some savings makes life a lot easier.
Good job on saving enough to be able to do this! I know too many people who don’t have enough discipline to save like this in the first place. So congrats – even if your company thinks you’re crazy 🙂
Also, congrats on being shared on RockstarFinance! J Money is probably one of the greatest things that happened to personal finance blogging with his willingness to hunt out great articles and share them.
Thanks Rob! We thought hard about it at first, but then thought if we truly want this, we need to just go for it and get it done.
We’re definitely excited to be shared by Rockstar Finance! J. Money has a good thing going over there. I’ve perused his site quite a bit while we were making up our minds. Seeing other people working to make their dreams come true helped us in getting a solid plan together.
I guess it’s a little late in the year for me to agree to this and it be impressive. Lol. But maybe the end of next year I’ll take your challenge on as my own. Thanks again for sharing!
There’s always next year! Maybe a No Paychecks for the First Quarter of 2016? Wow, since starting this post, time really flew. I might have to extend it longer.
Nothing wrong with paying yourself. Not like you are giving your money away you are just putting it in a different account, but it is still yours. I like creative thought and aggressive moves. We can often live on less than we think. The sooner we invest the sooner you can become wealthy. Spreading out payments vs. lump sum is always an interesting debate. Vanguard shows you make 2% more on the lump but it’s mainly because you have more time. As long as we invest and maximize you always win at the end. I have yet to run in to a person who is regretful over having too much money.
I love that thinking! “I have yet to run in to a person who is regretful over having too much money.”
Some people would find this selfish, but I think if you take care of yourself first, you have so many more options to help take care of other people. For one, you’re not a burden on anyone, and two, you can help others if you choose with your gains.
I have a feeling that the lump-sum idea works better than spreading it out. Mainly for this year, it was either get it in our 401k or not be able to so we had to make move fast.
Good for you guys! Keep crushing it!
I actually haven’t seen a paycheck for a few years as I max out my 401(k), direct deposit the amount of the remainder of my regular pay with Vanguard and then set up so that any extra irregular bonus money direct deposits into saving account (which eventually stays there or goes into investments later if any drops create buying opportunities or when re-balance annually). We live then live paycheck to paycheck, strictly off the Mrs. part time (30 hour/week) pay check (minus $1000/month max out to her simple IRA).
It is an awesome way to save a ton on our homestretch to FIRE, but it does make it a bit tougher for me to go into work knowing I’m doing it absolutely for future gain while seeing we could live with a pretty comfortable cushion without my entire salary. (Though I am responsible for health insurance for the family)
Thanks Elephant Eater! I have a feeling we have a lot in common with all the hiking both us and you guys do.
Now that you mention it, it did cross my mind that now every day that I go into work, I know I won’t be seeing a actual paycheck. It’s a weird feeling, but definitely a good feeling. I almost feel a little bad for my co-workers where I’d love to see them setting up their futures, but I know it will fall on deaf ears. With not seeing the paycheck being deposited though, it does make me feel like I’m just working for fun. Great to see your progress! It’s fun to see.
Having cheap hobbies definitely makes the saving a lot easier without feeling the pinch of missing out on anything.
Thanks for following our journey. Good to see you on RS today. I’ll have to stop back and poke around a bit more.
Cheers!
Yep, you nailed it. That hardest part would be the discipline to not spend money on unnecessary items – which seems to happen a lot around the holidays. You don’t have the fallback of, “Oh it’s fine, another check is coming next Thursday.” Obviously, you’ve thought it all out, but doesn’t the thought of tying it all up in a fund that you can’t touch for several years scare you a little? I’m sure you’ve got the emergency fund, but still . . .
Anyway, good work!
-DP
Definitely! The holidays were getting a little crazy for a while there with our extended family. My wife’s parents were spending more and more every year when finally we put a stop to that and said NO PRESENTS! After we talked them into to that, the stress on them has made their holidays so much happier now that we can focus on family time. That’d probably hard for most of America though!
