Maximize Your Career Earnings: Get a Degree and Manage Your Career

I've posted several times on the value of education, how it can earn you more and save you money and how education is the key to getting a good job. I've also noted that your career is your most valuable financial asset and managing it correctly can earn you millions of dollars in extra income throughout your lifetime. But I've done this all on separate posts. Today, I'd like to tie them all together and show you the value of an education as well as managing your career -- the impact these have on your career earnings over a lifetime.

There are really two major issues to consider when you try to compare the financial impact of education and career (the lifetime earnings you could make under various options). These are:

1. Your starting salary as you enter the workforce.

2. The rate at which your salary grows through the years.

The first one is impacted primarily by whether or not the person graduated high school and/or college. The second is impacted by the effectiveness of the person in managing his/her career.

I'm going to look at several groups of education levels and several earning scenarios under each group. They are:

Group 1: Those not graduating high school

• A starts work at age 16, works until 65, and averages an "inflation-level" 3% average annual increase in income.

• B starts work at age 16, works until 65, and averages a "decent" 5% average annual increase in income.

• C starts work at age 16, works until 65, and averages a "good" 7.5% average annual increase in income.

• D starts work at age 16, works until 65, and averages an "excellent" 10% average annual increase in income.

Group 2: Those graduating high school but not going to college at all

• E starts work at age 18, works until 65, and averages an inflation-level 3% average annual increase in income.

• F starts work at age 18, works until 65, and averages a decent 5% average annual increase in income.

• G starts work at age 18, works until 65, and averages a good 7.5% average annual increase in income.

• H starts work at age 18, works until 65, and averages an excellent 10% average annual increase in income.

Group 3: Those graduating high school, having some college, but not graduating college

• I starts work at age 20, pays for $5,000 in college costs, works until 65, and averages an inflation-level 3% average annual increase in income.

• J starts work at age 20, pays for $5,000 in college costs, works until 65, and averages a decent 5% average annual increase in income.

• K starts work at age 20, pays for $5,000 in college costs, works until 65, and averages a good 7.5% average annual increase in income.

• L starts work at age 20, pays for $5,000 in college costs, works until 65, and averages an excellent 10% average annual increase in income.

Group 4: Those graduating with a college Bachelor's degree

• M starts work at age 22, pays for $20,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• N starts work at age 22, pays for $20,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• O starts work at age 22, pays for $20,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• P starts work at age 22, pays for $20,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Group 5: Those graduating with a college Master's degree

• Q starts work at age 24, pays for $40,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• R starts work at age 24, pays for $40,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• S starts work at age 24, pays for $40,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• T starts work at age 24, pays for $40,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Group 6: Those graduating with a college Doctorate degree

• U starts work at age 26, pays for $60,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• V starts work at age 26, pays for $60,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• W starts work at age 26, pays for $60,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• X starts work at age 26, pays for $60,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Group 7: Those graduating with a college Professional degree

• Y starts work at age 26, pays for $75,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• Z starts work at age 26, pays for $75,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• AA starts work at age 26, pays for $75,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• BB starts work at age 26, pays for $75,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Based on my post titled Sell College to Your Kids, here are the average starting salaries for each of the groups highlighted above:

• Group 1: Not a high school graduate annual salary: $22,074 
• Group 2: High school graduate annual salary: $27,975
• Group 3: Some college but no degree annual salary: $33,948
• Group 4: Bachelor's degree annual salary:  $51,644 
• Group 5: Master's degree annual salary: $61,296
• Group 6: Ph.D. annual salary:  $80,225
• Group 7: Professional degree (M.D., J.D.) annual salary: $95,175

The rest is just math. Here's what each of them will have earned at age 65, after paying for college costs (if applicable), throughout their careers:

Group 1

• A earns $2.5 million in his career.
• B earns $4.6 million in his career.
• C earns $10.7 million in his career.
• D earns $25.7 million in his career.

Group 2

• E earns $2.9 million in his career.
• F earns $5.3 million in his career.
• G earns $11.6 million in his career.
• H earns $26.9 million in his career.

Group 3

• I earns $3.3 million in his career.
• J earns $5.7 million in his career.
• K earns $12.1 million in his career.
• L earns $26.9 million in his career.

Group 4

• M earns $4.6 million in his career.
• N earns $7.8 million in his career.
• O earns $15.9 million in his career.
• P earns $33.7 million in his career.

Group 5

• Q earns $5.0 million in his career.
• R earns $8.2 million in his career.
• S earns $16.2 million in his career.
• T earns $32.9 million in his career.

