When it comes to doing better with our money, many people often think first of redoing their budget or spending more wisely.
But what will affect your financial situation more than any other factor is not how many (or how few) lattes you buy, but how much you earn.
For that reason, you must master the art of negotiation.
“You should try to negotiate your salary for a few reasons,” says Ramit Sethi, New York Times bestselling author of I Will Teach You to Be Rich. “The first is that a single $5,000 raise in your 20s, if you properly invest it, can be worth more than a million over the course of your career. And that’s just one raise. People who negotiate tend to negotiate over and over again.”
Additionally, since each raise is based on the previous salary, over the course of their lifetimes, the earnings of those who negotiate soon outstrip the salaries of those who never or rarely negotiate, making it nearly impossible for the latter to catch up.
Sethi adds two other reasons: “If you are a top performer, then companies want to pay to recruit you. For new grads, they’ve already spent $6,000 recruiting you, so they don’t want to lose you for a few thousand dollars. And the third thing is, it sends a signal. Top performers negotiate and average performers don’t. If you are a top performer, then they expect you to negotiate,” he said by phone.
Read on to find out how to negotiate, when not to, how to prepare, and more.
When it’s appropriate
So, while you should nearly always ask for more, of course it’s not right in some circumstances. Sethi said, “There are a couple cases where negotiations would be inappropriate or very unlikely to succeed: The first case is in very structured jobs, like in government jobs or military jobs, or even management consulting jobs, when the salary is a known quantity. The second case is where there’s a massive amount of supply and everyone is pretty much undifferentiated, such as an entry-level barista.”
Otherwise, you should negotiate – but only if you do your homework first.
After all, it’s an employer’s market. According to the Economic Policy Institute, the unemployment rate of young college grads is high – almost 9 per cent – and underemployment, which occurs when people are overqualified for their jobs, is even higher: more than 18 per cent. A recent report by management consulting firm Accenture paints an even grimmer picture, with 41 per cent of workers who graduated in the last two years saying that they are working in jobs that don’t require degrees.
Whatever the exact figure is, you don’t want to just ask for a higher salary when securing a new job, or when requesting a raise or promotion. You want to make a strong case for why it makes sense for them to give you one.
Margaret Neale, a professor at the Stanford Graduate School of Business, said by phone, “Simply saying, ‘I want more’ is not as effective as giving a reason or rationale for why.”
How to prepare for negotiating a new job offer
If you do find yourself facing an opportunity to negotiate, Sethi said that 80 per cent of the work of negotiating should be done even before you walk into the room. Here’s what you should determine:
- Whether there is a standard salary for your job, and if not, what the general range is
- What the hiring manager’s or company’s top challenges are
- How you can solve the hiring manager’s problems
To find out the general range for your position, browse sites like Payscale.com, Glassdoor.com, and Salary.com. Print out the salary descriptions, as you may want to bring them into your meeting. Also reach out to your professional or alumni network. Find someone who has previously worked at the company and can say, for instance, “‘This company doesn’t give raises except in July,’” said Sethi.