Maximizing Your Greatest Asset: Why Your Career is So Important

I've written a lot about the importance of managing your career and how it's your single-biggest asset (see Investing Versus Your Career and Experience versus Education: Which Counts More in Career Success? as examples). But I wanted to have one post where I listed the main reasons I think it's so important to your financial health, so here goes:

• It pays all your living expenses. Without it, you couldn't survive.
• It is the source of all of your investments -- retirement, college for your kids, and so on.
• It helps you acquire other big assets like your home and cars.
• In short, it's the source of everything you have financially -- unless you inherited a ton of money -- the source of your net worth. Even though spending less than you earn is the way to getting wealthy, you must have some income (and the higher the better) to spend less than. In other words, even a miser can't get rich spending less than he earns if his income is zero. ;-)

Now, let's discuss how important it is to manage your career well.

I ran a few numbers to compare the impact of managing your career (proactively taking efforts to advance your career and thus your income) versus not managing it. Here's what I did:

• I assumed that there were four college students who graduated at 22 and started with jobs making $25,000 a year each.
• I assumed that Graduate A didn't manage his career very well and only had a 3% average annual increase in income.
• I assumed Graduate B did an adequate job of managing his career and through pay increases, promotions, and job changes was able to increase his salary by 5% annually on average.
• I assumed Graduate C did a pretty good job of managing his career and was able to increase his salary by 7.5% annually on average.
• I assumed Graduate D did an excellent job of managing his career and was able to increase his salary by 10% annually on average.

Note: These are AVERAGE annual increases. In any given year, the amount could be higher or lower, but these are the averages.

So, where did each of these end up when they retired at 65? Here are the results:

• Graduate A ended up making $89,113 the year he turned 65. He earned $2,226,210 in his career.
• Graduate B ended up making $203,742 the year he turned 65. He earned $3,778,575 in his career.
• Graduate C ended up making $560,408 the year he turned 65. He earned $7,699,175 in his career.
• Graduate D ended up making $1,506,002 the year he turned 65. He earned $16,316,019 in his career.

Now before you say these are unrealistic numbers, consider the following:

• Numbers (percentage increases) higher than this can be achieved. I'm 18 years into my career, I'm right at a 10% average annual gain, and I'd only consider myself as having done a good (not excellent) job of managing my career.
• If the percentages throw you, just look at the differences. It's a BIG difference in just working to make an extra 2% per year -- not to mention if you can make 4% or more a year.

So, how can you do this? How can you manage your career to maximize your income?

I'm glad you asked. I'll be talking about this issue throughout the month of April. I hope you'll join me. ;-)

Comments

[RS]

I think that this is a really important topic FMF. Looking forward to what you have to say about it in April. We all look so hard at how to cut expenses, make more money on side projects, be frugal, etc...but our career is really the most important aspect of our financial lives. I would guess that many of us do not spend enough time focusing on how to maximize the benefit we get from our careers...but we should. A little work to improve our careers can pay huge financial dividends over our lives...much more than clipping coupons to save some money each week on groceries.

[RS]

I think that this is a really important topic FMF. Looking forward to what you have to say about it in April. We all look so hard at how to cut expenses, make more money on side projects, be frugal, etc...but our career is really the most important aspect of our financial lives. I would guess that many of us do not spend enough time focusing on how to maximize the benefit we get from our careers...but we should. A little work to improve our careers can pay huge financial dividends over our lives...much more than clipping coupons to save some money each week on groceries.

[RS]

Sorry about the double comment...I suck.

[calgirlfinance]

FMF, good topic. I did a post about how my biggest financial mistakes were related to poor career management! Here is the url in case you're interested.

http://calgirlfinance.blogspot.com/2006/04/my-biggest-financial-mistakes.html

[irishmadness]

Wow! I never really thought about it this way, but it does make a difference. And you're right about the numbers being realistic - I went back and figured mine out and assuming next month's annual raise is about where it has been the last two years (likely), I'll be right at 10 percent too. Some of that's because I started out working for peanuts - a necessity in my field - but it was that job that gave me the experience for my next two promotions/jobs. I guess it was worth it. :)

[Newbie]

This post is well worth considering. I've been in my career about 11 years and have averaged exactly 20% over this time. I started at about 42K and am at $260K today. The big challenge will be to keep these rates of growth up, if I can do this then by 65 I should be making the same money as Bob Nardelli :-)

[PoorCollegeKid]

What do you do Irishmadness?

I graduate this week with a BSME and I'm looking to save and setup a bright future but I know enough to know that I don't know enough to go about it by myself...if you know what I mean.

I plan to get an advanced engineering degree, my professional engineering license, as well as an MBA...but then what??? What do I do with them and what oppurtunities do they open up?

[terry]

Okay, I went to college and couldn't afford to continue on to law school, so I ended up with a worthless degree and a minimum wage dead end job, which has wage increases only when the minimum wage is increased. Since I have no money, I cannot go back to school to acquire a useful skill. Now what do I do?

[Andrew]

"I'm right at a 10% average annual gain, and I'd only consider myself as having done a good (not excellent) job of managing my career." - Easy to say when you work for your dad who owns the company!

[FMF]

Andrew --

Not sure where you got that (incorrect piece if info) -- I do NOT work for my dad and he does NOT own the company I work for.

[CommRE]

Excellent post. I often have to remind myself when I am deep into analyzing my finances that I need to remember what allows me to have all these financial decisions to make - my job! Early in my career I left a job I hated without anything else lined up and I don't recommend it at any stage of your life. For me, panic set in almost immediately. I took a store retail job out of necessity, but it actually turned out to be a good career move. I was there seven years and left a job at corporate HQ to go back to school and get my MBA.

[CommRE]

I think Andrew may be confusing FMF with JD at "Get Rich Slowly". IIRC, JD works in a family business.

[TP]

If I start with my employment at my current company, I get 10% increase... If I start with my salaried employment, I get 4.4% increase. I would expect average percentage increase changes based on your salary's relation to the median income. It's a lot easier to go from $20k to $60k than from $50k to $150k.