Most job seekers struggle with salary requirements or the “minimum salary” they need to earn. Calculating the salary, you deserve can be difficult, especially if you do not have an idea of what you need to meet all your expenses.
Salaries can vary highly based on the job profile, experience, location, and several other variables. A similar job may pay significantly more or less depending on the city or country. It is common to come across people who are earning highly diverging salaries for performing essentially the same job.
How to Calculate How Much You Need to Earn?
There is no simple answer to the question “How much do I need to earn” as the answer depends on a vast number of factors and is also highly subjective based on each person’s expectations, skills, and needs. Your take-home salary also needs to be enough to cover all the taxes and other deductions, such as social security, pension contributions, etc. To calculate your minimum salary, you will need to consider the following things:
1. Monthly Expenses
You need to make a list of all the monthly expenses that are recurring in nature, such as rent, mortgage, groceries, telephone or Internet bills, utilities, entertainment, food, shopping, gas, childcare, etc. Often people do not have an idea of how much they really spend on these expenses. You can use past bills or receipts to arrive at a figure. If you make most payments via a credit card, debit card, or auto-debit, your bank account and card statements can help you calculate the exact amount of monthly expenses.
You must also include savings for large purchases, sporadic expenses, vacations, holiday spending, educational expenses, medicines, or visits to doctors to the monthly expenses figure as most of these are also recurring in nature.
Once you have an idea of the total amount you need for monthly expenses, you must take into account the payroll deductions that are deducted you’re your salary automatically, such as 401K contributions, health, dental, or vision insurance, life insurance, federal and state income taxes and retirement savings.
Calculating deductions is a bit tricky. Unlike rent or mortgage, these are not really fixed and can vary significantly based on your income bracket, the insurance plans offered by your employer, etc. Social security and Medicare tax rates are set each year by law.
For 2021, the social security tax rate is 12.4% combined, or both employee and employer need to contribute 6.2% each. Medicare rate is 1.45% or 2.9%, as both the employee and the employer are required to contribute 1.45%. So, social security and Medicare alone will account for 7.65% of your paycheck.
Federal and state income taxes are deducted from your salary, depending on your tax bracket.
You can use a tax calculator to calculate the amount of taxes you need to pay, depending on your income. If you do not know the exact amount of deductions, you probably know what percentage of your gross salary you receive after all these deductions. If your current annual salary is $100,000, but you receive only $80,000, then the deductions amount to 20% of your gross salary. You can divide this figure by 12 to arrive at the monthly deduction figure.
You can also use tax calculators or get help from a certified professional accountant to figure out the tax owed on your salary.:
- USA Tax Calculator.
- Canada Tax Calculator.
- UK Tax Calculator.
- Australia Tax Calculator.
- India Tax Calculator.
- Philipines Tax Calculator.
4. Savings and Debt Payoff Goals
When calculating your minimum salary requirement, it is a good idea to also consider your savings and debt payoff goals. Most people account for their monthly EMIs or mortgage payments but often fail to account for other types of debt they may need to pay, such as credit card debt, consumer debt, or student loans.
If you have a credit card balance of $10,000 outstanding and want to pay 10% each month, you must add this $1000 to your salary requirements. If you are saving for a home down payment, big-ticket purchase, or college, then calculate the total savings needed and add this figure to the salary required.
5. Emergency Fund
Many people mistake an emergency fund for savings, but these are two completely different things as you cannot touch an emergency fund until there is a “real” emergency. If you want to buy the latest iPhone or want to upgrade your old car, this is certainly not an emergency. If you have lost a job, and need to support yourself without any income, then this is the type of emergency that can be met with your emergency fund. Most personal finance experts advise having an emergency fund worth 3 to 6 months of living expenses. Living expenses include all the usual expenses such as rent, mortgage, food, grocery, loan payments, etc.
An emergency fund will serve as a cushion for you in difficult times and can be of immense help if there is a real emergency. If you do not have an emergency fund in place, then take into account the amount you need to save for your emergency fund worth living expenses of 3 to 6 months. Once you have the required figure, add this to your overall expenses before calculating your salary requirements.
In almost all industries, salaries are intricately linked to your experience. Some industries, such as law firms, accounting firms, or healthcare, follow lockstep compensation, where your pay is linked to the number of years you have worked in the past. So, you will get a salary package that conforms to your experience. If you are looking for a new job, then you can use your expertise to get the desired salary from a new employer.
In some industries, particularly the innovative ones such as software development or tech-based industries, experience may not be as crucial as in the industries associated with the old economy as in these new industries/sectors, there is much more focus on the results, and it’s not uncommon to come across 20 somethings who are earning 6 or 7 figure salaries without decades of experience. Consider how much colleagues with similar experience are making, and then try to figure out how much you can earn based on your experience if the experience is considered important in your sector or industry.
Location is another critical factor to consider when calculating your potential salary. Salaries can range drastically for the same job function across locations. An accountant, lawyer, software developer, doctor, or manager is going to make much more in New York or Los Angeles than, let’s say, what he or she will earn in a small town such as Austin, Denver, or Rochester.
Many workers are able to get a higher salary just by relocating to a larger city that is a regional or national business hub. Indeed, a higher salary is often the primary motivator for relocating to another city or state. Some regions are known for offering much higher wages as compared to other cities or regions. San Francisco and the Bay area is known as the home of several tech companies. Developers and software engineers in this region are paid on average much higher salaries than engineers based in smaller cities.
How to Calculate Your Salary Requirements?
