Know Thyself: How to Calculate Your Salary Needs

Whether you are about to embark on your first or fiftieth salary negotiation, planning can make all the difference. But where should you begin? Calculating future wants and needs can seem like a daunting task, but with a small amount of reflection, you can better prepare yourself for that first salary conversation.


Start With Your Needs


Have you thought about how much you NEED to make? So many of us neglect to negotiate because we are simply excited to get that first “real” job. We accept our employer’s initial salary offer, only to realize later that it just isn’t enough. Don’t worry—with a little time and effort, you can determine if that offer is worth accepting.


To begin, you want to create a spreadsheet that outlines your anticipated monthly and annual costs. Start by brainstorming monthly expenses. These will likely include:


  • Living Expenses: Rent, utilities, cable, food, etc.
  • Communication: Cellphone, Internet, etc.
  • Debt: Student loans, car payments, credit card debt, etc.
  • Insurance: Health, life, car, renter’s insurance, etc.
  • Fun Money: Travel, eating out, shopping, etc.

Next, think about how much money you want to save monthly. Here’s what you should consider including:


  • Emergency Savings: This should be a relatively liquid account (e.g., high interest savings account) that exists in case of emergency (e.g., losing your job). Most financial advisors recommend having 6-12 months of salary saved in this account.
  • Retirement: It’s never too early to start thinking about retirement. There’s a good chance that your future employer has some type of retirement benefit included in the initial salary offer. Will you need to contribute to additional retirement accounts? For planning purposes, think about what you want your annual retirement contribution to be. This calculator can help you find how much that should be.
  • Additional Savings: Do you want to save for a house? Maybe a new car or boat? Realizing your dreams often requires saving. You may want to consider supplementary short and long-term savings accounts.



Now you are almost there! Next, add any savings to your expense spreadsheet. This total gives you an after-tax monthly salary needs approximation (i.e., what you will bring home monthly). To calculate your before-tax salary needs, simply add a minimum of 20% to your total number. Finally, multiply your numbers by 12 to determine your annual salary needs.

Your Budget Example

Determine Your Wants

Now that you determined your base-line salary, it is time to think about what you really want. How do you envision your lifestyle? What would you do with any extra money you earn? How much of a financial cushion do you want? By answering these questions, you start to realize what your ideal salary is. Once you determine this number, you have established your salary range. You know that you can’t go below your base-line salary, and you aspire to make your ideal salary. Hopefully through negotiations, you will achieve a salary somewhere within that range.


Always Remember

You have a decision to make if, after negotiating, the employer’s final offer is below your base-line salary. Should you reevaluate your salary needs? Or is it best to graciously decline the job offer. This is a difficult decision to make. But, if you take your planning seriously, you will make the right decision.