How You Grow Your Income by 10% or More a Year

In my post titled Maximizing Your Greatest Asset: Why Your Career is So Important, I reviewed some scenarios where a person increased his salary 3%, 5%, 7.5%, and 10%. In posts like this I often get a comment along the lines of, "These percentages are not realistic. No one today earns 10% salary increases every year."

Maybe, maybe not. But I never said that a person who averages 10% salary increases a year would have a salary increase of 10% every year. If this did happen, it would be quite unusual. Instead, what happens most often (in my experience) with salary increases is that in some years they are small and some years they are large. In the end, you get a decent average return if you can maximize the number of good years as well as the size of the increases. In other words, the growth is not a straight line, but goes up and down year-to-year, like the performance of an investment (good in some years, not so good in others). In the end, you get a decent average if you can manage your salary well. (FYI, I use a straight percentage in the article highlighted above as well as others for simplicity, but it is meant to reflect a real-world average gained by these ups and downs as I just described.)

Here's an example of how a fictional person was able to grow his salary by an average of 10% during a 10-year period:

• Hired at $20,000 per year.
• After year 1, he's given a 3% standard increase.
• After year 2, he gets promoted to the next highest level and receives a 15% pay increase.
• After year 3, he performs well and receives a 5% pay increase.
• After year 4, he leaves his job for a promotion with a new company. He receives a 20% pay increase.
• After year 5, he's given a 3% standard increase.
• After year 6, he's promoted again and earns an 8% pay increase.
• After year 7, he leaves his job for a promotion with a new company. He receives a 20% pay increase.
• After year 8, he's given a 3% standard increase.
• After year 9, he's promoted again and earns a 12% pay increase.
• After year 10, he's moved to a new division, given more responsibility, and earns a 13% pay increase.

In the end, these increases average out to just over 10% a year and makes just under $52,000 annually. I know it's not a perfect example (for instance, I didn't factor in bonuses, stock options, and other perks), but I think it illustrates the point.

A few extra comments:

1. Note how he has to regularly get promoted and/or move to a new job at a new company to get the biggest pay increases. How does he do this? He knows the expectations and overdelivers. BTW, changing companies and getting promoted are where my biggest jumps in pay have occurred as well.

2. In some years, he simply gets a paltry increase. It's ok for this to happen now and again, but you can't expect to earn the big increases staying in the same position at the same company. It just doesn't work that way. 

3. If he'd only averaged 3% increases a year, he would have been earning just under $27,000 in ten years. At 5%, he'd be at almost $33,000. Big difference, huh? This is why I'm constantly beating the "make the most of your career" drum. The gap between a 3% annual increase and a 10% annual increase is HUGE!

4. Think results like these can't be accomplished? Think again. Here's the real-life details on how I've grown my income.

Comments

[Maria]

Your illustration is a good basis for this discussion, but replicating this at the latter half of your career might be problematic. How would you illustrate that? There are fewer spots as you go up the chain, especailly in small companies, and in larger corporate environments the threat of layoffs, or frozen pay and benefits are fairly common. Then the question becomes how often can you change companies and not look like a job hopper?

[FMF]

Maria --

Yes, it can slow a bit once you near the top, but it can also get bigger (bonuses, options, extra perks, etc. can REALLY make a huge impact.) And if you've done well the first 20 years of your career, the subsequent raises, though small in percentage terms, can still be big in abolute terms (a 4% raise on a $200,000 income is a good amount of money.)

[Jim Odell]

The largest percentage raise I ever got when I was 24 or 25. I worked for a small company and I took 4 weeks off to travel. When I got my co workers told me that the boss missed me and was getting stressed out. I was going to ask for a small raise, instead I asked for and got of 40% raise. If your doing a good job often people don't notice until you are not there and they realize how much and how hard you work. My advise to those of you who are doing a great job and will be missed if not there, take a long vacation and ask for the raise after you get back.

[YeaYuh]

When I first started working after college I started out at 35k and now making 80k after 7 years on the job.

My biggest increase was about 2 years ago when I was switching contractors and asked for a 30% increase.

[Jim]

Typical would be 4-5% annual increase.

In 1977 people age 25-34 had median income of $12,361 and in 2007 people age 55-64 had median income of $42,129. Thats a growth rate of 4.1% over 30 years.

10% annual increases would be a very high goal to aim for. I've hit about 7% average over the past 12 years and I think thats pretty good. I got it in jumps mostly with 2-4% annual raises most years and 10-15% raises due to promotions.

[Peter]

I think when you're young you can aim for even higher than this. For instance...I started out making $10/hr part time as an intern during college. In 2000 my income was roughly $6k. In 2001 I was promoted and went pseudo-fulltime and made $18k or a 210% increase. In 2002 I got a small raise and made $19.5k for an 8% increase. 2003 had another small raise to $25k or a 28% increase. In 2004 I graduated from school and took another job that was a promotion and made $31.3k for a 26% increase. 2005 saw another bump to $38k or a 22% increase. In 2006 I got a major promotion and another raise to $56.5k or 48% more. 2007 saw me change jobs and earn $62k for another 10% increase. In 2008 I changed jobs one more time and went to $113k for an 83% increase. In 2009 I expect to touch $175k for another 50-60% increase.

So for the last 9 years I've gone from $6k a year to $175k and averaged roughly a 54% annual increase by networking and proactively managing my career. Now I'm 27 and well on my way to executing my dream of being an entrepreneur in the next 12 months.

