A lower paying job is one that come with a pay cut. This isn’t just a pay cut in terms of salary, this is after taking into account everything. The 401k matching, HSA, benefit contributions, and the like. In general, it is NOT a good idea to take these jobs because lower pay affects you more than you know.
In March 2021, I interviewed for a job that I really wanted and liked. It was an investing job that would give me a wide mandate to invest the company’s cash. It could be in any asset class that I desired. More than likely, I was just going to recommend investing in a broad market based index fund such as the S&P 500.
However, it was a dream job. This would be where I get to make the greatest impact because I would have a direct impact on the company’s P&L line! On top of which, if there were any acquisitions taking place, I would also help with the M&A aspect of the job.
However.. There was one thing wrong. Their starting offer was so low at $95k base + 25% bonus. My then current job paid closer to $145k with 401k matching, PTOs, salary, and bonus. This would have been an IMMENSE pay cut. At the end of the day, I ended up politely saying no to the job.
I can’t imagine what I would’ve felt if I took the lower paying job. I would have been so angry that I was getting undervalued. While a job isn’t all about the money, my time is still worth a lot to me. I would have underperformed at the job with the lower pay. A lower paying job just isn’t worth it.
What is a Lower Paying Job?
It isn’t just about the salary + bonus that matters. It’s about looking at compensation from a holistic standpoint. The new job would have had a 401k matching of $1,500. My current job matched 401k $11,000 per year. The new job came with PTO of 10 days. My current job has PTO of 34 days per year.
A lower paying job isn’t just about the money, it’s about all forms of compensation. These days, I’m willing to forgo an obscene increase in compensation as long as the work life balance is good. All I want is to work at an environment where the company treats me well.
In that case, you may be getting paid less in terms of money but you will be getting paid more in terms of having less stress. The best position is to get paid more while having less stress and still working a good job that challenges your intellectual curiosity.
That’s being in the best of all worlds. Therefore, a job should be taken holistically in what you value to determine whether it’s a lower paying job or not. A job isn’t all about the money. There are investment bankers who are downright miserable at their jobs and they physically do not have the energy to wake up the next day.
Compensation is not just about money. It’s about keeping your sanity and making sure that you can withstand the stresses of the job on a long term basis. Otherwise, an increase in salary was just an illusion. You might actually go going for a decrease in overall compensation.
Why You Shouldn’t Take a Lower Paying Job
One reason why you shouldn’t take a lower paying job is because you can’t SMASH that social share button and post to your favorite social media! If anything, it takes a lot of time for me to write the articles so please consider sharing the article for me.
So with that said, let’s go over the reasons why you shouldn’t take a pay cut!
1) It Diminishes What Your Time is Worth
Whether we like it or not, how much we get paid reflects the value that we have on society. It shows how much society is willing to value your time at. When we know our time is worth $50/hr only to get knocked down to $30/hr, it affects our psychology.
I was making $110,000 per year two job ago. I had a lower paying job offer of $70,000 per year. Imagine how I would have felt if suddenly, my time was worth 35 – 40% less than what I was getting paid. I would have felt miserable. It’s one thing to go from $200,000 to $150,000.
It’s another to go from $110,000 to $70,000. For reference, I got heartburns when I moved comp from $110,000 to $100,000. Pay cuts just hurt and it doesn’t feel so good. Don’t sell yourself short and don’t give up your compensation.
If your current job makes you miserable, look for another job. The new job might even pay better, too.
2) Lower Paying Job Doesn’t Mean Less Demanding
I had thought pay cuts meant that there would be less stress and the work life balance would be much better. Oh boy, was I wrong. Just because it’s a lower paying job, it does NOT mean that the job is less demanding. Some jobs do mean that it is less demanding. However, there is a possibility that it won’t.
Companies expect a lot from their employees and can be VERY demanding of them. They think as long as they pay them, they have the power to get them to work overdrive without paying them overtime. Many companies started paying retention bonuses during the coronavirus pandemic.
However, many more companies did NOT pay retention bonuses. Even multi billion dollar companies. A company’s number one objective is to take care of their needs first. And they will make sure to take care of their needs instead of taking care of their employee’s needs.
3) It Gets in the Way of Your Personal Finance Goals
If your goal was to be financially independent by 30, then taking a lower paying job is not the way to get there. Sure, it gives you less stress and more chance of starting a side hustle that could work out by the end. However, generating an extra $10,000 per year as a raise is easier than generating an extra $10,000 per year as a side hustle.
For me, personally, reaching financial independence means a lot to me. I cannot imagine just how much further I would be behind from my goals if I took a $30,000 per YEAR pay cut. Over the past four years, that’s an additional $120,000 that I would have missed out on. Not insignificant.
It’s not about the fact that you took a pay cut now that matters. It’s about the fact that you’re taking a long term pay cut over years and years of time. That money is not insignificant, it adds up to huge sums over a long period of time. Then add in compound interest and it’s really not insignificant.
