Money is how we all survive, and hopefully, also thrive. So it's no surprise that your starting salary can have a huge impact on your future salary and wellbeing. A small difference in pay now can mean a big difference later. Set yourself up for success down the road by getting a fair starting salary now.
A Small Increase Makes a Big Difference
Earning a little bit more now can mean a big difference in your future savings and accumulated income. Thanks to compound interest, investing or saving money earlier on will result in more gains later.
Every year that we face inflation, each dollar you earn is worth less. That means your overall salary will be worth less every year that you don't receive a raise over the inflation rate. Starting with a higher salary can help provide a cushion from inflation and the risk of not receiving raises.
Effects on Future Salaries
Your starting salary now will serve as the foundation for your future salary. In fact, Forbes declared that your first starting salary is the most crucial of them all. Your starting salary now will become what you expect to be earning later.
If you decide to start a job elsewhere, you can request a higher starting salary than you currently have. Your new employer will also want to know what your starting and ending salaries were at your last position to begin negotiations. If you had a high salary before, chances are you can expect to make that same amount at the new company (or more). They will also want to know about your previous raises, so having higher raises now can also mean a higher starting salary later.
Effects on Future Raises
Raises are never guaranteed, so starting at a higher salary can help protect you in the event that you don't receive a raise anytime soon. If you do receive a raise, they are often awarded on a percentage basis, so having a higher starting salary will result in a higher raise.
For instance, if you accept a position at $40,000 and receive a 5% raise every year, you'll receive a $2,000 raise in the first year. If you had negotiated the starting salary to $45,000, your first-year raise would be $2,250. After 20 years, your salary will be $106,131.91 if you had accepted the initial $40,000 offer (with a 5% increase every year); it would be $119,398.40 if you had negotiated to $45,000 in the beginning. Just imagine what you could do with all the extra money.
Effects on Benefits
Benefits are often based on a percentage of your compensation. Starting with a higher salary means you will likely receive a better benefits package as well. For instance, if you have employer-sponsored retirement benefits, they will be investing more money into your future retirement if it is based on a percentage of your salary.
Negotiating Is Key
Your employer is likely going to negotiate your salary anyways, so it is better to start high. This way, even if they negotiate your pay downwards, you will still probably be happy. You may not get exactly what you ask for, so starting higher means that when the company negotiates lower, you will still make out well.
The key to success is in finding the perfect negotiation amount. Go in equipped with the average pay in your field, your starting and ending salaries at your last position, and information on your raises over time. Make sure to sell yourself and your abilities so that you have greater negotiating power.
It's also important that you choose the right timing to negotiate. The best time is during the final rounds of interviews after you've been offered the job, but before you sign any contracts. At this time, the employer will already be impressed and want to sign you on.
Don't feel nervous about negotiating — your future employer is most likely expecting it. If you don't negotiate, you may be turning your back on money that was there for the taking. Remember, the worst thing they can say is "no."
The Potential Risks
While there are a variety of benefits associated with having a higher salary, there are also a few potential risks. Having a higher salary than your colleagues can make you more vulnerable at layoff time. It can also make it more difficult for you to land a future job because they may consider you overqualified — or overcompensated. Unusual factors like your high school grades, previous employer references, and even your credit report can affect your starting salary, so the best thing you can do is prepare an impressive resume, ace your interviews, and go in prepared with the right information.