Determining Your Salary Requirements
How to Set Your Income Goals
Do you make too much money to be happy? This question seems contradictory, doesn’t it? However, many professionals feel they earn too high a salary to change careers into something they’d truly enjoy. They automatically assume the career they would really like to be in wouldn’t pay enough.
The following is a snapshot of a common career management mistake I often:
Successful, professional woman with seemingly “great career” is miserable on a daily basis. She doesn’t like her job, the people she works with, or the subject matter she is forced to deal with every day. She longs for a career change. She dreams of having a job that feeds her soul, energizes her life and makes her feel good about herself.
She detests the hours she spends at work. However, she will not look into changing careers because she is convinced, as she puts it, that she “makes too much money.” And that “my dream job would never pay me enough.” She goes on to say: “I’m trapped by golden handcuffs.”
Ah, yes. The so-called “golden handcuffs.” But when you hate your job and subsequently hate a good part of your life, those handcuffs aren’t quite so golden are they?
Many people think they earn too much money to make a career change. They assume they couldn’t match their current salary in a new career field. The flaw in this thinking is they haven’t even looked into the other career to see how much someone with their experience, skills and track record of success can command.
The second major flaw in this logic is most people don’t even know how much they need to make to cover their monthly expenses, savings goals and spending desires. How can you say you can’t make “enough” money in another career if you don’t know what your definition of “enough” is?
Don’t let yourself fall into this trap! Run the numbers of your current financial reality to figure out how much you need to earn to cover all your financial needs and wants. This involves adding up all your monthly expenses, including your spending wishes and savings objectives.
Empower Yourself with the Facts
How can you know whether or not a specific career can provide you with the money you need when you don’t even know how much that is? If you ask me, many people use the notion of “golden handcuffs” as an excuse to avoid going for something greater in their lives.
The best way to empower yourself is to have the facts. In order to know how much money you need to make you need to have a clear picture of your monthly expenses, spending desires and savings goals.
You can acquire this information by documenting your monthly expenditures as well as your financial needs and wants. To get an accurate view of your current financial situation, I recommend you work up a spreadsheet including the following three sections: Income, Expenses and Savings.
For example, your categories will look like this:
- Fixed Monthly Expenses
- Variable Monthly Expenses
- 401(k) Contributions
- Other Retirement Contributions
- Other Financial Investments
- Holiday Spending
To make this process as easy as possible, use an online budget calculator. Simply search the term “budget calculator” and you’ll find various online tools available for your use.
Power Activity: Run the Numbers
In preparation for creating your monthly budget, collect all your financial documents in one place.
This includes documents such as:
- Pay Stubs
- Bank Statements
- Investment Portfolio Statements
All Your Bills
- Credit Card, etc.
Receipts to track miscellaneous spending on items such as
- Dining out
(to get the most accurate picture as possible, track everything from dry cleaning to bottled water)
Once you have collected all the data in one place – its time to start entering the numbers. I know this activity may not be your favorite thing to do but once you’re finished you will feel good. You’ll feel empowered with the factual information you need to proactively manage your finances and take care of your financial health.
Analyze the Numbers
Upon completing their monthly household budget, most people see areas in which they want to make modifications. Once they have their spending habits laid out in black and white they notice areas in which they can save money. Many of us are not fully aware of how much we spend each month and having it totaled up in one place makes it easier to connect with the overall picture.
For example, upon completing this exercise, one of my clients realized he was paying car insurance on an automobile he didn’t even own any more. Another client realized she could easily consolidate her credit card debt to significantly reduce her interest rate. And another saw hohw much she was spending on dining out and made the decision to reign in this expense.
To help you analyze your financial data, ask yourself questions such as:
- What expenses can I downsize?
- What expenses can I eliminate?
- Are there current expenses that will eventually go away, like a student loan?
- What additional changes would I like to make to my monthly budget?
- Do I want to allocate more to savings?
- Do I want to shift my spending behaviors? For example, do I want to spend less on entertainment and invest more in my career wardrobe?
- Can I downsize my spending without altering my lifestyle?
- Am I willing to trade less income for more career fulfillment?
- Am I willing to alter my lifestyle in order to work in a career I truly love? If so, what specific steps am I willing to take to downsize my lifestyle?
- For example: smaller house, less expensive car, reduced discretionary spending, etc.
- Given my experience, skills and track record of success what salary can I command in my target industry?
- Can I match or exceed my current salary in my new target field?
- Would I make more or less than I do now in my dream job?
Create Comparison Scenarios
To assist you in analyzing the results of your budget, you can create optional scenarios to analyze and compare. For example, you may be considering moving to a new geographic location. If so, you can create an estimated monthly budget for that city and compare it with your current living expenses.
If the location you’re considering relocating to is significantly more or less expensive than where you live now – of course this will affect your decision regarding whether or not to move and will also influence how you set your salary requirements.
For example, I worked with a client who lived in Manhattan but was considering moving to the Connecticut suburbs. It would have been significantly less expensive for him to live in the suburbs, so he created two sets of monthly budget numbers in order to analyze the two scenarios side by side. One included all his expenses if he remained in Manhattan and the other included all the expenses involved with living in Connecticut.
To assist you in creating your comparisons, you may want to consult a cost-of-living comparison website. You can find these sites easily on the internet and they will allow you to compare the living costs of two cities, side by side.
Another scenario to consider is a “downsized” lifestyle scenario. For example, you could run the numbers to see what your household budget would look like if you significantly reduced your living expenses. What would your financial picture look like if you downsized your housing costs, your car payment, your miscellaneous spending, etc? Again, consult the questions presented above to help you with this.
Establish Your Desired Salary Range
Once you’ve completed the calculations and your analysis, you can set your salary requirements. This includes setting three specific numbers:
- Your Salary Floor
- Your Salary Target
- Your Salary Ceiling
The floor number represents the low point of your desired salary range. This is the minimum salary you are willing to accept. Your target is the salary number you are aiming for. The ceiling is the top number of your range.
Setting these three numbers will allow you to effectively analyze offers as they come your way and immediately disqualify those not meeting your minimum salary requirements. It is important to establish a range for your salary requirements because this gives you more flexibility than sharing just one specific figure with a potential employer.
When a hiring manager asks for your salary requirements and you provide her with just one figure, she will most likely assume that is the lowest you’ll accept and she’ll offer you exactly that exact figure. You don’t want to box yourself in like this. Providing a range gives you flexibility as you move forward with the negotiations.
If you find you need assistance, feel free to schedule a one-on-one coaching session with me. We will have a focused discussion about how to determine your salary requirements based on your unique set of life and career circumstances. We will of course take into account your real-time challenges and long-term goals in order to help you make solid career and life planning decisions.
To schedule a private coaching session, click here.
Your financial health is very important. Take care of it by arming yourself with the facts about your monetary needs as well as the income potential in your areas of interest.
Take the time to complete your monthly household budget. Consult your calendar right now and schedule an appointment with yourself to get started on it. Once complete, be sure to analyze the results and use the data to help you make solid career planning decisions.
The truth will set you free and can maybe even help you break out of those not-so-golden handcuffs!
Again, please don’t be frustrated and give up. If you find you need assistance, feel free to reach out to me.
Now, let’s move on to your Career Success Guide to Win/Win Salary Negotiation.