Whaddaya hear, whaddya say? Welcome to episode 22 of the Career Consigliere podcast: your no frills, no BS forum for navigating the corporate job scene. Jimmy with you, once again for what we hope to be a highly informative and engaging half an hour, or so! Today, we’ll be focusing on the realities of take-home pay in a new job: it always seems to surprise us, because the amount NEVER seems to be what we expect (or hope) it be. Yes, this can be a rude awakening, and a huge slap in the face if we’re not careful. We’ll talk about managing expectations, and how to prepare ahead of time to make sure that what your first paycheck includes is enough to base your budget on. And of course, you’ll get another story from yours truly on pay expectations gone awry. Gonna be an important one today podcast land, lettttssss get it!
It's always really amused me how an annual salary figure can play tricks on our minds. I remember growing up, I had one teacher in school who was way more open and transparent than he should have been. Stellar human being, when you think back on it: he wore his heart on his sleeve and you could tell he really cared about the students and really enjoyed what he did. And the best part was that he would frequently go on tangents and completely forget the lesson he was supposed to be teaching. Of course we as a bunch of 6th graders loved it, because we’d spend the whole class period talking about BS and then, oops, is that the bell already? Oh darn. Anyway, amidst the many things he told us that were way over our heads, he mentioned how he earned $30,000 a year as a teacher. Now, as a 12 year-old, you have no real concept of money and what that actually means. I remember thinking to myself “ok, he’s a teacher, and teachers are the ultimate authority in a child’s life at that age, so that 30 thousand number must be respectable: after all, he owns a house and has kids, so he’s gotta be doing pretty good, right?
So fast forward 10 years to when I got my first corporate job offer: now I’m 22. I remember I got offered $29,500 and I was over the moon! I spent my college years with my head buried in the books, and despite majoring in I/O psychology I knew basically nothing about the job market, so my frame of reference was 10 years old, and way out of context. I remember when I got the offer, I thought to myself “WOW! That’s what my 6th grade teacher was earning 10 years ago, and he was a grown-ass man back then. Look at me, I must be killing it!”. Before you ask, no: I didn’t negotiate that job offer either. Go back and listen to episode 20 if you want to hear all about my thoughts on negotiation, so I won’t veer off topic here.
So there it was: I remember thinking of all the epic stuff I was going to do with my $29,500 a year paycheck. I started looking at apartment ads, browsing the internet for new cars, looking at cool places my then girlfriend and I could go on vacation, I had my whole fortune spent already. And then it happened: I got my very first paycheck.....a whopping 816 dollars for an entire two weeks of mind-numbing work. At first I thought it had to be a mistake....how did my teacher raise his kids on that kind of scratch? But then I took a good hard look at my paystub and realized everything checked out beautifully. In my head, I simply took 30,000 and divided by 26 paychecks in a year, figuring I’d come in much higher. Except I had forgotten about these little things called taxes and health insurance costs. Some crazy psycho also talked me into putting money into a 401-K account (whatever THAT is), and that was ANOTHER thing eating into my own personal profit margin. And that’s when the reality hit: I’d still be living home with good ol’ Mum for the foreseeable future.
Why do I tell you all this? Because this happens at all levels of salary. Corporatopians, particularly those early in their careers, get all caught up with the number they and the company agree to in the final offer. And yes, this is, in fact, what the company pays to have you on board: that part is true. But it’ NOT, by any stretch of the imagination, what you’ll actually be bringing home. And why is that? Let’s get into it.
First, the obvious, Uncle Sam always gets his cut. Right off the bat, a percentage of your salary is immediately lost to federal income tax. If you’re listening to this show, then you pay federal income tax. I doubt any of my listeners fall into the extreme deviation of exceptions on this. Next, depending on where you live, your state may also have a state income tax. Put it this way: if you live in a highly populated part of the country with a lot going for it, you almost certainly pay state income tax (New York, Illinois, California, you get it). Now there are also a lot of states that don’t have state income tax, and in the past few decades we’ve seen people migrating there by the truckload (Florida, Tennessee, Texas, all the usual suspects). And, it gets even worse people: if you live in certain municipalities, you might even pay a LOCAL income tax!
A great example of this is what happens when you cross over the border from Long Island to New York City. In most areas on suburban Long Island, you pay no local income tax. But you drive 25 feet over the border into Queens, now you’re in New York City proper, so you pay close to 4% in local income tax. 4 percent!! You were paying zero down the block in Valley Stream, but cross into Rosedale and now you owe the great city of New York an additional 4% of your pay. Might not sound like much, but think about high earners: let’s say you make 200K a year: 4% is $8K a year, just for living on the wrong side of a sound barrier. Income tax can really add up if you’re not careful. I’m not saying to pick up and move based on this, but if you’re single and mobile, it might not be a bad idea to position your living arrangement more strategically, if all the numbers make sense. Most people never understood why I didn’t want to join the party and go move to Brooklyn when I was in my 20s. Now we know why!
