An obvious and important factor in determining how well we live is the amount of income we earn. In the absence of any inheritance or similar financial windfall, your income will largely depend on such factors as your age, marital status, education, geographic location, and choice of career. Making a lot of money isn’t easy, but it can be done! A high level of income whether derived from your job, your own business, or your investments is within your reach if you have the necessary dedication, a commitment to hard work, and a well-thought-out set of financial plans. The data in Exhibit 1.12 show how income changes with age and education.
Demographics and Your Income
Typically, people with low incomes fall into the very young or very old age groups, with the highest earnings generally occurring between the ages of 45 and 64. Those below age 45 are developing trades or beginning to move up in their jobs, and many over
Demographics and Your Income
Typically, people with low incomes fall into the very young or very old age groups, with the highest earnings generally occurring between the ages of 45 and 64. Those below age 45 are developing trades or beginning to move up in their jobs, and many over
64 are working only part-time or are retired. In the 35–44 age group, the average annual income of household heads is about $83,700, which jumps to over $112,400 for those in the 45–54 age group and then falls to about $92,500 in the 65–74 age group. Your own income will vary over time, too, so you should incorporate anticipated shifts in earnings into your financial plans.
Your Education
Your level of formal education is a controllable factor that significantly affects your income. As Exhibit 1.12 illustrates, household heads who have more formal education earn higher annual incomes than do those with lesser degrees. In a recent study of affluent Americans (defined as those earning $75,000 or more), 62% had college and/or postgraduate degrees while only 11% had just a high-school diploma or less. According to data from the Survey of Consumer Finances, the average salary of a high-school graduate in 2007 was about $51,500, compared with $143,800 for a college graduate. Add a Ph.D. or other professional degrees and earnings rise substantially. Over a lifetime, these differences really add up! Education alone cannot guarantee a high income, but these statistics suggest that a solid formal education greatly enhances your earning power.
Where You Live
Geographic factors can also affect your earning power. Salaries vary regionally, tending to be higher in the Northeast and West than in the South. Typically, your salary will also be higher if you live in a large metropolitan area rather than a small town or rural area. Such factors as economic conditions, labor supply, and industrial base also affect salary levels in different areas. Living costs also vary considerably throughout the country. You’d earn more in Los Angeles than in Memphis, Tennessee, but your salary would probably not go as far because of the much higher cost of living in Los Angeles. Like many others, you may decide that lifestyle considerations take priority over earning potential. Your local chamber of commerce or the Internet can provide an intercity cost-of-living index that shows living costs in major cities and serves as a useful resource for comparing jobs in different areas. (See the Financial Road Sign “Calculate the Cost of That Move” for more information.) The overall index is developed by tracking costs in six major categories: groceries, housing, utilities, transportation, health care, and miscellaneous goods and services.
Your Career
A critical determinant of your lifetime earnings is your career. The career you choose is closely related to your level of education and your particular skills, interests, lifestyle preferences, and personal values. Social, demographic, economic, and technological trends also influence your decision as to what fields offer the best opportunities for your future. It’s not a prerequisite for many types of careers (e.g., sales, service, and certain types of manufacturing and clerical work), but a formal education generally leads to greater decision-making responsibility and consequently increased income potential within a career. Exhibit 1.13 presents a list of average salaries for various careers.
Planning Your Career
Career planning and personal financial planning are closely related activities, so the decisions you make in one area affect the other. Like financial planning, career planning is a lifelong process that includes short- and long-term goals. Since your career goals are likely to change several times, you should not expect to stay in one field, or to remain with one company, for your whole life. You might graduate with a computer science degree and accept a job with a software company. Your financial plan might include furnishing your apartment, saving for a vacation or new car, and starting an investment program. If 5 years later you
Your Education
Your level of formal education is a controllable factor that significantly affects your income. As Exhibit 1.12 illustrates, household heads who have more formal education earn higher annual incomes than do those with lesser degrees. In a recent study of affluent Americans (defined as those earning $75,000 or more), 62% had college and/or postgraduate degrees while only 11% had just a high-school diploma or less. According to data from the Survey of Consumer Finances, the average salary of a high-school graduate in 2007 was about $51,500, compared with $143,800 for a college graduate. Add a Ph.D. or other professional degrees and earnings rise substantially. Over a lifetime, these differences really add up! Education alone cannot guarantee a high income, but these statistics suggest that a solid formal education greatly enhances your earning power.
