A High Starting Salary is Worth Almost $1 Million

On my post titled How to Get Your Career Off to a Great (or at Least Good) Start, I said:

One way to super-charge your career is to start off well. Get a high-paying job, one that also has lots of upside potential, then develop your career to maximize your earning potential. Why is starting out so strong important? Consider this: which would you rather have -- a 5% annual increase on $40,000 or a 5% annual increase on $50,000?

To which a reader responded:

I totally agree on the salary thing - when I was interviewing for jobs, most of them were in the $22-24k range, which I had been expecting for starting jobs in my field. (not that they ever get startlingly higher, but...) However, I applied for a few I didn't think I'd get, and landed one paying $30k. Right now the difference is pretty substantial, but also when I apply for my next job, if they found out that I was only making $22k a year before, they're probably going to reason that I will think $25k is a fortune. However, since my job pays $8k more than I thought I would get, I'll pretty much always have that $8k - plus a sort of prestige since future jobs may think I musta been somebody special to command that high of a starting salary. ;)

Let's look at the numbers and see just how much difference a higher starting salary can make over a lifetime.

• Person 1 starts a job at age 25 earning $23,000 a year.
• Person 2 starts a job at age 25 earning $30,000 a year.
• The both average 5% annual increases throughout their careers.
• They both retire at 65.

Want to guess how much more person 2 makes in those 40 years? $846,000!!!! And if you want to assume that person 2 had extra money to save and invest and apply some average return rate to that money, person 2 probably does better by over $1 million.

Of course there are other factors to consider (for instance, it would be better to take a lower-paying starting job where you could get 10% raises on average versus a higher-paying one where much less was average), but this simple analysis highlights how important it is to start with as high a salary as possible.

Comments

[Leroy Brown]

Howie the world could a 25 year old live or $30,000 a year, let alone $23,000? Yikes! I'm 24 and make significantly more than that and I'm not sure it's enough!

[Leroy Brown]

Doh! That's "How in" not Howie. Stupid Tablet PC.

[AmDollar]

Interesting... I like how you broke it down from a 25 year old stand point, being of that middle age braket myself. Lets hope they dont make the same amount 40 years from now :)

[monkeyjoe]

Leroy Brown, I think the fact that you have a tablet PC is one good reason how you could not afford to live on $30,000 a year. If you keep saying that your salary is never enough, it is your spending that is the issue, not the salary.

[Melinda]

A good starting salary is good for the beginning because your resume increases in popularity and you can spend or save more.

[Jerome]

Sure, we all could use a high-starting salary, with alot of potential, and benefits, but we don't get to chose all the time, do we?

[scsu]

You get to choose... You can get a 4 year BS or you could get the 4 year BS and be very active or the president in a few student orgs while working part time. It all adds up and sets you apart. That is how you choose to get the starting job you want.

[Michael]

You're a sucker if you ever fill out the "prior salary" section on an application. Either that, or you're in a field with way too many people per job opening.

I (and almost everyone I know) leaves those blank. We almost always get in the top 80-90 percentile of the available amount at the job.

Then again, we almost always interview and talk to recruiters whenever something has a good chance of a fit. We say no 90% of the time, but always have a couple groups interested in us.

[Dude]

Leroy well done.. I am happy for you.