How Chasing Higher Salaries Can Leave You Broke
It’s a matter of faith that chasing a higher salary is a great way to get to financial independence and wealth. But one fifth of six-figure earners live paycheck-to-paycheck. And how many people do you know who chase after a higher salary only to find that they need that next promotion in order to really be set? It seems like neverending pursuit, and maybe there is something wrong with the journey itself.
1. Lack of Offset forHigher Costs
Colleges always proselytize about the higher salaries for graduates. But if you go to college, you need a higher salary to pay for your student loans. Higher salaries are offered in more expensive areas. That helps to explain why 90% of college graduates live in urban areas (also the influx of college graduates can drive up rents). So college graduates seek out these higher salaries to pay for their high loans and find higher costs of living. Does it add up?
This is not to say that it can’t add up, but you have to be mindful of the difference. For instance, if I wanted to move to San Francisco, I would need to earn a salary 31% higher in order to keep the same standard of living (and that doesn’t even count the tax differential).
2. Not Factoring in Enjoyment
I’ve seen several polls asking if you’d rather take a job you hate for $120,000 or a job you love for minimum wage. And I always answer the minimum wage job because I’ve already quit a six-figure job I hated. If you value your time and your life at all, you cannot stand to take a job you hate.
And so what if you hate your job? Well many times people escape their hideous jobs by spending more. They might as well make use of the higher salary right? If this is your mentality, it’s not surprising that a higher salary might not mean higher net gains.
Further, people don’t have the discipline to live a life they hate. They fight to break free, as they should. All your work for a higher salary is for naught if you dream of rage quitting and eventually do.
3. What About Your Time?
Your annual salary is one factor, but your hourly rate is still important in your calculus of whether you’re well-compensated. The more hours you work, the less you make per hour.
Let’s say you make $200,000/year and work 65 hours a week. At 52 weeks a year, you’re making $60/hour (yes you get vacation but even assuming you take it, it doesn’t change the rate much). In Washington, DC, there are contract attorneys that make that same hourly rate, and you only have to work 40 hours a week. Yes, a guaranteed salary and the prestige of a high-income job offer their own perks. But you have to wonder if you wouldn’t just prefer working 40 hours at the same rate with the option of overtime and have more control of your time. The pay differential is not great but the control differential is huge.
4. Forgetting the Long-Game
Maybe many of you have heard that your starting salary can determine the entire trajectory of your career. It’s tidbits like that that encourage people to spend a lot on college to get as high a starting salary as possible.
But the problem is that taking the expensive graduate school path to success means that there are lots of people with nearly identical credentials competing with you. But if you take a lower paying job, you get to earn your keep and have a much more diverse and interesting resume.
Conclusion – Why Chasing a Higher Salary is Keeping You Broke
Of course, there’s a limit to how little you can earn and still live a reasonable life. You have to chase a higher salary if you really can’t make it work on your current salary. But don’t forget that everything involves tradeoffs – some you realize you’re getting into, and some you don’t. You can chase a higher salary, but at some point you have to look at yourself, and your life, and wonder, is it all worth it?