Your Most Valuable Financial Asset Could Be Worth Millions More

Career worth millions moreWhat if you had a financial asset worth $2 million or so? Wouldn’t that be cool?

Well, you do have such an asset. I’ve already detailed how your career is worth millions and is thus your most valuable financial asset.

That’s great news in and of itself. But there’s even better news: you can make your multi-million dollar career asset worth even more than it is otherwise. In fact, you can make it worth MILLIONS MORE!

Yes, millions more.

The Numbers

Let’s run through a few scenarios that illustrate what I’m talking about. We’ll begin with four workers, all starting their careers earning $20,000 a year. Throughout the course of their working lives, they get annual raises at different rates as follows:

  • “A” averages a 2% raise per year
  • “B” averages a 4% raise per year
  • “C” averages a 6% raise per year
  • “D” averages an 8% raise per year

Not much difference, right? Simply a few percentage points. Oh, but these differences really add up. Let’s look at the numbers:

  • At the end of 40 years, A makes $43,295 and has earned $1,208,040 during his career
  • At the end of 40 years, B makes $92,327 and has earned $1,900,510 during his career
  • At the end of 40 years, C makes $194,070 and has earned $3,095,239 during his career
  • At the end of 40 years, D makes $402,306 and has earned $5,181,130 during his career

The differences are substantial. “A” didn’t manage his career. He simply went with the flow and got raises that were commensurate with an employee that goes with the flow. He averaged raises that were at the level of inflation or less.

On the other hand, “D” was aggressive in how he grew and managed his career. He took the steps necessary to average 8% pay increases by getting raises and promotions throughout his career. And he ended up making almost 10 times what “A” did in salary at retirement and almost $4 million more than “A” over the course of his career.

This simple illustration shows the difference between someone who actively manages his career and someone who doesn’t. It shows that if you work at it, you can make your career worth millions more than it would have otherwise been worth. Sounds like a good use of time, huh?

Can We Agree on 1%?

But some will cry foul at this illustration. They will claim the days of 8% raises are over. They will claim their company/industry/department is raise-proof. They will claim there is simply too much work involved to earning more — that they possibly couldn’t work an extra second.

All of these are false objections and we’ll discuss them over time. But for now let’s address one of the largest objections: that you can’t earn high raises consistently.

I don’t agree with this sentiment (I have averaged over 8% raises over a 25-year career), but let’s say I did agree — the days of “high” raises are over. But do you think we could agree that whatever the going level of raises are, that if you were a “great” employee rather than an “average” employee you could earn 1% more in raises, right? That seems realistic to everyone, correct?

Ok. Then let’s look at the difference a mere 1% makes.

Just 1% is Worth a Fortune

Let’s say Jim is an average employee and he gets average raises of 3% per year. Sue puts in time and effort at managing her career and she averages 4% raises a year. Assuming she and Jim both start work at 22, they both work until 65, and they both start making $30,000 a year, here are their results if Jim averages 3% raises and Sue averages 4% raises:

  • Jim ends up making $107k at 65 and made $2.7 million over the course of his career.
  • Sue ends up making $162k at 65 and made $3.5 million over the course of her career.

So in this case, the value of just that extra 1% is $800,000!!!! Sue ends up making 30% more than Jim simply by averaging an extra 1% raise over the course of her career. And it seems entirely reasonable to assume that one person could make 1% more than another, right? Of course, we’ve already agreed to that!

Now if Sue wanted to really kick-start her earnings, she could add the following:

  • Start at a higher salary. I’ll talk about this later, but this made a HUGE difference in my career.
  • Get higher than average raises — higher than 4%. Some people may think that 5%+ average raises are things of the past, but I don’t. There will always be more than enough compensation growth for good employees. Sure, average employees may get 3% (or less), but there are people — people TODAY — who are and have been averaging well over 3% for years now — and they will keep doing so for years to come. The difference? They manage their careers intentionally, delivering above average value. This value then gets rewarded in extra pay.

One thing to note here: I’m not saying that Sue gets 4% raises EVERY year, I’m saying she averages 4% raises. Sometimes she’ll change companies or get promoted and earn 10% more than the previous year. Some years she will only earn 3%, like everyone else. But over the 43 years of her career, she will average 4%.

Another important point: even though their salaries grew at different rates, both Sue and Jim still earned MILLIONS of dollars over their working careers. In other words, your career is worth millions of dollars. That’s why it is your most valuable financial asset.