Where You Live
Geographic factors can also affect your earning power. Salaries vary regionally, tending to be higher in the Northeast and West than in the South. Typically, your salary will also be higher if you live in a large metropolitan area rather than a small town or rural area. Such factors as economic conditions, labor supply, and industrial base also affect salary levels in different areas. Living costs also vary considerably throughout the country. You’d earn more in Los Angeles than in Memphis, Tennessee, but your salary would probably not go as far because of the much higher cost of living in Los Angeles. Like many others, you may decide that lifestyle considerations take priority over earning potential. Your local chamber of commerce or the Internet can provide an intercity cost-of-living index that shows living costs in major cities and serves as a useful resource for comparing jobs in different areas. (See the Financial Road Sign “Calculate the Cost of That Move” for more information.) The overall index is developed by tracking costs in six major categories: groceries, housing, utilities, transportation, health care, and miscellaneous goods and services.
Your Career
A critical determinant of your lifetime earnings is your career. The career you choose is closely related to your level of education and your particular skills, interests, lifestyle preferences, and personal values. Social, demographic, economic, and technological trends also influence your decision as to what fields offer the best opportunities for your future. It’s not a prerequisite for many types of careers (e.g., sales, service, and certain types of manufacturing and clerical work), but a formal education generally leads to greater decision-making responsibility and consequently increased income potential within a career. Exhibit 1.13 presents a list of average salaries for various careers.
Planning Your Career
Career planning and personal financial planning are closely related activities, so the decisions you make in one area affect the other. Like financial planning, career planning is a lifelong process that includes short- and long-term goals. Since your career goals are likely to change several times, you should not expect to stay in one field, or to remain with one company, for your whole life. You might graduate with a computer science degree and accept a job with a software company. Your financial plan might include furnishing your apartment, saving for a vacation or new car, and starting an investment program. If 5 years later you
decide to attend law school, you’ll have to revise your financial plan and include strategies to cover living expenses and finance your tuition. You may decide that you need to go to school at night while earning a living during the day. The average American starting a career today can expect to have at least ten jobs with five or more employers, and many of us will have three, four, or even more careers during our lifetimes. Some of these changes will be based on personaldecisions; others may result from layoffs or corporate downsizing. For example, abranch manager for a regional bank who feels that bank mergers have reduced her job prospects in banking may buy a quick-print franchise and become her own boss. Job security is practically a thing of the past, and corporate loyalty has given way to a more self-directed career approach that requires new career strategies. Through careful career planning, you can improve your work situation to gain greater personal and professional satisfaction. Some of the steps are similar to the financial planning process described earlier.
• Identify your interests, skills, needs, and values.
• Set specific long- and short-term career goals.
• Develop and use an action plan to achieve those goals.
• Review and revise your career plans as your situation changes.
Your action plan depends on your job situation. For example, if you’re unemployed then it should focus on your job search. If you have a job but want to change careers, your action plan might include researching career options, networking to develop a broad base of contacts, listing companies to contact for information, and getting special training to prepare for your chosen career. A personal portfolio of skills, both general and technical, will protect your earning power during economic downturns and advance it during prosperous times. Employers need flexible, adaptable workers as companies restructure and pare down their operations. It’s important to keep your skills current with on-the-job training programs and continuing education. Adding proficiency in technology or languages puts you ahead of the pack in keeping up with changing workplace requirements. It’s a good idea to broaden your contacts within your industry and among those colleagues who know which industries have potential, which are in trouble, and what skills are in demand in your field.
Good job-hunting skills will serve you well throughout your career. Learn how to research new career opportunities and investigate potential jobs, taking advantage of online resources as well as traditional ones. Develop a broad base of career resources, starting with your college placement office, the public library, and personal contacts such as family and friends. Know how to market your qualifications to your advantage in your résumé and cover letters, on the phone, and in person during a job interview.
• Identify your interests, skills, needs, and values.
• Set specific long- and short-term career goals.
• Develop and use an action plan to achieve those goals.
• Review and revise your career plans as your situation changes.
Your action plan depends on your job situation. For example, if you’re unemployed then it should focus on your job search. If you have a job but want to change careers, your action plan might include researching career options, networking to develop a broad base of contacts, listing companies to contact for information, and getting special training to prepare for your chosen career. A personal portfolio of skills, both general and technical, will protect your earning power during economic downturns and advance it during prosperous times. Employers need flexible, adaptable workers as companies restructure and pare down their operations. It’s important to keep your skills current with on-the-job training programs and continuing education. Adding proficiency in technology or languages puts you ahead of the pack in keeping up with changing workplace requirements. It’s a good idea to broaden your contacts within your industry and among those colleagues who know which industries have potential, which are in trouble, and what skills are in demand in your field.
Good job-hunting skills will serve you well throughout your career. Learn how to research new career opportunities and investigate potential jobs, taking advantage of online resources as well as traditional ones. Develop a broad base of career resources, starting with your college placement office, the public library, and personal contacts such as family and friends. Know how to market your qualifications to your advantage in your résumé and cover letters, on the phone, and in person during a job interview.
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