Congratulations! You’ve made it through college, earned your degree, and possibly lined up a few job interviews along the way. In a difficult economy, that last part is no small feat. But don’t let your fear of living in Mom and Dad’s basement prevent you from negotiating salary when the job offers finally start coming in–you could be putting your career at a disadvantage.
First jobs usually aren’t lifetime jobs. The Bureau of Labor Statistics (PDF) reports that the median tenure of a worker between the ages of 25 and 34 is just 3.1 years, with 67% of employees between the ages of 16 and 19 working for their current employer for less than 12 months. When the economy is rocky, and new workers only expect to have their first jobs for a short time, it’s tempting for twenty-somethings to accept the first salary offer they get.
What many recent graduates don’t take into account, however, is that the salaries they accept for these entry-level positions will follow them throughout their careers. Failing to negotiate on a starting salary is a mistake that will compound as the years go by. Career advice authors Lee E. Miller and Jessica Miller warn that since pay increases are calculated as a percentage of your income, “every raise you get, every bonus you receive, and even the number of stock options you are awarded will be smaller.”
Do the Math
A person who accepts a $35,000 starting offer for an entry-level job isn’t just making $7,000 less than a colleague who negotiated a $42,000 starting salary. The person who negotiated stands to make hundreds of thousands of dollars more during her lifetime—and that’s before retirement is taken into account.
Let’s crunch some numbers: Say you start out your career making $42,000. The average annual raise for professionals is around 3% (for simplicity’s sake, we’ll assume that’s the only pay increase you get). After 10 years, you’ll be making about $54,800 per year. If you start your career with the lower salary of $35,000, you’ll be making about $45,700 after ten years. What was once a $7,000 gap is now around $9,000. Over that ten years, the higher wage would have added up to about $80,000 more in your bank account. According to personal finance expert Ramit Sethi, even a $5,000 higher starting salary can be worth $1 million over time, once factors like increased retirement, bonuses, and investment contributions are added in.
Knowledge is Power
Salary negotiations don’t need to be difficult or drawn out to have a big impact. The best way to put yourself in a solid position to make a deal is to come to negotiations prepared. Research the market for your new position. What are other comparable salaries? What are the specific duties of the position you’re being offered? What are the company’s hiring practices? Be ready to highlight the unique abilities you bring to the table—the ones that got you the job offer in the first place. It also helps to become knowledgeable about the cost of living in the city in which you’ll be working, and the non-salary benefits the company is offering.
Showing up armed with facts can have a major payoff for job seekers, and especially for those getting into their first post-collegiate careers. Understanding and valuing your skill set—and having the confidence to ask for what you’re worth—can put you on the path to a prosperous career and possibly even an early retirement.
Learn more about the ins and outs of personal finance here.