Group 6

• U earns $6.0 million in his career.
• V earns $9.6 million in his career.
• W earns $18.2 million in his career.
• X earns $35.4 million in his career.

Group 7

• Y earns $7.1 million in his career.
• Z earns $11.4 million in his career.
• AA earns $21.6 million in his career.
• BB earns $42.0 million in his career.

Very, very, very interesting, I'd say. Here are some of my thoughts:

1. The cost of college is a non-issue in the long run. You earn much, much more through a working career by going to college than the cost of the degree itself. The conclusion is quite simple: for people managing their careers to the same level of effectiveness, the more you go to college, the better off you'll be financially. Consider "A" versus "Y". "A" had 10 more working years and didn't have $75,000 in college debt to be paid off -- and they both managed their careers with the same level of effectiveness. Yet "Y" earned $4.6 million more -- a pretty good return on the college investment. 

2. Managing your career effectively is much more important financially than getting a college degree. Someone without even a high school degree but who does an excellent job managing his career ends up earning $25.7 million while someone who gets a Professional degree and does "only" a good job managing his career (the second-best option) earns $21.6 million. That extra 2.5% every year means a lot due to the power of compounding and the power of time.

3. Numbers (percentage increases) higher than those noted above 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.

4. No matter how you look at it, most of these people end up earning a very large sum throughout their careers. If people could just learn to spend less than they earn, more people would become wealthy and would be happier with their finances. 

Comments

[Eric S.]

Your point #3 is puzzling. What line of work permits such phenomenally large percentage raises *every* year? Most companies I know of have a pretty restricted latitude regarding annual raises, with the maximum raise seldom more than a few percent above cost-of-living. In my experience, the only time one is able to get a substantial (10s of percent) raise is when you change jobs.

That, of course, just makes the improvement in starting salary due to education all the more important.

- Eric

[FMF]

Eric --

These represent average amounts over the course of a career and take into account the combination of the following:

*Regular, annual increases - As you note, these are usually fairly low. If you rely on them only, it's likely you won't be able to achieve the higher rates I note.

*Promotions within the same company -- When people get promoted to new levels of responsibility, they often get pretty good bumps in pay. Companies I've been with provide 7-12% increases when a promotion occurs.

*Taking a new job with another company -- This is where you can really get a good increase. I've had up to 20% increase in one year by switching to another company.

Don't look at the increase percentages in the post as something you'd get EVERY year, but something you'll AVERAGE. For instance, the 10% numbers above don't mean that you'll get 10% increases every year, but some you may get 3%, some you may get 8%, others you may get 15%, and so on -- they'll average out to 10%.

And 10% is achievable -- I've done it. But you must actively manage your career, you can't sit back and just let it happen. That's the point of the post. If you do just sit back, you'll be in the lower end of the increase levels.

[Eric S.]

OK, I guess I got a bit confused when you said 'average' 10%. I was thinking like 'average yield', in which case you'd need a few 50%'s in the mix to compensate for all the other years of 4% raises.

Also, since most employment (I thought) was with smaller businesses, promotion possibilities are very limited (IIRC, I've only had one in nearly 15 years). If a company has less than 500 people, there's not much of a 'corporate ladder' to climb. Even in a larger company, the only people who get much in the way of promotions are those who are on some sort of management track.

Since most folks only change employers a handful of times in their career, I'm thinking your averages are somewhat overstated. But then, as I implied initially, that may just be a difference in my type of work.

- Eric.

[FMF]

I think the main point is that no matter where you work or at what level, managing your career actively can make a big difference in your finances.

For instance, if you're only able to earn 3% per year in your field/with your company if you do nothing but by working at it you can get up to 5%, then that's a big deal. It's worth doing so since you can earn much, much more over the course of your career.

[anonymous]

aren't you forgetting something? like a salary cap? you won't be getting those annual salary increases after so many years.

[FMF]

Anon --

You will if you keep getting promoted regularly.

[Michael]

I have been running my own business for the last ten plus years and will be returning to College to start with a Asociates Degree in Bus Admin going for a marketing sub. I am 57 yrs old and would like to sell my business in five to ten years and would like to start a new career with my degree part time before selling my business, does this seeem like I am being realistic with my goals?
thanks
Mike

[FMF]

Mike --

When you change careers, it's likely that you'll start at or near the bottom of the pay/work scale which may be something you aren't willing to accept. That said, if you're ok with that and can afford it financially (you'll be nearing retirement, so keep that in mind), then any career change is you choice.

Check out this post for some more insights:

http://www.freemoneyfinance.com/2007/12/what-it-takes-t.html

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