In the course of writing the follow-up post to How to Go from Zero to Millionaire, Part 1 I ran a boatload of numbers on Quicken (thankfully I have 22 years of data saved) and recorded my earnings by year (for the years I didn’t have, I knew my first starting salary and estimated from there until I got to the point where I had data).
I’ll be continuing that series with part two soon and will be using the information I gathered for it, but today I’d like to share some other interesting findings that came from the numbers.
Specifically, I want to discuss the results I had at growing my career and how powerful that effort can be for those of you working on the same.
Your Career is a Multi-Million Dollar Asset
I’ve probably said it a million times, but it’s worth repeating how important your career is to your financial well-being.
Your career is a multi-million dollar asset in and of itself. Imagine what you’d do with a $1-$2 million dollar asset. You’d treat it with respect and work to grow it, right? Same goes for your career.
But the even better news is that you can make your career worth millions MORE than this by taking seven simple steps to grow it. It doesn’t take a lot of time and money to do these and if you do you’ll not only get paid more but likely also enjoy work more.
That’s all great news!
Growing Your Career
But as I share these thoughts regularly I often get push-back from readers. Specifically they think it’s impossible to grow their careers — that they are just going to receive the same, basic raises no matter what they do.
I completely disagree with this and actually have a practical example today to illustrate that it’s not true — my own results over 28 years of working.
I knew I had “done well” prior to running the numbers but didn’t know the specifics of my career growth until I dug into Quicken. To me they are worth sharing so you can see that 1) careers can be grown by taking action, 2) the differences can be substantial, and 3) I have practiced what I preach (I’m not just making this stuff up or writing based on what I think could happen like some people do).
My Career Growth
Let’s begin with the results:
Over my 28 working years my earnings increased at a compound annual growth rate of 8.16%.
That’s the bottom line, but let’s review how it was accomplished. The activities that allowed me to grow my salary at such a rate boiled down to these:
- Getting an advanced degree. I’ll be writing on this separately but getting an MBA was a big boost to my career and earnings. It started me off with a good salary and opened doors that otherwise would have been closed.
- Working the seven steps. I didn’t figure these out for quite some time, so those starting out today with them will be well ahead of where I was by many years. Start them early and use them often and they will reward you, just like they did me.
As I reviewed the various jobs I’ve held I noted that these two actions resulted in the following:
- Seven promotions — Sometimes within the division I was with, sometimes into a new division within the same company, and sometimes by switching companies.
- Seven companies — Sometimes you can’t get rewarded in your current company so you need to make a move to maximize pay. Often these moves lead to some pretty big pay increases.
- As I advanced up the ladder, the salary increases were accompanied by other forms of compensation: bonuses, car allowances (which I pocketed — most executives use them to lease cars), stock awards, supplemental 401k contributions, HSA contributions, etc.
To be noted, I did not trade happiness for money — jumping from one job to the next simply to gain more money. In fact, I often stuck with a job longer than necessary if I enjoyed it. I held one job for nine years where the salary didn’t increase much at all (though the bonuses and other forms of compensation were quite high) because the hours there were low — 40 per week, no evenings, no weekends. This allowed me to be at all my kids’ events and even coach my son at both basketball and soccer for many years. I could have left and made more, but the family time was a higher priority for me.
The Power of Extra Percents
So what’s the point of all this? To simply pat myself on the back?
No, of course not. In fact I was reluctant to even share this information as it sounds like bragging. But that is outweighed by simply showing that it can be done. It’s proof that it’s not impossible or speculative. And of course it’s not me. Many readers here have done much better (I hope you’ll share in the comments) and many of us know others who have as well. Growing your income above the basic level is certainly an achievable goal.
Maybe things are different now than they were when I started out (a favorite come-back from nay-sayers). I would say:
- No, they aren’t different. There are still people out there doing much better than I did. It might not be as common and the gains might not be as large, but that doesn’t mean it can’t be done (and I’d argue that fewer people are using the seven steps these days, so that’s high rates of salary increases might not be as common)
- The gains don’t need to be 8.16% to have a substantial impact.
Let’s look at a series of examples that illustrate the latter point.
We’ll say Jim takes a job at 22 years old earning $30,000 a year. Here are the results at various rates of annual pay increases:
- At 3% annual pay increases Jim earns $2.8 million over his career
- At 4% annual pay increases Jim earns $3.6 million over his career
- At 5% annual pay increases Jim earns $4.8 million over his career
- At 6% annual pay increases Jim earns $6.4 million over his career
- At 7% annual pay increases Jim earns $8.6 million over his career
- At 8% annual pay increases Jim earns $11.6 million over his career
- At 9% annual pay increases Jim earns $15.8 million over his career
- At 10% annual pay increases Jim earns $21.6 million over his career
Several comments about these numbers:
- Look at the amount of earnings generated even from a modest starting salary. Compounding works on salaries just like it does on investments.
