Can taking a low-paying first job affect your lifetime earnings?
As a recent graduate, if you're worrying about your student loan debt and constantly hearing news of a struggling job market, it can be tempting to accept the first job that comes your way. But some financial planners advise against this, saying that starting with a low salary can cause a financial ripple effect. Common sense says it's better to make some money than no money at all, so what's a young graduate to do?
The long-term risk of a low-paying first job
Taking a lower-paying job poses some potential financial risks. Raises and bonuses typically are given as a percentage of salary, so what starts out as a small difference can be compounded over a long professional career. A recent study conducted by George Mason University and Temple University estimates that a difference of $5,000 early in your career can end up costing you as much as $600,000 over 40 years of employment.
However, this assumes that you stay at the same company, something that has become less common. Some workers may take a smaller paycheck, knowing that they won't be sticking around too long and hoping their next job will make up the difference. Unfortunately, this strategy is flawed. Many employers will take a prospective employee's previous salary into consideration when making a job offer. This is why taking a slightly lower salary from the get-go could result in earning lower salaries throughout your career.
How you can get the salary you're worth
Of course, making some money, even if it's less than desired, is better than remaining unemployed. The trick is to know what you're worth and how to negotiate. Many online resources can help you evaluate how much to expect for certain positions, such as CBSalary.com or the Bureau of Labor Statistics' Occupational Outlook Handbook. Consider factors such as how much others in your field are making and the size of the company at which you're applying.
And don't think of negotiation as a one-time deal. Keep track of the ways in which you add value to your company, as this will be powerful information when negotiating raises with your current company or salary with prospective employers. A lower-paying job can hurt your earnings initially, but it is a setback that you can overcome with the right resources.
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