“I just got a job offer from my dream company 🤩… making $15,000 less than I make now. 🤦♂️
Should I take the job?”
I’ve been asked some version of this question many times. The honest answer is… it depends. You’d be shocked how far taking a cut like this can set you back.
The average annual raise in the US is 3%. If a person making $100,000 a year takes a $15,000 pay cut, assuming average raises, it will take six years before they’re back to making six figures again. In that same time, the person who stayed at the job paying $100k could be making as much as $123k/year with only average annual raises.
But changing jobs doesn’t have to mean taking a big pay cut. In fact, the biggest raises (about 14% on average) tend to come when you change companies. People will often warn about “job hopping” and how several short stints in a row on your resume can look like a red flag. However, strategic job changes even once every 5 or 10 years can yield huge changes in your total lifetime earnings.
Let’s look at final salary and total earnings over a 25 year period for these 3 scenarios…
The person who took the pay cut: $172k / $3.2m
The person who stayed put: $209k / $3.9m
The person who strategically changed jobs twice: $256k / $4.2m
People work for reasons other than just money. You may hate your job, be burned out, or you might just want to follow your passion and pursue an entirely different field. There’s nothing wrong with deciding to take a job at a lower salary for one of these or other reasons. Sometimes you have to take a small step backward in order to make a giant leap forward.
But it’s important to make sure you understand how much it could end up costing you in the long run.