Most of us have been taught to seek upward mobility in our careers. Accepting a big promotion is a no-brainer, but taking a pay cut is a different story. When should you consider a lower salary? Here are a few scenarios:
- You need the job. You find yourself out of work, or your employer has decided to downsize. A lower-paying job is usually better than no income at all, and it may be wise to avoid an employment gap on your resume.
- You are changing careers. Perhaps you need a new challenge. Maybe your current career is no longer a good fit. Regardless of how much experience you have built up, you may find yourself in an entry- or mid-level position once you’ve made the switch. Remember that your salary reflects the market value of your skill set at one point in time, not your worth as a human being.
- New opportunities beckon. Imagine that your dream job is available at a company that aligns fully with your values. Even if taking the job means accepting a pay cut, you may feel happier and more fulfilled. Or suppose you spot an opportunity to move into a similar job at a bigger organization with more advancement opportunities. Your short-term loss may yield net gains in the long run.
- Work-life balance matters more. Many people eventually find themselves in a life phase where personal satisfaction and family happiness matter more than earnings. Family needs may have you seeking more flexibility and a shorter commute. How much do you value these perks?
- You’re relocating. When moving to a new area, consider the cost of living in relation to a lower income. For example, a Madison resident relocating to La Crosse, Wis., may expect to earn about 8.6% less, according to com. That means someone earning $40,000 per year in Madison might earn $36,500 per year in a similar job at the same type of company in La Crosse. However, this job seeker could come out $1,500 ahead in La Crosse since the cost of living is about 12.4% lower.
When considering your options, it’s important to make an apples-to-apples comparison and understand the net impact of a job switch.
Grab a legal pad and make two columns: current job and new job. List your total compensation for each, including base salary or wages, bonuses, sales commissions, and other income.
Next, subtract the costs of health and life insurance, mandatory contributions to your retirement plan, and other regular deductions from your paycheck. This may be challenging if the two jobs’ benefit packages differ greatly.
After that, compare other expenses. Will one job require a longer commute, costing more in gas and automotive maintenance? Are there other differences in out-of-pocket expenses? For example, will a busier schedule at one job involve eating out more often?
Finally, share your full analysis with a family member or trusted friend. In the end, only you can decide whether to switch jobs, but at least you’ve done your due diligence.
Moira Kelley is a senior career counselor in UW-Madison’s Division of Continuing Studies. Contact her at firstname.lastname@example.org.
This article originally ran in the Wisconsin State Journal.