How to Earn an Extra $1.4 Million in Two Steps

Ok, so you probably doubt that I can deliver on my headline. Well doubt no longer. Consider the two steps needed to earn $1.4 million more over your career than those who don't do these things:

1. Get a college degree.
2. Negotiate a higher starting salary.

Let's take these one at a time. Here are some recent findings on the value of a college degree:

A new report from the San Francisco Fed crunched some numbers. The takeaways?

College graduates—those with a four-year degree—earned about 61% more ($20,050) annually than those without a four-year degree in 2011. The premium has averaged around $20,000 for decades.

If we conservatively assume that the annual premium stays around $28,650, which is the premium 20 years after high school graduation for graduates in the 1990s–2000s, and accrues until the Social Security normal retirement age of 67, the college graduate would have made about $830,800 more than the high school graduate.

I'll add some comments on this in a minute. For now, let's skip to the value of negotiating a higher starting salary:

According to the study, which will soon be published in the Journal of Organizational Behavior, the compounding effect of successful salary negotiation can be significant. Assuming an average annual pay increase of five percent, an employee whose starting annual salary was $55,000 rather than $50,000 would earn an additional $600,000+ over the course of a 40-year career.

This latter study even tells how to negotiate:

Five negotiation strategies were examined in the study: Accommodating, Avoiding, Collaborating, Competing and Compromising. Individuals who negotiated by using the Collaborating and Competing strategies—utilizing open discussion of issues and perspectives—showed the best results. In contrast, those who used the Avoiding, Accommodating and Compromising approaches were less successful in negotiating larger salaries. 

Now let's do some math. $830,800 for going to college plus $600,000 for negotiating a higher starting salary equals $1,430,800! See, and you doubted me!!!! :)

Ok, so I'm writing this a bit tongue-in-cheek. There are a gazillion "yeah but what about this" issues. The college you go to, how much you pay, what you major in, and on and on.

And these are valid issues that can impact the value of each of the suggestions.

But it's also true that if you do certain things, you will earn more money over the course of your working career. And two of those things (on average) are getting a college degree and negotiating a starting salary.

Maybe not $1.4 million worth, but certainly a substantial amount, right?

What's your take on the issue?

Comments

[Matt]

Too many variables to associate a dollar figure and too many generalizations.

A degree will be only worth how much demand for that work. That is why the current buzz is STEM degrees because they are currently the high demand degrees.

If you are a poor negotiator then yes you will earn less. This is also to say if you are complacent with your current position of work you will make less.

But there is the happiness factor. I prefer getting compensated for my efforts and enjoy my work than, chasing that higher dollar and despise my work.

[FMF]

"I prefer getting compensated for my efforts and enjoy my work than, chasing that higher dollar and despise my work."

Matt -- I think it's a fallacy that highly paid work = work you despise. I know I have found that you can get paid well doing what you like. Would like to hear what others think.

[JayCeezy]

This post is a great 'truth bullet.' Last few years seems to be a lot of the 'chattering class' questioning the value of a 4-year degree and debt. Negotiation is also quite difficult, especially in entry-level jobs; nobody likes to hear it, but the value of labor is only worth what an employer will pay. But once value is proven, negotiation opportunities increase. A great recent book on the subject is "Getting More" by Stuart Diamond.

There is a remarkable trend I observe (anecdotally, of course) where young college grads have not 'launched' and are holding out for work that 'has meaning'. They would never (so far) consider renting cars, a fast-food management training program, retail banking, etc. Their parents have enabled them to 'hide out' in grad/law school, or travel or otherwise delay a working life of 40 years with 2-weeks a year vacation, cubicles and broken copiers.

Here is a table of Earnings and Unemployment Rates by Educational Level from the BLS, which should stun anyone making the 'college degree isn't worth it' argument.
http://www.bls.gov/emp/ep_chart_001.htm

[Old Limey]

I happened to be reading the obituaries in my local paper today when a name popped out at me. It was that of a man to whom I owe quite a big debt of gratitude.

The man was the Dean of Engineering at the University of Santa Clara in California who had died at the age of 94.

Back in 1960 I had recently started work at a major aerospace company and realized that most of the engineers in my department had MS degrees whereas I actually didn't even have a batchelors degree in engineering. I had been an apprentice at a local aerospace company in England and graduated with what was called a Higher National Certificate in Mechanical Engineering which I obtained by attending a municipal college one day & 5 nights/week. I also later obtained a Higher National Certificate in Aeronautical engineering from the University of Southampton in England.

Soon after starting work in the USA at my new company I went to their education department and inquired about getting an MS degree. They told me about their part time day release program at a local university through which I could get my MS degree.

The first step was to obtain an interview with the Dean of Engineering mentioned above. I explained that I wanted an MS degree but didn't have a BS degree. His encouraging reply was, "That's OK, sign up for the program, all we care about is that you pass all of the courses" with at least a B average.

Two years later in 1963 I graduated. The speaker that day happened to be a former alumnus and well known person that you have all heard of called Alfred Hitchcock.