What If You’re Older?

As I wrap up this post I want to address the people who think it’s too late for them. You may be 20 years into a career and think this post is not for you — that it only holds true for those at the beginning of their career. I have a couple thoughts for you:

  • If you start taking the steps to grow your career now, no matter where you are in your career, you will make more than you would have without doing anything.
  • Sure, an extra 1% over 40 years is better than an extra 1% over 20 years. But an extra 1% over 20 years is better than nothing extra over 20 years. :)

So exactly what do you need to do to get closer to 8% raises than 2% raises? Good question. We’ll cover those in an upcoming post.

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  1. I’m going to cry foul on this one. Averaging 8% raises? I got nearly a 7% raise this year and from what I can tell that’s unlikely to happen again next year. Maybe I’ll kill the performance evaluation again next year and maybe I won’t. No idea. Some of the high ratings are passed around to different functions each year because there are far more high performers than available high ratings. Regardless, I don’t think an 8% average is at all within the realm of reality (at least not in current economic conditions).

  2. MFIJ –

    Three things:

    1. Averaging an 8% raise over a career is very different than getting an 8% raise every year. Some years you’ll get 3% and some 15% (like with a promotion or new job). The examples above are based on averages, not exact annual increases.

    2. I am almost 25 years into my career and I’m averaging just at 8%. It can be done. Does today’s economy limit options? Maybe. But things change. If you have 30 years left to work, things could change a lot. One last question: do you think anyone is averaging 8% raises a year in this economy? Sure they are. Lots of people are. Remember, I never said it was easy. But the top performers can get this even today.

    3. The fact that you disagree with 8% implies you agree with the rest, which is exactly my point. You don’t have to average 8% to make millions more. You just need an extra percent or two. Or three. Or more if you work at it. And if you do get more, you will be quite well off indeed.

    Congrats on the 7% raise. You must be managing your career well.

  3. Jonathan says:

    I have only been in the workforce 7 years now, and of course the most salary growth can occur when you start at the bottom, but I just calculated that my salary has grown at a 13% average rate over those 7 years (including through the recession). I started out at a decent salary (not great, but not so low as to make the increases inevitable). Will it continue? I expect that over the next 5 years or so I should increase my salary by 8-10% annually. I’m not sure what the ceiling is in my industry (at least as an employee), though after my 5-year projection carries out I’d likely be about 75% of the way there (before adjusting for inflation).

    My company has made it very clear to me that I provide them with a lot of value, and they have continued to do what they can to keep me happy.

  4. Lion- I have averaged about the same percentage as you over a 22 year work timeframe. But I am skeptical that that is possible in this environment for the masses.Not sure that the generations following us will be as lucky as we have been.

    But I agree 100% with your overall thought process– that managing your career ( your best asset) is a very good use of your time and even a 1% or 2% gain above someone who fails to manage their career can make a HUGE difference in lifetime wages, net worth, and ability to obtain “financial freedom”.

  5. I am interested to get your thought on if you think it is possible to average 8% without job hopping and/or switching career paths from time to time. I’m working my first professional job right now. I received a prorated (6 months) raise at my first annual review. That raise was 1.5%, and I scored a top grade on my performance review. Another 5 months have gone by and I have been promised another raise at my 1 year mark (not standard company policy). If this one is the same, I will have increased 3% annually.

    Again, I am the top performer on my team and achieved a nearly perfect score on my performance review. I agree that a “managed” career is the key, but how much of a raise can one expect to average by staying in one place?

  6. Jonathan –

    Exactly. Those who provide a lot of value get the pay bumps. Good for you. You are off to a great start!

  7. Jnew –

    I don’t think 8% is viable for the masses these days, but I don’t think 8% was ever viable for the masses. It’s for the top tier performers. But that’s who reads this blog, right? :)

    As you’ve pointed out, even if someone is not in the top tier, getting just an extra percentage or two each year can make a huge difference.

  8. Nick –

    My opinion is that it’s very difficult to make the big jumps you need to maximize your salary if you don’t switch companies a few times in your career. I have changed companies four times in my career and been promoted within the same company three times. By far my biggest jumps in pay were when I switched companies. The promotions were decent bumps, but my experience is that your current company will pay less for a promotion than an outside company will for the same position. Why? Because they can get away with it.