- Look at the differences between levels. Just earning one more percent from 3% to 4% gets you an extra $800k. If you can get that to 5%, that’s an extra $2 million.
- In addition to the rate of increases, starting salary has a HUGE impact on the numbers. What if Jim’s job started at $40k instead of $30k? The numbers would be sky-high!
- I didn’t even factor in the impact of taking those extra surpluses (at the higher levels) and investing them. I did that in The Value of Growing Your Career is Worth Millions More than I Thought. The results are massive!
- If you drive your career to earn higher income, then save and invest a good amount, you don’t have to work 45 years to reach financial independence.
I’ve complied all of this evidence to simply say: if you focus a bit of time and effort on your career, the financial rewards can be life-changing.
Now it’s up to you to decide what action to take, but I’d begin with my seven steps. š
photo credit: guillenperez Ajedrez de la isla de Lewis via photopin (license)
Liz@ChiefMomOfficer says
Great article ESI. I really like how you drive home the impact of salary increases, and the long-term value of a career. I also saw a big boost after I received my MBA, and I’ve increased my salary nearly 10 times since I started working. But I also know people who started in the same kind of job I had when I first started working, and are still there today. Those people are probably earning $30-$40k per year now (as opposed to the $22k we made back in the late 90’s) but they certainly haven’t seen exponential increases. Why? They never invested in their careers. Instead they either stayed fine with the status quo, or tried to chase “get well paying jobs quick & easy” schemes. Neither one worked out for them. Slow and steady wins the race!
Mike H says
ESI,
It’s great to run the numbers like this. Have you calculated the sum total of your career as well and is this a big component of your net worth?
For me, I’ve been working for 21 years and my rate of growth from my first ‘real’ job is approximately 12% or so- however I’m basically plateauing at this point.
Hope all is well in retirement!
-Mike
ESI says
I have. It’s coming up soon in another post. š
By the way, you’re a BEAST!!!!! 12% is amazing!!! Yes, it usually does flatten out toward the end.
Mike H says
One more comment- I created an excel table and projected out a 3% raise, starting at 30K USD for 45 years. The final salary of $110K is plausible. Increase this up to 6% and the final salary is $389K, and that is getting up there as a top earner. Increase this to 10% compounding and the final salary is $1.98M in the last year, or a CEO of a Fortune 500 company.
It’s important to sense check the numbers.
I don’t think that I will be working for 45 years, at least at a corporate gig- that seems too arduous.
-Mike
ESI says
I know. It get’s crazy because of compounding…
Steve says
I am not sure the word “compounding” applies to salaries. Exponential growth, sure. But I thought compounding was where the interest an investment earns in year 1 is part of the principal in year 2, thus itself earning interest.
FullTimeFinance says
Totally agree and it definitely is still doable. Around the 2012 I set my goals on dramatically increasing my salary. Just since that point I’ve doubled my salary. So five years, from thirty to thirty five. To be honest like you I haven’t sacrificed work life balance. I’ve had options in the past that could do that while tripling my salary in the same period, had that been my priority. It’s all about choices but a bit of focus makes a world of difference.
ESI says
I’m not sure what you mean by “doubling” and then “from thirty to thirty five”.
Can you explain?
Full Time Finance says
In 2012 I was 30. In 2017 I’m 35. In that time my salary has doubled. I consider age important as its easier to increase salary when your younger.
ESI says
I see. That makes it clear.
Dan P says
Wow ESI, This is very insightful as always!
This is 1 thing i have done very well (probably better than the I in the ESI). I have been working for 4 years exactly and am at 11.9%, did not know that it was that high. This is not including other compensation such as pension contributions or company vehicle or MBA tuition reimbursement.
I hope i can keep it going!
ESI says
Those are awesome results!!!
NotRetiredYet says
Early in my career, I tracked my salary growth. I haven’t looked at it lately, but just did a quick calc. I’ve been with this same company for 14 yrs, and on avg my annual increase was 7.5% (it’s been flat for the past 5 yrs). Prior to this company, my increases were double digits annually.
Interesting that you moved around to so many companies. I moved around a bit more early in my career, but I find moving companies pretty disruptive these days. Since I work for a megacorp, I’ve found it more beneficial to just stay at this company and rotate to different divisions. That way, my experience/reputation carries, you don’t have to negotiate pay with each move, and benefits and seniority continues to accrue. Could I have gotten more money moving? You bet. But as I’ve gotten older, I’m much more willing to give up the higher pay for less hassle and better balance of work/life. I’ve read some stats that after 40, most people tend to level off in pay. I can relate to that now as I’ve got kids, house maintenance, elderly parents, etc. that I prioritize over staying late and working weekends.