Having the degree enabled me to do much more interesting working helping to design and analyze the warheads for the US Navy's Fleet Ballistic Missile program. It also helped me get several promotions. I stayed with the company my whole career before retiring in 1992 when the Cold War ended, the Berlin Wall came down, Defense contracks were drying up, and my company made a very generous and lucrative offer to employees in my age group to take early retirement, which I was happy to accept because I was planning to retire a few months later anyway.

[Sarah]

I feel that blanket advice to 'go to college' is dangerous to an unsophisticated audience. Yes, attending certain schools has shown to increase earning power. I know it increased mine. (And, you know, I have heard rumors that once upon a time college was considered to have value beyond the pre-professional, but that's just crazy-talk.) But one of the worst things you can do for your financial future is take out a lot of federal loans to go to a for-profit college. You may find yourself being used as a little more than a human conduit to funnel tuition to the schools. Nondischargeable loans + no useful training = decades of nightmare.

[Old Limey]

Sarah:
I was receiving pay, and living at home, throughout the five year apprenticeship it took me to get the equivalent of my BS degree in England. Then when I came to the USA my employer paid all of the tution for me to get my MS degree at a local, private, university.

Thus my complete education cost me zero other than buying the required text books.

I feel that when I compare myself with today's students I certainly lived in the "Good Old Days".

Isn't life meant to get easier for people as the years go by? Of course, in the "Good Old Days" governments also used to balance their budgets every year, that hasn't happened since Bill Clinton left office.

[JNEW]

This is interesting. People love to say college is not worth it. But, like most things, it is more complicated than that.

First of all, there has to be a way to thin the heard when you are looking to find the best and the brightest. This is why people send their kids to fancy boarding schools like Phillips Andover. This is why the SAT and other standardized tests exist. This is why a degree from Harvard is coveted.

It does not necessarily mean that the kid who attended Harvard or Phillips Andover is better. And it does not mean the kid who aces the SAT is bound to be a better employee or manager.

But society needs a bulk way to narrow down the choices.

Back to the issue at hand. Is college worth it? You bet it is. So what does that mean? It does not mean that everyone should attend colleges they cannot afford. It does not mean that you or your parents should take on boatloads of student debt. It simply means that with all other things being equal-- having a college degree is a leg up. It probably ( not definitively) will provide you with opportunities not otherwise available including opportunities for more advancement within the job world-- leading to a higher salary.

I know that there are many out there who will disagree. And I am ok with that. It is just an opinion after all. I hav friends that never went to college who make much more money than I do as a lawyer. Everything is elative and everything has exceptions. There are no givens in the world.

The bottom line to me is to try to create and/or take notice of opportunities that come your way-- whether by, networking, education, family, etc and take risk adjusted advantage of them. Don't be afraid to fail while you are young. And make the choices that are right for you rather than following the status quo.

Rules of thumb and generalities are not where fortunes are made. They are made by hard work, lots of luck, the ability to get back up after a fall and, as I stated before, noticing, creating and taking advantages of opportunities as they arise.

Let me come full circle back to OLD LIMEY"S comment. Look what this guy did. Took advantage of a perceived opportunity and Immigrated to Canada with no money and a lot of hope in his pocket. Took advantage of another and came to the USA. Worked as an engineer without ever receiving BS degree. Self made. Smart. Hardworking. Impressive.

[Matt]

FMF
In reference to my comment, my next level put me in a position that I did not like.When you do not sleep at nights it effects your health.

No amount of money is worth that.

[Old Limey]

JNEW
My pathway to success is almost certainly not possible today - I happened to be in the right place at the right time.

When I left England in 1956, Canada and the USA had quotas for Brits that were never filled. Many years later the quota systems were changed and Britain no longer had a favored status.

The other factor that helped me greatly was the Cold War. There was a huge shortage of engineers both in Canada and the USA at that time.

One other piece of good luck happened purely by chance. I was nearing the end of my apprenticeship and was working in the Stress Office at the time. Every morning a cafeteria worker brought a trolley around so that we could get a cup of tea or hot chocolate to warm us up. I happened to be standing in line next to a guy that I knew when he said, "This is my last week here, I'm off to Canada this weekend to take a job with Avro Aircraft in Toronto - they are interviewing engineers at one of the local hotels."

I was on the hook to do 2 years national service in the RAF and had applied for a deferment in order to get more education. I had married my girlfriend on July 14th 1956 and we had bought a house trailer for her to live in while I was away in the RAF. I went for the interview and was offered a job as a junior engineer at $83/week with our passage paid. My wife was gung ho to go to Canada and gave up her job as a librarian, we booked a passage on the ocean liner "The Empress of France" and sailed from Liverpool on November 2nd. 1956, arriving in Montreal on November 9th. 1956. My deferment came through just before we left and we were also able to sell the house trailer for exactly what we had paid for it.

[Steve]

Yeah, salary negotiation is a huge no brainer and one so many people ignore....

College is a lot more complicated. I bet I could take the cost of college (4 years tuition plus 4 years foregone salary) and just invest it and make way more than $800k by the age of 67.

[PJ]

I have conducted two salary negotiations in my career. They have netted average pay increases of approximately 19% compared to the prior year. Granted, those moments were built up to by years of preparation and documenting successes and delivering. But if I hadn't negotiated, I probably would have been looking at 3-5% raises for those promotions.