The College Series: Breakdown of an Offer Letter - What to Negotiate and Take Advantage Of
A few weeks ago, I had the opportunity to speak to students about personal finances. This week I met with a few soon-to-be graduates to review their offer letters and how best to take advantage of them. Many of these students had already accepted their offers, but one still had time to negotiate. In this post, I will cover the components of an offer letter and how best to take advantage of it on the path to financial independence. It’s critical and quite crucial to take steps as early as the time you accept your first full-time job offer to set yourself up for success when it comes to money.
I just want add a bit of a side note regarding wage stagnation. It’s quite real and unfortunate. While the students I met are in a completely different industry from where I started, I was surprised that many of the salary offers were quite low, lower than what I received back in 2005. Couple this with some of the student loan debts these students are carrying plus the continuing increase of the cost of living, it both shocked me and motivated me to ensure we keep teaching young adults early the importance of understanding money for their own well-being.
An offer letter will have a date in which you have to provide a formal response. Depending on how many days they give you to respond or if you are fielding another offer, it’s good to ask for an extension to review everything over. Remember that asking never hurts. Make sure you have everything available in writing so that you have concrete proof and so that there’s no missing information as you make your decision. If you are missing information, do not hesitate to ask and get clarification.
My first ever offer letter came via overnight FedEx to my parents house. I was still in school at the time, but thankfully was close enough to get the entire packet so I could review the entire offer before making a decision. Now, most offer packets are sent via email with pages of attachments. Review everything carefully so that you can weigh all information accordingly.
A lot of people automatically focus on the base number salary when the offer letter comes in, but this is just one component of the entire package. So while it’s important to review the base salary based on your personal financial requirements, it’s also important to look at the amount in terms of industry average for the area where you live, the actual job title and description and against all other benefits that are being offered. The base salary is what you will live off of so it’s important this is inline with that you are expecting and deserve. This number is totally negotiable. Many companies have a range budgeted for the salary they are willing to compensate, the key is to try to gauge what that range is and get to the upper range as much as you can.
If you are going to negotiate, which you should always do, make sure to reiterate why you would be valuable to XYZ Firm and why you deserve the few thousand dollars more in pay. Many people, especially those that are not familiar with asking for more just ask for money without justifying it. Sorry, that won’t cut it. Prove to the company once more that hiring you for a few more dollars is the right decision. Many companies will not want to go back to the drawing board for a candidate search because it costs time and money so it’s critical that you show your worth and potential even before you step foot in the door.
In the case of the soon-to-be graduate who received an offer letter last week, a strongly worded email requesting an increase was sent. Before stating the number that he required, he summarized why he would be a good fit for the company and other skills he had learned since the interview process to show them that he is not only fit for the current job, but could offer the company other expertise outside of the job description. He ended up receiving a counter-offer a few hours later.
Carefully review the start date for your new position. Depending on your current plans, it’s also possible to negotiate this date. If you have a current job, courtesy and standard notice will be two weeks. Be open and up front about start date options early on so that the expectations are set. It might not be feasible for you to take a month off before a job, but if planned properly, you can negotiate for a date that works for you.
A few people may get a bonus as part of the offer. This is another incentive to accept the job offer. Remember some of this is contingent upon you finishing out a year or two at the company. Read through the fine print so that you are aware of your responsibility should you leave before the time is up and you have to pay back a portion of the bonus. Don’t take the bonus for granted. Before you dream of spending it into something cool because you deserve it, remember it’s a bonus. Save some and use some to pay for debts. The faster you can pay down debt the easier it will be in the long-run.
Double check that the title they have offered you is the title that you have been interviewing for and want. In some cases, it is possible to negotiate the title especially if it doesn’t change the job description that much. Remember that the job title also dictates the salary range so make sure this is correct and is inline with your expectations.
Vacation time is normally based on company standards, but it’s always worth asking for more if this is something that is important to you. Many companies based their vacation days on accruals and some have “unlimited”. Depending on where you fall, if you can get another few days or even a week of paid vacation time can be a boon not only for your well being, but for your pocket as well.
I love reading benefits packages because they are so many hidden gems and potential for more money in there. You may not realize it but each perk a company has is technically part of your compensation. When management gathers at the end of the year, they analyze all of the costs and benefits to providing certain perks to employees. Knowing the benefits that your current company offers can also be used as negotiating points for future job moves. If Company X has Benefit A and you want it it at Company Y, bring it up and see if you can get that perk also.
A common benefit is the retirement benefit or a 401(k) plan. Note the company match and the vesting period. On your first day of work, make sure to sign-up for this immediately. Most retirement plans do not automatically sign up new employees so you have to be proactive and take advantage of this right away. The 401(k)match is part of your compensation so it behooves you to take advantage of “free money” right away. It’s also important to do this right away so that you get use to that paycheck deduction. If you don’t see the money hitting your checking account, it is unlikely you will miss it and more importantly, you’ll have the opportunity to have it grow much earlier.
Review your health benefits closely. Sometimes, you may not need the most comprehensive package especially if you are young and healthy. It might be worthwhile to enroll in a high-deductible plan with an HSA option. This allows you to set aside money for future medical expenses. A tip is to save money as part of a planned savings strategy for medical and dental so that you aren’t surprised by the high-deductible plan.
Check for other benefits as well including tuition reimbursement, access to financial advisors or law professionals at discounts, commuting and transit benefits, insurance, employee profit sharing, etc. These benefits cost money and if you can take advantage of them instead of shelling out your hard earned money, then by all means do it.
I know the Benefits book can be daunting and boring, but it could have a few more perks to help you build a sizeable nest egg early.
So congrats on that offer. Don’t forget to carefully review the entire package, ask questions, negotiate and have a plan of action for your first day so that you can capitalize on every benefit available. After all, everything that the company offers you is part of your overall compensation package so it’s best to take advantage.
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Need more help with your finances, click on the button below for the step-by-step-guide to getting your finances in order post graduation.