Yeah keeping our money in just one or two funds is a little scary, but it is comforting when you’re investing so broadly that you’re basically investing in humanity. We’ll see how it works out!
Yeah, I’ve noticed most people are shocked by true savers’ behavior! I once had a part-time gig for about 18 months where I had 100% of my pay channeled to a retirement account. I had the same experience–don’t think anyone had ever done that before! My wife earned at the time more money than we needed to pay our living expenses, so why not?
A while ago I think I would’ve been very surprised too if I saw a co-worker putting it all in without knowing the details and the plan behind it. As long as you have a plan and follow it, it’s a lot less stressful. There will be market crashes for sure, but we’re in it for the long haul.
I would have thought 100% was not allowed, ours is 75% so I just sorda thought that was the norm, pretty interesting. I am starting my personal max out contribution in 2016, maybe I needed a little motivation from you to start today, I mean nice little test run for a month before the real thing;)
I haven’t had a chance to page around, but if you have a financial independence day, I would love to include you at my site, check it out if you get a chance.
Thanks Even Steven! We were able to do 100% so after they figure everything that’s required to be paid, then we can contribute the 100% percentage after. Otherwise the deposits into our retirement accounts would be a little larger than they are. During the year when we hit the max of what we can contribute, our paychecks will feel huge! At that point we’ll max out our IRA’s, maybe build up our cushion again, and also start putting money into a brokerage account.
We don’t have an exact date yet, but we’re guessing for the 4% rule, it’ll probably be similar to most which is $1 million. It’s possible we might not even need that since our expenses are pretty low. I’ll let you know though! I’ll peruse around your site for sure. Thanks so much for the invite!
GREAT MOVE TO get a jump on it going into 2016… If you can swing it and work it out… 100% Max all your pay towards your 401K this year.. Don’t put anything in the IRA… (you can back fill into your IRA till tax day in 2016… so that will allow you to get the most in your 401K with all they money you have and then when you back 401K contributions down to spread across 2016.. Fill your limit of the 2015 IRA thru March and then start contributions to your 2016 IRA from that point forward.. Just my thoughts on Maximum impact!
nice work!
Thanks Tim! That sounds like a great plan. That’s right.. I forgot you could still contribute to your IRA up until tax time for the previous year. Yes!
Wow great idea there! I may steal this but for the purpose of paying off my student loans asap 🙂 thanks for sharing!!
I’m sure this isn’t a unique idea, but it works if you’re tired of paying taxes!
Awesome! Being able to save that much, well, actually all of it , wow!
I max out my company match, and I come close to the 401K max. I also try to take advantage of the company’s stock purchase plan (15% of my paycheck), and also try to save some cash for my emergency fund. That worked well for me. When you do all that it feels something like you’re working for free. Then you look at your total net worth (I use Personnal Capital) and you realize how much you’ve been able to save. It’s great!
I know! I signed up for Personal Capital a few months back and have fun looking at the Net Worth growing. Hopefully the next year it’ll continue it’s slow march up!
My emergency fund could support me for about 4 to 5 months. I actually maxed out both my IRA and 401k by September of this year, so for the final 3 months my paychecks have been abnormally large. It’s a great feeling that I can throw all the “extra” cash into my brokerage account. It also gives me the idea that I should front-load my 401k even more and maybe max it out by June or something. We’ll see what I decide to do come January. I think this is a great goal you’ve set for yourself!
Thanks Fervent Finance! That’s a great emergency fund you have there, because you really never know what’s going to happen. It feels good to have the opportunity to max-out accounts like that. Before maxing out, we’d save a little every month but now it really looks like it’s exploding higher when you put your full effort to it!
Well done!
It is a great move to max your 401ks and IRAs.
I hope you have stocked some grocery in the house, LOL.
Definitely! That’s the fastest way we can bulk up our retirement savings. It’s possible that we’re in a high point of the market, but it looks like over the long term it’s too hard to predict exactly when the market is going to crash. Yes, we always have groceries on hand! Not even necessarily because of a stock market crash. It’s always good to be prepared, but it’s even better to not run out of things when you’re cooking!