Don't anyone sell themselves short! You have the talent just ask for the money!

[Cyntia]

Ugh...I've gained more than 37k (from 50k to 87k) in 10 years at the same company but I can see that I probably will need to quit or get a substantial promotion to continue growing.

I have a question. I'm in a potion now managing I support department, as a result a do a ton of training internally and externally. I've begun putting together a training program. Do you think I should develop it and then ask for a promotion and raise once its in motion? Or should I ask for raise now?

I'm only hesitating because I know we can't get raises until our fiscal year ends which is in March.

[Traciatim]

This is kind of how I ended up getting rather large increases where I work. It just seemed that promotion time and raise time fell on two different points in the year for me.

What's even better is I started out taking it as just a temp job while I searched for a 'real' job, since it was just a call center job. 6 Months in I moved departments, a few months later moved again, then a yearly increse, then a promotion, then a yearly increase, then a promotion, wash, rinse, repeat one more time.

My biggest salary increase was from 2002 (My hire year) - 2003 where my income increased by 46% according to my tax records. My total increase for 2002 - 2008 was 106%, putting it just a smidgen under 13% per year.

I can't figure out why I'm not much happier now though . . . it seems like I'm far more miserable now.

[F / Concojones]

FMF,

Thanks for the example 'pattern'. Great post!

Whether 3-4% is a nice bump, I'm not so sure, it's just an inflation adjustment. Whether it's on a $20k or $200k salary doesn't really matter.

[FMF]

Cyntia --

My suggestion:

1. Read this: http://www.freemoneyfinance.com/2008/10/how-to-demonstr.html

2. If you deserve a raise based on the article above, then by all means ask for one.

[JP]

I've worked for a start up consulting company since 2004. I started at $24,000, and each year got a 10% raise. This year, I got a 70% raise. Additionally, I got a bonus each year (except the 70% year).

[guinness416]

Seems reasonable to me assuming you do something marketable and are prepared to jump jobs when need be. I just worked out my average as something between 13 and 15% per annum over 10 years and four employers, depending on whether you count bonuses or not. I just declined to interview for something paying 12% more than I currently make. And of course my vacation time and retirement match has gone up too. It's kind of like compund interest!

[Brian]

The first 9 years of my career, I went from 25K to 42K, about a 6% average increase. The 10th year however, I took on extra risk in an effort to increase my income substantially. I quit my salary position and started consulting. I doubled my income that year. Since then, my raises have been near the level of inflation as year 10 pushed me near the upper limit of what an employer would pay for a techie.

Another catapult story - I worked with a young man who was switching jobs as the company we worked for was going out of business. The manager at the new company asked how much he was looking for. He responded with "40". He meant $40K per year. The manager thought he meant $40 per hour. He got the job at $40 per hour, nearly 100% more than he was asking for.

[Mike Hunt]

I've averaged 14% per year since I started working- this is on base salary alone. Any bonuses or whatever are icing on the cake.

Started working in 1996 full time at age of 23- $42k per year. Today, 13 years later am at $230K. Was higher in a previous job so this is a 20% pay cut... hopefully I can do better in another role. But if the market stays week I'm happy to stay where I am.

Note- getting big increases late in your career don't mean much, but maxing them out early in your career is huge, because of the power of compounding and the fact that you have a big base salary at a relatively young age. It can be done with strategic job hopping and doing the best you can.

-Mike

[PK]

Nice article! Since age twenty (now 25), I've averaged a 49% pay increase. Graduating college helps that a lot though, so since starting my career path I've averaged 7 % over 3 years. I'm only now getting to the promotion eligible point in my career too.

My catapult point was graduating and instantly earning 185% of my previous job's pay!

[Cyntia]

Thanks! I'm going to use your article as a way to develop my proposal for a raise!

[Meg]

I've been with my company exactly 3 years and have gone from $45K base salary to $60K base salary. That's over 11% per year on average so far. I've gotten small bonuses along the way as well, about 10% a year of my salary. In the coming year the bonuses should increase as well, up to 20% of my base salary.

I think I can definitely keep up the pattern over the next few years if I perform well (I'm a banker/"relationship manager" so what I do really boils down to sales). I expect a 4% raise next year and around a 12% raise with a promotion the year after that. At that point I'll still have averaged 11% a year - but after that I may need to switch companies to keep it growing at a high level.

[SomeGuy]

Graduated top 10 engineering school in 2002 w/2 masters degrees. Immediately got a job with a large unprofitable company. 1 raise (4.5%) in 3 years due to 2 pay freezes. Switched jobs to another unprofitable company and got a 25% pay increase. 2 raises and 1 promotion later making 10% more at this place. Raises frozen this year. Sucks to be an engineer. What do the rest of you do that makes $200k+? An engineer making anywhere near that much would be a laid off engineer. I'm still working on breaking $100k, which isn't much for Boston.

[GroundPig]

There are many ways to increase your income, but you need to find what works for you. Some people find investing the way to go, while others decide to start a business.

However, the most important thing is to save what you make. If you made an extra 100% every year, but spent it all, what good is that?

Also, if you want to find a second job, find one that will prepare you for the next higher paying job. If you're going to spend time, spend it wisely and make it in an investment for your future.

[Susan]

I have a friend, a government employee who receives about a 5-10% increase every year and it's because he goes above and beyond the call of duty. His boss knows he will always volunteer for the projects or perform the tasks that no one else will take on.