How Your Starting Salary Affects Your Career Earnings

It was written in a previous post why you need to negotiate your first job out of college. The reasons given were great, but I wanted to touch on just how much of a difference a higher salary can have on your finances in the long run.

Difference Between Starting Salaries

Let’s take two job seekers, Sally and Jane. Both are lucky and get offered jobs at a firm that starts them off at $35,000 per year. Sally is happy to have landed a job and can’t wait to start. Jane, while also being happy, thinks she should receive a higher starting salary. She counter-offers, negotiates and settles for a starting salary of $40,000 per year.

You may be thinking, “big deal, $5,000 isn’t that much money”, but in fact over the long run, it is. I’m not talking about investing the money in the stock market and watching it grow, but rather what happens to that $5,000 as it compounds upon itself over the years when you get raises at work.

What you need to understand is this: the starting difference between the two salaries is only $5,000. But all future raises are based on that initial $5,000. That initial $5,000 is going to turn into a lot of money as your career progresses.

For sake of simplicity, let’s look at the salary Sally and Jane will be earning in 30 years. For this example we will assume they both stay in the same role, and both receive a 3% raise each year. In 30 years, Sally will be earning almost $85,000. Meanwhile, Jane will be earning a little more than $97,000. That is a difference of roughly $12,000! Remember, this difference is PER YEAR. So every year, Jane is earning more and more than Sally. The difference begins as just $5,000 but over time increases to $12,000. Over the course of these 30 years, Jane earned $250,000 more than Sally. We haven’t even factored in the growth if we invested this money yet!

Of course in real life there are variables. There is no guarantee that both workers will always receive the same raise; one might get a promotion; there are ranges for how much you can earn for a given job, etc. All are perfectly valid points. The idea though is to show you how big of a difference a small amount of money can have on your future finances.

Importance of Negotiating

Please don’t take this as me saying you should find the highest paying job. I’m not. I am saying to get the most money for the job you want to do and that involves negotiating. I have never heard of someone getting a job offer, trying to negotiate, and then being told the company has changed their mind. You are expected to negotiate. It’s important that you do.

When you receive your job offer, be prepared to come back with a counter-offer. You will have to do a little research to find out the pay range for your job, but that can be found online. If you find the pay scale goes much higher than your offer, don’t counter with the highest figure. Be reasonable. Ask for $5,000 more and be willing to meet in the middle for $2,500 more. Whatever you can get will put you that much further ahead in the future.

8 Responses to How Your Starting Salary Affects Your Career Earnings

  1. I can see the logic behind the post. Real life, however, can turn out differently. Case in point: For the third job I took, I accepted an unusually low wage in order to get my foot in the door and get experience. That company based their raises off of the low entry pay point and for three years I was underpaid. But when I took the next job, my salary tripled (no kidding) because of the experienced I gained. I didn’t tell them what I was making. I simply said make me your best offer. I thought of the 3 years of being underpaid as a glorified internship and it paid off in spades. But that was a deliberate choice.

    Sometimes (not always) it pays to take a step back in order to take a leap forward.

    Another point: being the highest paid worker in a department often paints a bulls eye on your back come layoff time. That’s the golden bulls-eye. I’ve seen that hurt many people, and it made me decide to never strive to be the highest paid person.

    Also, when you look for another job and they see how much you make, you often lose out on desirable opportunities because “you’re overqualified.” Golden handcuffs, in other words.

    When you’re seriously underpaid, it’s easier to get lots of competitive job offers. Which then allows you to provide either the current or future employer the opportunity to remedy that situation. I’ve seen people get raises of 30% doing that. Obviously you can’t do it more than a few times in your career, but there are plenty of “catch up” opportunities if you manage your compensation.

    Getting the maximum in the short run isn’t always the best strategy in the long run…

  2. I wish I had tried this but likely wouldn’t have gotten anywhere anyway. Public accounting hired a class of graduates and starts them all at the same salary so even if I tried I likely would have been told it wasn’t negotiable. That said it was a generous offer and set me up well for my future!

  3. This is great advice. I was very lucky that two years into my first job out of college, our HR manager researched our salaries compared to similar companies and determined that my salary was much lower than it should have been. So that year I got something like a 17% raise. It was fantastic that the HR manager wanted to be an advocate for all the employees, but I highly doubt most companies operate in this way. That’s why you need to be your own advocate and do your research every now and then to make sure your salary is still competitive based on your position and experience.

  4. […] job that can give you a head start in your career path? After all, studies have shown that your lifetime potential earnings are greatly impacted by the starting salary at your first […]