How Much Money Do You Need to Make?
Hi friend,
Let’s get straight to the point— people work to make money. I can’t tell you how many job seekers have complained to me about the question: Why are you interested in this job? “Because I need money, obviously!” Strangely, though, a lot of career advice glosses over money, straight to personalities and passions. Stranger still is the number of job seekers I talk to who don’t actually know how much money they need to make in their next job.
Whether you’re a newly graduated student, a career changer, or currently employed and think about starting a search, anytime you look for a new job, you need to answer this question first, before you start working on applications. After I find out more about why someone is looking for a new job, this is the first question I ask my coaching clients!
I am not a financial advisor, though I am pretty good with finances in a personal and professional way. At a high level, here’s the approach I recommend to figure out how much you need to make— add up your current following expenses in priority order:
Fixed, contractual expenses (i.e. rent, phone bill, student loan payments)
Unavoidable, inflexible expenses (i.e. food, electricity, and transit)
Flexible necessity expenses (i.e. clothing, personal care, and household goods)
Saving contributions (i.e. retirement, emergency fund, and short term goals)
Happiness and quality of life investments (i.e. vacations, activities with friends, and hobbies)
Now, be honest with yourself about which of these things you can or should cut. Be especially honest with yourself about your level of self-control to cut these things. Got your minimum salary? Great! Go back and adjust those numbers until you reach a point at which you are confident that you would be comfortable and happy with your quality of life. This is your ideal salary. Multiply these numbers by 12 if you used monthly expenses.
As a reminder, especially for new grads, the numbers you calculated are take-home salaries. Salary information you find online or in job descriptions will list the annual pre-tax salary or an hourly rate in the USA. If you’re looking at hourly rates for a full time job, multiply it by 2080 to convert it to an annual salary (i.e. $15 an hour, 40 hours a week, is the equivalent of $33,320 a year). A good rule of thumb for calculating your pre-tax , pre-benefits salary target in the USA is to add an extra 30-40% of your take-home salary for regular employment (i.e. an ideal take-home salary of 60k becomes 80k), and double your pre-tax salary target for contract work (i.e. 60k becomes 120k), because you will have to cover all of your expenses, benefits, and the employer portion of FICA.
When you start your search, you should look at job options that make as much as or more than your ideal salary. If the career path or jobs you are pursuing will not support your ideal salary, then you need to decide what you are willing to make tradeoffs for. It’s common that entry level or early jobs don’t always pay our ideal salary, so take into consideration the financial ceiling of career options you’re considering. But if you are pursuing something that will not meet your minimum salary, you need to make some big decisions: can you drastically alter your lifestyle? Are you willing to get a second job? Can a partner subsidize your career choice? Or do you need to consider something else?
Only you can decide what is the best financial choice for you, but if you’re looking for jobs without explicitly evaluating your financial situation and goals, you are setting yourself up for long-term failure, especially because most people’s career goals are lifestyle goals.
Happy Tuesday,
Karissa
