Strategically Change Jobs to Save More, Faster
You Will Always Be Underpaid
I hate to say it, but you will always be underpaid. The majority of Americans are underpaid. Unless you are a CEO with millions of dollars in salary, tens of millions of dollars in stock bonuses, and a hundred million dollar severance package, you are underpaid. It is very easy to see how we are underpaid. Lets say that you are an Apple Sales Associate. You work in the Apple Stores and sell iPhones and MacBook Pros. Lets say that you are a bad employee, and only sell a single MacBook Pro for $2,000 every day. You are paid $120 in wages per day, but you generate $2,000 in revenue per day. Of course, the stores have to pay rent and a host of other overhead expenses. However, would Apple go bankrupt if they paid our hypothetical sales associate $16 an hour instead of $15? The answer is very obviously no, and our Sales Associate is therefore underpaid.
You will always be underpaid for a simple reason: you aren’t the boss. People who create companies take the majority of the risks: therefore, they will receive the majority of the reward. It’s really that simple. If you regularly invest and know some basic investment theory, this makes sense to you. The riskier an asset is, the greater the potential return. As a simple example, consider 2 deals. In the first deal, you give me $100 and there is a 50/50 chance that I give you back $200. In the second deal, you give me $100 and there is a 10% chance that I give you back $200. The payout of each deal is the same, but the first deal is obviously better because it carries less risk.
Change Jobs, Make More Money
The best way to make more money is to change jobs. I’ve been at my current company for 3.5 years. Since I work for a contractor, determining the financial impact of my work is a little more convoluted. Basically, anytime I work on a contract, my company bills our customer for $3, pays me $1, and takes the $2 for overhead and profit. Looking at it from a different perspective, I brought in $1 million in revenue last year, but was only paid about $100,000. There is obviously a lot of wiggle room. My company could easily pay me $105,000 and they wouldn’t go out of business. But when I asked them to increase my salary because of my performance, they said it would be impossible.
Since I started at my current company, I’ve received three yearly raises of 3.2%, 4%, and 4%. I was also promoted which came with a 10% pay increase. When I leave my employer to start my new job, I’m getting a 25% pay increase, significantly more than anything my company ever gave me. If you want to increase your income, you must change companies. Your current employer is going to pay you the minimum amount of money to stay. That way, they keep healthy profit margins and the people taking the risk, the owner of the company, gets their reward. I don’t know about you, but screw getting paid “the minimum amount of money to stay.”
Improve Your Skills and Assertiveness
Getting a new job with a significant pay bump is not trivial. In fact, it is difficult for the majority of Americans. This is because of two simple reasons. First, you do not have an in-demand skill. Second, you are not assertive enough.
If you do not have an in-demand skill, getting a higher-paying job is hard. Why? Because there are tens of thousands, potentially hundreds of thousands of people doing the same exact job as you, making exactly as much money as you are. Why should an employer pay you $1 more per hour ($2,080 per year) when they can find another person to replace you for cheaper the same day that you quit? If you want to increase your salary, you either need to get very good at what you do, or increase the breadth of your skills. Preferably both. If you aren’t significantly better than the competition, you will never ever see a real pay increase.
In general, people aren’t assertive. If you aren’t assertive, you’ll never ask for what you deserve. This could be asking for a raise you deserve after learning a new skill, or looking outside your company for new work, and requesting a salary commensurate with your skills and experience. You need to believe that not only are you good at your job, but that you deserve to be fairly compensated for it.
One of my coworkers is leaving her job with a 41% pay raise! However, upon giving her 2-weeks notice, her (our) boss said she was no longer eligible for her bonus, even though she would be working when it is distributed. She decided to “show her teeth” to HR and they informed her that her boss was indeed lying, and that it was company policy to pay out earned bonuses. Without being assertive, she would leave thousands of dollars on the table.
Save More, Retire Earlier
If you are able to increase your salary, saving more money is extremely easy. As long as you do not start buying new fancy toys, you will have more money to invest every month. If you actually invest this money, over the course of your career, you amass a much larger nest egg because of the wonders of compound interest.
Consider what would happen if you increased your post-tax salary by 10%. You could take that 10% and invest it in low-cost Mutual Funds or ETFs. Over the course of your career, that money would grow significantly. In addition, if you take the Zero Day Challenge and are able to reduce your unnecessary spending by 10%, you can now save 17% of your income (assuming you are in the 30% tax bracket) which is almost 3 times higher than the average American!
Do What You Gotta Do
In the end, we need to do what we are comfortable with. If you aren’t comfortable learning new skills and aren’t comfortable asking for compensation that you deserve, that’s fine. Just know that you are worth more, and you need to plan your life around the fact that it will be hard to improve your situation much. Remember, there is no reward without risk. If you are unable to take the risk of learning a new skill and asking for fair compensation, there will never be any reward.
Have you ever negotiated a significant pay increase? How did you do it? What risks did you take? Leave your feedback in the comments!