    As such, you will probably need to do both to get the most out if your career. Of course, if you are making decent money, getting decent bumps, and love your job, why move anyway? You have to balance pay with the intangibles the company offers. I have been at my current employer for nine years now and could make more elsewhere, but I love the company and the people, plus I am highly compensated. So I have stayed. Money, while important, isn’t everything. :)

    That’s my two cents. What do the rest of you think?

    • Jonathan says:

      You are likely correct that changing companies from time to time helps to truly maximize your income. I’ve been with 3 companies all through my initial interview…The small company where I began my career got acquired by a larger corporation, and then after a couple years a small group of us (all holdovers from the original company) branched off to form a new company (in 2009 at the height of the recession). There were no direct pay increases through either the acquisition or the new company, but now I’ve seen how three different companies operate and am by far happiest now. It would take a significant salary increase for me to consider leaving, and then only if other factors (like location, work environment, flexibility) were equal or better.

  9. Interesting post. Of course it led me to do my own calculation. My first real job after college graduation I started in 1990 at a salary of $25,000. This year I’ll make $160,000. So that is 8.4%! (numbers are just salary and bonus, not retirement matching or pension).

    Now do I think I can keep that up for the next 15 years? No, I don’t. I’ll soon be 47, so that would have me earning $358,000 10 years from now when I’m 57. Realistically, I think I’ll make it up to $200,000. Optimistically, maybe $250,000. Still not bad. Good thing is, from where I am now, even a 2% raise is $266 per month extra income.

    As for the company switching, I switched jobs after year 3, year 4 and year 13. I’m close to 10 years at current company. I’m going to try to hang on 8 more years until 55 when I can retire with access to group medical (at my expense). By then I should have the financial indepedence to decide to keep going, downshift, etc.

  10. B –

    That’s GREAT! EXACTLY what I was talking about.

    Congrats and keep it up. I’m betting you end up way over $200k. :)

    • A little more background…during that time I spent about 4 years working 4 days a week after my son was born. I also got a 10% salary cut back in 2002 when things went south in my industry (all of management took it). A year after that was my most recent job change in 2003. Sometimes you have to switch companies to continue your growth. Best of luck to you and the rest of your readers!

  11. MechE31 says:

    My career is still in the early stages, graduating in Fall of 06 and starting my first full time job in January of 07. I started at a large corporation with a decent starting salary and averaged 3.5% raises for the next 5 years, which was actually on the high side for the company and included 3 years where the top performer raises were 2%.

    Last year I changed jobs and got a 20+% raise which brought my average % from the start of working to just under 8%, not to mention more job satisfaction.

    For me, those raises are possible, but won’t come without job changes.

  12. MechE31 –

    Your career is following a similar path to mine when I was your age. Keep at it and good raises will come your way.

    • MechE31 says:

      One thing I’ve found so far in my career which is about the opposite of what this blog is for, is that job satisfaction matters more than money, as long as I’ve got enough money to be comfortable while saving.

      Switching jobs was as much about that as it was about money. I had made up my mind before the offer came, which was after a very long interview process. I was told about a week before the offer, which was the first discussion of salary, that I had the job and an offer would be presented shortly.

      Right now I absolutely love my job and the money comes second. With that said, I did get some stock options that I hope will pay off, and right now look like they may, as I currently have 6 figures in unvested value. We are private, so cashing out may be a little bit more difficult…

  13. MechE31 –

    I agree that you need to like what you do as well. But liking a job and getting paid more aren’t mutually exclusive.

    For instance, I’ve had times when I hated my job, then left for a higher paying job I liked. I’ve also had times when I liked what I was doing but took a better paying job because I thought I’d like it just as well or better.

    I have NEVER taken a job I disliked just to earn more and I wouldn’t recommend it for anyone. I’ll write about this someday. Thanks for bringing up the issue.

  14. I agree with the theory here. I’ve changed industries once in the past 13 years of working, taken a pay cut, and gotten pay raises ranging between 5-16*%. Once you average that out, it’s maybe not quite 8% yet but I think it’s close.
    *16% in a company where raises were standardly 3-5%, and during the recession. You really can make this sort of thing happen with the right circumstances and management.

  15. I think part of your point is that it is worth the extra effort to enjoy the larger return over your entire career. If you get a large raise early in your career and never duplicate that, then each subsequent raise will be on that larger amount. It was worth the effort at that time and continued for the rest of your career. Very similar to compound interest. Get that ball rolling and it continue to work for you for a long time and can add up to some big returns.

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