Next, health benefits. I have managed to gain a few listeners from north of the border, so you can tune this part out if you’d like. But for everyone else down here with me in the red, white, and blue, there’s a good chance your healthcare situation is hooked up to your corporate gig, and this too comes at a cost. Now the health plans and their associated costs and coverages vary WILDLY from one corporation to another, and it would be IMPOSSIBLE to cover all the permutations on this show, so we’re not even going to attempt to. My goal here is to make you aware that you will be paying something, and something will vary depending on the type of coverage you choose, whether or not you have others on your plan with you, who the provider is, the list goes on and on.
When you get your job offer, the company will usually send you all the benefits info along with your offer letter. And if you’re like most people, you’re feeling three things when you get a job offer: dead tired, relieved, and faintly excited. You just did a ton of work and fought battles against nameless, faceless enemies to land this gig, and at that point you probably just want to move on with your life already. And this means the LAST thing you feel like doing is scrutinizing the cost of health insurance, long and short-term disability, dependent day care, or anything else that comes out of your biweekly paycheck. And I’ll level with you: the health insurance world has some issues. Spend time in any news outlet, and you’ll probably hear at least some kind of reference to it every hour.
I personally have no solution for it, so I’m not trying to go there, but I can confidently say, from experience, that truly understanding the costs and coverages you select will save you a WORLD of grief once you actually need care. A lot of the headaches people deal with in healthcare come from not fully understanding the costs and policies involved in using their coverage. So take a Sunday afternoon and really give that benefits brochure a deep scan: you’ll thank yourself in 6 months when you need physical therapy from sitting down too much all day, and you’ll also have a much clearer picture of how paying for these coverages will affect your wallet on a biweekly basis.
And if you dread reconciling your healthcare situation, I promise: you’ll be even less excited about figuring out your retirement plan elections. Yes, most corporate gigs, even at the entry level, offer some kind of a retirement plan you can get in on: the 401-K being probably the most common example. And guess what, this isn’t free either. It’s a pretty straightforward formula: you contribute a designated percentage of your salary, and the funds get deducted directly from your paycheck every two weeks. It’s an easy calculation, so get out a calculator, or spreadsheet, or pen and paper if you’re old school, and be sure to back out whatever you plan on contributing to your retirement account from what you expect to be taking home.
I’m going to be very honest with all of you. If you’re listening to this, you’re obviously a fan of podcasts, and I realize you probably don’t listen just to me: for as much as I’d love to have that level of influence in your life, you’d go insane if you heard nothing but this voice, this odd combination of half intellectual, half street guy, preaching at you all day. But assuming you’ve got other shows in your queue, I’d be willing to bet that at least one or two on the recommended list have to do with personal finance. And if you’ve entertained them, even once or twice, you’ve no doubt heard someone drone on about 401-K plans. Maybe it was one of the big talking heads, maybe it was some obscure name nobody really knows, but in either case, you probably zoned right the hell out. And I COMPLETELY understand why.
Aside from being extremely boring and forcing you to think of yourself as a senior citizen, retirement plans might as well be a foreign language to most people. And why is this? Mostly, if you want my opinion, it’s not something the average person can relate to. Think about it: for the most part, finance isn’t taught in schools. Sure, you can pick classes on this type of stuff once you hit college, but even then: a lot of higher-ed classes are very theoretical and don’t really teach you the ins and outs of how finance works. So unless you’re majoring in it, or if you’ve managed to pick it up as a personal hobby, the average person has very little experience with finance.
So if you flip on a podcast and someone’s going on about which mutual funds to put inside your portfolio, what kinds of expense ratios you should have, what are acceptable turnover rates, how much is too much to be paying in asset management and transaction fees, most of you are going to glaze over like a donut. And I’m not saying I’m going to be the one that miraculously pierces the veil and makes the light go on in your head, that’ll happen if/when you get to that point on your own, if you ever do.
But, I do want to tell you this. According to an article from Edward Jones Financial, the average retirement savings for someone 50 years old, the prototypical “middle aged person”, is right around $250,000. And maybe this sounds like a lot of money to you. But somebody like this, according to another article in Madison Trust, will retire at 64: only 14 years left to work. And let’s say they live in Florida, the retirement capital of the US. According to this article, they’ll need $56,382 to live on every year to maintain a “comfortable” lifestyle in retirement. And you know what they’ll need to have saved in order to make that happen? They’ll need $902,116. And this quickly creeps north of a million if you live anywhere that’s more expensive, or has higher taxes than Florida. And yes, before you light me up, I know: articles like this make a TON of assumptions, have a ton of asterisks, footnotes, and CYA clauses all up in there. Split hairs and argue all you want: what you CAN’T dispute, is that you need serious money set aside to retire, and most people are on a trajectory that’s going to land them hundreds of miles short of where they need to be, figuratively speaking.