1. Research What People with Similar Experience, Skills, Education, or Background Earn
There is no one size fits approach when it comes to calculating salary requirements as even two people performing the same job functions may have different salary requirements to meet their needs. To get a clear idea of the salary that you need, extensive research is required. You must try to figure out what people with similar skills, education, job profiles, and experience are earning and then compare yourself to your peers. Earlier it used to be quite challenging to conduct this sort of research, but in the age of the Internet, you just need to spend a few hours and do some simple calculations to arrive at an acceptable salary figure for you.
Now we will discuss some salary tools that will help you conduct this type of research and briefly explain each site as what they offer in terms of resources, the kind of database they have, etc.
Glassdoor is on the top of our list for obvious reasons as it is the most popular career site that allows you to research salaries posted by other workers, review companies, and search for jobs that may suit you. It was founded in 2007 and is headquartered in Mill Valley, California.
Over the years, Glassdoor has become the no 1 research site that is used by millions of employees when searching for their next employer. Glassdoor also allows users to submit their current salaries anonymously. These submitted salaries often serve as a benchmark for potential employees who can get a rough idea of what they will be paid if they join a particular company.
Glassdoor allows you to search for salaries and jobs based on location, job role, skills, and experience. It is quite similar to other job search portals with a user-friendly interface. It also allows job seekers to upload their resumes directly on the site that can potentially help attract companies looking for talent.
You can use Glassdoor to conduct extensive research about the salary for a job you want and see what different companies pay their employees across different job roles and locations.
PayScale is another popular compensation and job search site on our list. It is among the oldest job search sites as it has been online since 2002. It is headquartered in Seattle, Washington. PayScale was founded with the goal of providing real-time compensation data to both job seekers and employers, and it has done this job remarkably well over the last 2 decades.
PayScale has quite advanced search function allowing you to search salary and job data by the employer, certifications, degree/major subject, job, skill or specialty, industry, experience, state, city, or province, and country.
You can also research more about employers as PayScale has a tremendous amount of data about all major and minor companies located across the world. It is also one of the few salary search sites that allows you to research salaries by the school or university attended. PayScale also has a whole suite of resources designed to help job seekers, such as their salary negotiation guide, cost of living calculator, career path planner, jobs, and events.
4. The Salary Project
The Salary Project is a tool developed by Career Contessa, a career site focused solely on women. You can search for more than 30,000 salaries using The Salary Project and generate a personalized report based on your industry, city, job function, ethnicity, age, and more. The Salary Project is unique as it is one of the few salary research tools that are exclusively for women.
5. Salary.com Salary Tool
Salary.com is the next salary research site on our list. This site is famous for its salary tool that allows you to research salaries by skills, education, and company. They also have the cost of living and benefits calculators that are quite useful for comparing the cost of living in various cities. They also show benefits such as bonuses that are often a part of salaries but often contribute significantly to the overall compensation.
Salary.com also offers some excellent resources such as industry insights, compensation surveys, US and global benchmark surveys, executive pay survey, and minimum wage data, along with some interesting articles on their blog.
Indeed is a job search site that functions more like a job board. Not many people know that the company is also one of the best resources for calculating your salary requirements based on your skills, job title, location, company, etc. Indeed claims to have data about 600 million salaries reported by their users in the past and is the world’s leading job search site.
Indeed also allows you to directly upload your CV to their site and apply to jobs posted by employers with just a few clicks. It also offers a well-researched collection of career resources that help you with almost every aspect of your job search. Their blog is also quite popular among employees and job seekers.
7. LinkedIn Salary
LinkedIn is a professional networking site with great job search functionality. It has more than 700 million members and has emerged as an immensely popular job search and salary research site over the last few years. With LinkedIn Salary, you can research how much you can get for your skills, education, experience, and location.
LinkedIn’s vast database of potential employers and job seekers make this unique among all the sites on our list as no other site can come even close to it in terms of members, jobs posted, or companies that have a presence on LinkedIn. LinkedIn is not a pure salary research site, but anyone can use their salary search tool and get to know how much they can earn. Few other companies have as much data about compensation, jobs, and salaries as LinkedIn.
8. Bureau of Labor Statistics
You might wonder as to why we have included the Bureau of Labor Statistics in this list of tools that can help you calculate your salary requirements. Bureau of Labor is the US government’s principal fact-finding arm that collects enormous amounts of data about salaries and wages in the US through its labor and statistical surveys.
Occupational Outlook Handbook published by the Bureau of Labor Statistics offers information about wages for hundreds of different professions in dozens of occupational groups. Occupational Outlook Handbook is published biennially by BLS and provides a growth outlook for the jobs and careers listed in this handbook for the next 10 years from the date of publication.
Convert the Salary Needed into Annual or Hourly Pay
Once you know how much money you need each month, you can multiply this figure by 12. This way you’ll get the figure for the annual salary you need to meet your expenses, taxes, savings, investments, and debt payoff goals. If you work in an industry where the hourly wage is the norm, then you can just divide the annual salary needed by the approximate number of hours worked in a year.
If you work 40 hours a week or 2080 hours in a year and you need an annual salary of $100,000, then your hourly rate should be $48. You can also convert the annual salary offered to you through the same method and know how much the company is really paying you on an hourly basis.
Calculating the salary requirements is not an overly complicated task, although it certainly requires a few backs of envelope calculations. Probably you already know how much you need to survive and pay all the bills at a subconscious level but do not have the exact figure in mind.
All you need to do is just follow the above tips and calculate your salary requirements using one or more of the salary calculation tools that we have listed above. The whole process of calculating your salary requirements will just take a few minutes or a couple of hours maximum.
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