Updated: May 11, 2020
Salary negotiation is so important because what you get NOW can impact your FUTURE finances!
To start preparing for salary negotiation, focus on your Value! Your experience and abilities have VALUE and it is vitally important for you to Know Your Value of what you bring to an organization and then associate the proper dollar amount to that value. That value amount is a starting point for you in any salary negotiation.
Make sure you take the time and effort to ask and negotiate for all that you are worth. You should receive fair compensation for your work with your organization. Besides, you also have bills to pay and fun to have. The better you negotiate, the better position you will be in financially now and in the future.
Now for some not so great news... Did you know that the average student loan balance for 2016 college graduates, according to the Student Loan Hero website, is $37,172 and the average student loan interest rate is 3%-6%?! Ouch...
Some good news though is that you have access to helpful FREE tools through sites like LendEDU.com to view debt-to-income ratios and estimated starting salaries for various college majors. According to Lend EDU, the purpose of these tools is "...to give both current and prospective college students a good sense of what they can manage in monthly student loan payments without creating a DTI (Debt-to-Income ratio) that is going to lead to a poor personal finance situation, while also limiting their appeal to mortgage lenders or credit card companies".
So, before you start negotiating, you should also figure out what other commitments you have, such as student loans, that you need to repay. You may choose to look for certain jobs or ask for a specific pay range so that your pay is sufficient to cover your loan expenses.
Now for some math and some hopeful news....
Let's assume that you successfully negotiated a $1.00 per hour raise or increased initial salary offer. Great job! Let's take a look at what that extra dollar per hour can do for you over time. In this first example, we took just your extra $1/hour and applied it monthly to a pre-tax retirement fund earning 5% interest while paying the minimum balance on your student loan each month. If you continued to apply that $1/hour towards your retirement account for 30 years, you could have over $144,000*!!! Now, that's definitely worth your time to prepare and to negotiate successfully!
*Both examples assume 5% monthly interest for the pre-tax retirement account and 5% monthly interest charged on the student loan debt.
An extra $1/hour yields $2,080 each year pre-tax (assuming 40 hours worked per week X 52 weeks per year). Applied over a 30year time period, you would be contributing $62,400. That's a lot of money! When you're starting out in your career, one of the best resources you have is TIME. With the help of many working years ahead of you as well as compounding interest, your successful salary negotiation can yield huge results for you for retirement. Over 30 years, your $62,400 combined contributions can turn into over $144,000! Woohoo!
If, rather than investing, your immediate goal is to pay off your student loan debt, it can be very effective to use your extra $1/hour to pay more on your student loans each month. By using just $100 extra per month from your raise to add to your student loan repayments, you could shave off 2-3 YEARS' worth of loan payments! Once your debt is gone, you could then use that extra money towards a pre-tax retirement fund.
Funding your pre-tax retirement with that same $1/hour raise after your student loans have been paid off can yield $88,000 in a little over 20 years!
As you can see, in any of the above scenarios, your negotiating skills can help you win big in the end!
In summary, negotiating your income is worth it! No matter if you're negotiating your starting salary or hourly wage, or a raise or other promotion, research your professional value and then ask for what you want and deserve! That additional income can do great things to help you pay down debt, add to your savings, or add to your investments.
* Write down 2-3 ways you would like to use your 'raise' money. This will help you stay focused and motivated to continue with your negotiation.
* Check out Lend EDU for FREE college student debt-to-income and other tools by college major!
* Check out the tips in the other blog articles to prepare for your career negotiation!
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Connect with me at Sarah@ThatPurpleBook.com with questions.