4) It’s Hard to Go Back
It’s easier to go from a high paying job to a lower paying job than than it is to go from a lower paying job to a high paying job. If you want to go back to what you were doing before, it’s not going to be easy. It’s still going to take a lot of time, energy, and the like in order to interview with a new company and get a pay raise.
Going back to a high income has been done before. One of my former coworkers left a job only to go back to the job she was doing at her prior company just after one month. However, there is always a chance that the company will say no. There are many people trying to break the $100,000 per year in income.
Many people have failed trying to break six figures. There are no free lunches. If you don’t have any leverage, people will not shy away from taking advantage of that. They know if you’re getting paid $75,000, if they offer you $85,000, then they’ll more than likely have a deal. Even if their budget was $135,000.
5) If You’re Running Away from Something
You definitely should not be taking a lower paying job if you’re taking it because you’re running away from a job instead of running towards an opportunity. A 10% increase in compensation is really not worth the headache of moving jobs. You’re losing the relationships you’ve built over the years.
You’re giving up an upcoming promotion and the like. You shouldn’t take a lower paying job if you’re running away from your current job instead of going for a better opportunity. Don’t run away from your current situation because there’s a good chance the new job will be even worse.
That’s what happened with me. I left a horrible boss. Lo and behold, they ended up switching out that horrible boss for a new one, literally on my last day at the job. Then I felt silly switching companies for a pay cut. You can imagine the level of regret I felt on that last day of work.
6) You Lose Millions Over Your Lifetime
The costs of not negotiating salary is HUGE. A $100,000 salary versus $110,000 salary is significant with an annual 3% increase in pay. After 35 years, the difference in yearly salary widens even further to $30,000 per year. For the same job. With the same skills and the like.
The difference adds up over your lifetime. Some even lose out on millions of dollars in compensation by not negotiating. The quick and dirty secret is that EVERY job is negotiable by at least $5,000. If you want to go the lazy way of negotiating, just ask for an extra $5,000 to the current offer. You’ll more than likely get it.
Most jobs are negotiable by more than $5,000 though. The most important thing to do is to negotiate. It’s not for more money that you’re negotiating for. It’s for the leverage that you lose out for the next job that you interview for. Not negotiating makes a ton of difference over your lifetime.
Don’t be Filled With Regrets
Whether we like it or not, we spend the most of our lives in our careers. We spend more than a third of our lives working on our careers and building them into something that we’re proud of. Taking a lower paying job just may be the worst mistake that you’re ever going to make.
Don’t be filled with regrets, I know that I would have been waking up filled with regrets that I gave up so quickly if I took a pay cut. Don’t give up, life is worth fighting for. Your career is worth fighting for. No matter how bad things are now, you don’t want to make a mistake where it gets worse.
You want to be Filled With Money, you don’t want to be filled with regrets! Many people are asking, “is taking a pay cut for lower stress worth it?” When they should really be asking, “how do I get a pay increase for lower stress?”. Money is NOT reflective of how much stress you’re going to endure.
Money is reflective of how much the company is willing to pay. I personally moved jobs for higher pay and less stress. It was quite endearing to know I am at this spot right now. All I want to do now is to do a good job for the company and hope to move up over the years.
Maybe it’ll work out and maybe it won’t. However, all I know is, I am not going to accept anything less than a pay increase going forward. The coworkers, boss, and the work that I do are all so great that I have almost zero incentive to leave the company. I’m only at this position because I refused to take lower paying jobs. It was worth it.
Lower Paying Jobs Aren’t All Great
I’ve been there before. You think there’s no way out. Every day the work is getting worse and the boss isn’t helping at all. Then when you finally feel like you’re out of the rut, the job gets even worse. So then you put in your resume to move companies and get an offer for a pay cut.
The new company seems to be great. Everyone talks about how the work life balance is great. So then you don’t mind the pay cut, all you care about is that you’re going to be treated better. Then you join the new company and find out the new job is even more work! What!
That’s not a hypothetical situation. That actually happened to me. I’ve felt stuck at the job in 2021 and 2020 and thought that there was no way out of there. Then fortuitously, I landed another job that came with a massive 30% pay increase working for a great company and a great boss.
I JUMPED at the opportunity. I feel like I hit the jackpot. Just because it’s a lower paying job it doesn’t mean that you should take it. There are exceptions. If you don’t actually have a job and you need a job to pay the bills, then that’s one thing. However, in a bull market or in a job market where workers have the power, do not even consider it.
It’s illogical to give up the advantage when you’re not really forced to give up the advantage. A lower paying job sounds great in theory but it might not actually be in application. These days, employees are overworked more than ever and every company is feeling the effects of it.
Why You Shouldn’t Take a Lower Paying Job
- It diminishes what your time is worth
- Lower paying job doesn’t mean less demanding
- It gets in the way of your personal finance goals
- It’s hard to go back
- If you’re running away from something
- You lose millions over your lifetime
