How to Estimate a Projected Salary and a Baseline Budget for an Effective Salary Negotiation
So you were searching for a job all summer. You finally got requested to interview, and they loved you! Now they’re calling you back, and you’re not sure what to ask for in the offer and whether you should negotiate your salary. What do you do? How do you know what to ask for?
You need to determine your grown-up budget. That’s right, even if you’ve been living on you own in college, it may not be the same, considering the different options you have for retirement and other expenses you have when you accept a professional position in your field.
When you try to determine your budget for negotiating a job offer, you always want to start by researching what is the average salary or hourly wage of the position you applied to. You can use the following websites to get a range of the pay:
I tend to research the average salary on at least two sources, then take the average number. That’s my starting point. Then, I add about 2-5K as the lower number in the range for the negotiation. Never start at the very bottom! You don’t want to sell yourself short! Begin your negotiation somewhere in the upper or midrange, and then work your way downward, if needed.
But now that you have the salary range in your asking price, then how do you know that what you think you might need will be enough? That’s where you need to estimate a budget. This is important, because you need an idea for if they don’t take your minimal request, then how much can you realistically accept, before you’re living off of peanut butter and Ramon. Nobody invests thousands of dollars in a college education to live like that. Here’s some things you need to consider to estimate your budget:
Standard of Living
This will be different depending on the state, and even the city that you live in. The taxes are different from one state to another, and how much you pay for a McChicken in Hawaii is different than what you will pay in Illinois. It sounds bizarre, but it’s the god-honest truth. This is even the case for something as simple as a gallon of milk, all the way to what the average rent or mortgage will cost. You need to factor what this is along with the amount of driving or the otherwise means of transportation that you will most likely use in a given area. Check this out from someone that lives there, if you can, or use a website, such as the Cost of Living Calculator from Nerd Wallet.
Your Expenses
You need to think about your basic bills such as rent, utilities, electricity, but you also have groceries, entertainment, internet, or other subscriptions that you use on a monthly basis. You need to add all of these up when you consider your budget, so you realistically know where ALL of your money will go and factor this into not only how much your bills will cost, but also how much you will need to make for your lifestyle to be sustainable.
Retirement Allocation and Tax Deduction
This is something you will likely not be able to factor with complete accuracy until you get hired and meet with Human Resources during some type of orientation or onboarding process. However, there are a number of employers that require you to put money into the retirement fund. Sometimes you have the option for how much you can contribute. This number might be something like 2-4%, but you can allocate more if you wish. I would talk to a financial advisor about how much you should ultimately put away based on your age and retirement goals.
Although your retirement may seem like a small percentage, the sleeping giant that will be deducted from your paycheck is the federal and state taxes. It is common practice to estimate about 20% from what you anticipated will be your monthly income will be automatically deducted toward taxes (try your best to wipe away the tears).
When you consider both of your automatic deductions from your paycheck, then I would subtract about 25% from the monthly income. That’s likely more than what you will actually get taken out for retirement, but there are also other hidden taxes that come out of your paycheck depending on the state you live in. This also makes it difficult to account for before you are hired, so factoring around 25% from your anticipated salary will be a relatively safe estimate to cover most of what needs to be considered for both mandatory tax deductions and retirement from your monthly income.
Health Insurance
This is another thing you likely won’t know until you get hired and meet with Human Resources. Nonetheless, you’re going to need healthcare, so you need to factor it into your monthly budget. You just don’t know what could happen tomorrow, and it’s too much of a risk to pass up. I suggest estimating about $100-200 a month for healthcare when calculating your expenses.
Your Professional Experience
You could earn more money depending on how much experience you already have compared to what the job announcement is requesting. You might have been working in school, or you might be a career changer with a whole other profession that puts ammunition in your arsenal for what you have to offer an employer. Factor this into how much you should ask for, and explain this when you negotiate for more money. It could be the difference between “just getting by” and “getting the bag”.
Once you have all your calculations, then your budget might look something like this below.
I have rounded up the numbers in all cases. Remember, it’s better to overestimate and end up with more than you need, than to underestimate and end up with not enough!
Click here for a sample spreadsheet for calculating your budget to negotiate your salary. You can make a copy to save to your google drive.
There are other things you might consider in your budget, such as savings, paying off debit, and if you need to start up with things like furniture and other kitchen appliances. The expenses for starting up living on your own home for the first time can be costly! The list of considerations I provided in this article will at least get you started for estimating a baseline budget of what you should ask for when negotiating your salary for a position. But I can’t emphasize this enough…
YOU ALWAYS NEED TO NEGOTIATE
I negotiated my first salary out of graduate school, and it turned out I made more than my colleagues that had worked there for far longer than I had. If I hadn’t negotiated my salary for my current job, then I would be living in a dramatically different neighborhood, and I most likely would be in even more debt.
You have to look out for you at the end of the day. If you have to suffer for the job, then it’s not really an opportunity, it’s a distraction. It’s better to hold off until you find something that will meet your basic needs, if not exceed them. Your first job in your profession is your springboard to the rest of your earning potential over your lifetime. Make sure you make it count!