Maybe you could write up a post on the differences in working for a small company vs. megacorp?
ESI says
Maybe I should. Anyone else interested in a post on the differences between small and large companies?
HM says
I’ve only worked for large organizations and I’d be interested to hear your perspective on the pros/cons/differences between the two.
In my career I’ve seen my earnings increase at an astounding 22% growth rate (blows my mind, thank you MBA!) over the 15 years I’ve been working post-college even if I include my 2 years in business school. But as noted, now that I’m in my late 30s my earnings have plateaued and realistically I only have the potential for 1 more large jump and that will be several more years down the road.
With my unvested stock it doesn’t make sense to chase a higher salary elsewhere, so they’ve got me where they want me. Good news is we’re both OK with this deal. š
NZ Muse says
I’ve only worked for smaller ones and would be fascinated to learn more about the other side (want to move to a large employer next!)
Claire says
Hi ESI
Great article!
I’m wondering if things are different for you in the US.
It’s hard for me to see how you can have a 8,5% annual increase on average.
For example I had a 9% raise this year, while the average is 3 in my company. I’ve been warned that some years people have 0. So I’m not sure how to average 8/9% per year. Does it mean that you had a steady raise every year? Or that you got big raises when you changed companies?
I’m thinking about it at the moment, wondering if it is better to stay in a company to take advantage of the reputation you made there and hope to have a big raise the year after. Or to leave when you don’t have one because you loose too much by waiting.
Interesting topic š
ESI says
It means I AVERAGED 8% raises. I didn’t get 8% raises every year.
Some years it would be 15% and some 3%. Depends on how the company performed, if I moved from one company to the next, if I got promoted, etc.
Jerry says
I am a school teacher and I get push back from people when i tell them that they are millionaires. They can’t fathom that a $40,000 retirement income is basically the same thing as $1,000,000 (4% rule) Many retirements are over 40,000 PLUS we get Social security
Dominic @ Gen Y Finance Guy says
I love how often you point out the value of a career and the HUGE impact raises can make on the lifetime value of your career.
I don’t have it in front of me, but I recall that I have compounded my earnings at like a 35% compounded rate, since my first real job in high school (one I got a W-2 from).
These past 3 years alone have seen my income triple between 2014-2017.
For fun I need to see what just a 3% annual increase would be 20 years out.
It took me 14 years to make my first $1M (cumulative since 2003), and it will take me 3 years to make my 2nd million. That’s just nuts!
Cheers
Erik @ The Mastermind Within says
So far, I’ve been working in Corporate America for 2.5 years. I’ve seen my income jump 10% a year.
If you consider my college jobs, I’ve increased my salary/pay more than 300% (finishing up a Masters)
I want to continue to leverage my paycheck to free up time outside of work to build my nest egg. I just bought rental property #2!
Jack Catchem says
Hi ESI, all excellent points!
For the first six years of my career I did double duty as a Marine in the Reserves and a college student (Deploying three times). It took me seven years to get out of college. In that time I averaged 10k a year (it spiked every other year when I would deploy) until I graduated.
Once I became a cop, my salary spiked from the 10k average to 55k and grew 10k a year for the next six years. Once I would have topped out the pay chart and been stagnant for the next 10-15 years, I shifted to a new department (very rare in policing). I got a 30% increase in pay and have average a 5% increase for the last 3 years.
I will top out again soon, but I’d much rather stabilize at this plateau! Also as you mentioned, there are more aspects to working than pay. This department is significantly more family friendly & I love every second of it.
Toocold says
I’ve had a similar experience. I can point to definite 4 points in time where my income jumped:
– Getting my MBA: almost tripled my compensation
– Getting two promotions: increased my compensation by almost 50%
– Moving to my current company with a step up in title: increased almost 20%
– Promoted to manage a business unit: almost 120%
I think I’m plateauing, but it’s flattening at a very nice level.
Glen Ridge says
Great article and advice….I won’t belabor the point but will add that the part about advanced education and increasing salary significantly with promotions holds true in education. I have worked in the same school system for 25+ years and have been blessed with 7 promotions after teaching. Pay increases ranged from 11% to 38% with the larger amounts happening earlier in my career…on average a 8.8% pay increase per annum…I am likely on a plateau this last part of my career and will still average 7.5% pay increases over my 30+ year career with even minimal raises. Additionally, our retirement, like the previous poster, adds significantly to this picture with a defined benefit amount based on years of service, top five salaries and a multiplier for each year served….all in all a great career!
The magic bean counter says
As always you have such an interesting perspective. I have never thought of my career as an asset before, but it makes so much sense. Thanks for the detailed analysis.