Most people, especially early in their careers, look at retirement savings as an expense. They’re far more concerned with how much they have at their disposal to buy the nice car, get the apartment downtown, the big house, go eat at all the expensive places, go out and buy $20 cocktails, all the usual stuff. And the older you get, life starts happening: you have kids, you want to take them on trips, let them play travel sports, whatever it happens to be: the expenses just keep going up and up. In situations like this, even though you might WANT to put more money aside, is it really practical at that point? You and your family have been used to a certain kind of lifestyle for HOW long? Be a little naive to think you’re just going to suddenly change directions on that one day, right? And even if you did, you’ve lost valuable years at that point. Financial investments grow and compound over time, and the dollars you put aside in the early days are what earn you the big bucks down the road. It takes an INCREDIBLE amount of foresight and maturity to realize this early in your career (I even struggled with it early on). But when you get to a point where you can’t work anymore, you don’t want to work anymore, or nobody wants to hire you, what is your plan, exactly? However old you are, start saving NOW.
Let’s wrap all this up in a doggy bag and give you some take-home wisdom with today’s......consigliere call to action. The main message here is, no matter how big and fat that salary seems, remember that it’s NOT the same as what you’ll actually be bringing home. First, uncle Sam is going to ransack your paycheck and take his cut, so when you start building your budget, you’ll want to make your expectations as realistic as possible. First, federal income tax. Go to the IRS website, find your salary band, and look up what the tax rates are and how they’re calculated. Next, if you don’t already know (you’d be surprised how many people don’t), figure out if your state charges income tax, and then back out that percentage IN ADDITION to Uncle Sam’s ransom. Finally, also be aware of any local income tax that your immediate municipality charges. Again, NYC is a great example of this. If you have the means, the mobility, and all the numbers jive, it might make sense to relocate to an income tax free zone. And sometimes you only have to go a few blocks to do it!
Health benefits. Maybe you’re not alone in this: if you’re married and covered by your spouse’s plan, or if you’re under 26 and still covered by your parents, then you can save some serious coin here, so take full advantage if you can get this kind of coverage elsewhere. But for everyone else, the prudent thing is usually go with your company’s healthcare package. And you have NO excuse not to know it inside and out. You’ll receive all the benefits information along with your offer letter, because it’s a HUGE factor to consider depending on your situation. Get a solid understanding of the costs involved for the level of coverage that you need, and make sure to back this out of your take-home pay calculations ON TOP OF whatever taxes you’re paying. And if you have questions, someone at your company, if not a dedicated benefits person, then certainly someone from HR, should be able to answer any questions you have and help you calculate costs. Don’t be afraid to ask them questions: that’s what they get paid for. And they want you to accept the offer, so they’re on your side!
And finally, retirement plans. Quite possibly the most boring subject matter out there. Nothing sexy about it, most people don’t understand it, and all you hear are bad things about it. But I PROMISE you: you’re the only sure thing you’ve got later in life. Not to be all gloom and doom, but marriages fail. People die, social security funds dry up. Even if you’re one of the few and proud out there in corporatopia that still has a pension, if the company goes belly-up, or if we get taken over by aliens from outer space, then no more pension for you. I’m not here to teach you about finance and investing: there are TONS of other podcasts out there where you can get that, so if you want some recommendations, hit me up privately and I’ll point you in the right direction. But I will belabor some common sense for you: take advantage of everything you can save, start as early as you possibly can, and stick with it. When the day comes when you don’t want to work, can’t work, or these companies don’t want you anymore, this is the biggest reserve you’ll have to fall back on. After all, wouldn’t it be nice to have all that time we spent in the corporate world literally pay us dividends in our golden years?
Sadly folks, that’s all the time we have for today. But have no fears, and shed no tears, because I’ll be back with a new episode every week. As they say in the industry: no listeners, no show, so do me a favor, and stay loyal! If you find value in my content, please leave me a nice review, tell all your friends, and don’t forget to like, subscribe, and follow on whatever platform you use to get your podcasts. Beyond the confines of your headphones, speakers, TV screen, or any other crazy contraption with the ability to stream audio, I also provide one-on-one career assistance, so visit my website at career-consigliere.net to learn more about me, book me for one-on-one coaching, join my email list, or explore some of the other career services I offer. And to all of you out there in podcast land, remember this: Who’s the boss in your career? You, nobody else.
