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.

[Carrie]

What are your thoughts about choosing a career that maximizes your income even though you don't like the work? Or staying in a high-paying job that is poisonous to your mental health? I've made three job moves, each one to a company that paid less but also had a healthier work environment. When I think about the fact that if i had stayed at my previous job, I would be making twice as much money, I sometimes wish I stayed. Then I talk to friends who are still there and taking Xanax and ulcer medications and I realize that I probably made the right choice to leave.

[FMF]

Carrie --

You need to maximize your income while also staying healthy. If a job hurts your health, eventually you'll break and that won't benefit your career at all.

Plus, of course, there's the happiness factor. For me, I'd rather make 90% of my top salary and be happy than 100% and be miserable.

All this said, I've found that you can have both -- high earnings and a job you like -- if you look around hard enough and are willing to move.

[Terry]

I am in my mid-50s and earn $15K. How can I manage my career well?

[FMF]

Terry --

If you want to make more money -- I suggest a multi-tier approach -- on both your career and other money making ventures.

Read all my posts in the "career" and "making money" categories. You can find them here:

http://www.freemoneyfinance.com/archives.html

If you do some of them, you will make more. But you have to do them. As I've seen in your other comments, it appears that you may not be willing to take action to improve your situation. If this is the case, then no set of ideas will help you.

But you CAN do at least something. There are tons of ideas in these posts. Read them see which ones are for you, then go do them. Your income will thank you for it.

Good luck!

[Barbara]

I think the numbers are very unrealistic. The percentage of the American population that makes over $200K per year is about 1%. Most of those are concentrated in a very small cluster of professions or own their own businesses. The vast majority of careers cap out, even for the most successful workers, somewhere between $80K and $120K (depending on where you live, of course.)

[daren snell]

Education is very important for the professional industries, eductaion for all on money matters is of paramount importance. People can get told how to make large earns, but do they know how to retain them or even make that work for them into the future.
Many of the most highly educated men run corporations even countries, all we need to do is look at todays world economies, this is proof that individuals need to be educated in money matters for their own future security.
People want to know who will tell them what to do - rather than doing what it takes to learn, understand and practice (BE EDUCATED)in money matters.

[mike j]

uhh... I think your math is way off on the earnings. Starting with 25000 at age 22, and multiplying by 1.03 each year for Graduate A and 1.1 each year for Graduate D, I get 58195 for Grad A and 143000 for Grad D by age 65.

[FMF]

Mike --

I think you need to re-check your math.

[Guardians]

I'm with Barbara; these numbers do not appear to be achievable over the long term. I do not think that constant repeatable salary gains happen in reality nor do I think that certain levels of growth in salary can be achieved over a 44 year time frame.

In my corporate job each position has a pay band, once you are over the mid-point, raises decrease and once you are at the max, you stop getting raises. The pay bands max out at about 120k because once you are at that level, everything is negotiable.

Just stepping back and thinking of your assumptions, Grad B is doing pretty little but you still expect that person to make 200k per year?

I don't mean to say that 10 - 20% raises are not achievable but I am curious to the time frames used and if there is anything special about the specific scenario.

Looking at my own career, I have averaged 10% /year but it’s only 4 years. I don’t expect to be making 1.5M/year by age 65. I would guess my cap at retirement to be about 150k/year. Do you think I am being too modest or what other factors are we not including?

Care to give any insights into your situations?

[FMF]

Guardians --

Here's my background:

http://www.freemoneyfinance.com/2008/01/how-ive-grown-m.html