Kimberly @ 80/20 Your Finances says
I had an interesting opportunity to decide between a bonus or a raise of approximately the same amount although the raise was slightly less. Always take the raise if it is an option! First, you’ll get it every year and second, the next raise will be on top of that. It really is compounding growth!
Xyz from OurFinancialPath says
Especially with job hopping, people can easily jump 15% – 20% at a time!
ZJ Thorne says
My first year out of grad school was rough and I earned less than 30k. It’s nice to look back to see how I have steadily increased my pay since then. Last year by 10k. I’m working on developing another new skill in my niche that would take me even further. These look backs are vital to help me keep my momentum. Great post.
The Vigilante says
You know, for a guy who’s always touting the benefits of saving just a little bit more, I have really worked my ass off to increase my income. I saw a 17% raise this February, and I’m fairly certain that’s the second smallest increase to my pay that I’ve had in the last five years or so. I’ll have to do the math and reflect on the average – I might have your career beat š
Revanche @ A Gai Shan Life says
It’s very true – my main focus as a PF blogger was to learn everything I could to maximize my earnings and grow my career. The path wasn’t smooth but the dividends (no pun intended) were huge. I had exponential growth in the first part of my career.
I started to calculate my earnings, salary starting and ending points, and earnings over time several months ago and haven’t come back to it – I’ll have to get back in there and crunch the numbers to see what my lifetime numbers are now!
The Wease @ TheWealthyWeasel.com says
ESI, another inspiring post. After reading this, I went to MS Excel and calculated the growth rate from my first gig out of college until today. It worked out to 8.0% over 33 years.
During that time I worked at 9 different companies, with the longest being 17 years in one of the Fortune 100’s. Seven of the job changes were for advancement, one was a layoff with a division closing and one was a step backwards to improve quality of life, although that one is now paying back up at my peak from a few years ago, with stock, HSA, car allowance, 401k match and Safe Harbor match.
If I run the numbers for the first 28 years only, it works out to 9.5%. Guess I’m turning into a slacker as I contemplate retirement!
From my data point of one, your post’s point is valid; above average performance (consistently ranked in the top 10% in most jobs) will result in way beyond average earnings growth rates.
Some years were meager 2-3% gains; however those 20-40% jumps with promotions and job changes made all the difference.
Too bad I was not smarter about saving until the 1990’s!
Mark says
I tried to explain this to my kids. My daughter did graduate. My son didnāt like that I called him an investment. Well I am investing in your future, but explaining this was like hitting my head against the wall. Now, that he is on his own, I am sure he understands it better.
DGrimm says
Great ideas and I really like your focus here on career. I just read your post on BusinessInsider and like your thoughts on retirement as well.
On issue I have is your pure focus on financials – I think this drove you to some of your experience in retirement (namely that you didnāt actually like work so are now happier on your Mondays rather than dreading them).
Instead, I think it would be important for you to reflect on the options of both making money (very important) while also having an āintangiblesā enriching career. This is different from āfind your passion and make it your careerā which I find problematic (often you kill the passion that way and/or over sacrifice the financials). Whereas an āintangiblesā enriching career is one where you believe in the mission, people, or some other aspect that you find yourself excited to go to work every day. And surprisingly there are quite a few jobs or careers that you can do that can both pay and enrich you in those intangibles.
So I would suggest weaving into your career and financial advice some of these intangibles so you can have a more enriching career and life.
Maybe it is there, I just didnāt notice it in your recent article or this post. But kudos to you on really terrific career and financial advice.
ESI says
Actually, I would say I “liked” my career. It was pretty good overall and most of my experiences were positive.
But I LOVE being free to do whatever I want at any time on any day. š
Dany Gauthier says
Hi everyone
I did the math quickly for myself and I average a raise of 7,1% per year on my 12 years carrier. And I am special when I look at my college or family. I am Canadian so it help. Free education= no student debt and capacity to study in profitable field like in my case Engineering.
Most of my raise happened when I change company. I started with a 38 000$ per year 40 hour per week. Got 2% raise when staying there each year.
Then I change job for a job that pay 22$ per hour but was paid all my hours … I was doing a average of 73 hours a week. I was working very far in horrible condition. Did that for 4 year. Again I only got 2% raise per year there. But since I was pay double time and made so many hours I end up with a very good annual paid.
Then I switched again for a job that work 40 hours a week but negotiated that my annual salary stay the same then my off site construction job.
Then 1 year ago I switched again a year later to a 35 hours a week with the same annual wage so a other raise per hours…
Finally I switched for a 40 hours job and negotiations that I keep my current hours rate so again a big raise.
So I use the change of hours to negotiate my rate to my advantage.
Good luck to everyone
Brian Kubacki says
Question for you. How did you calculate the growth rate of your salary? I used 2 different formulas and came up with 2 different answers.
ESI says
I used CAGR.