Before you ever walk into a job interview you need to know your number. Well, what is your number? Your number is the amount of money that you will need in compensation for the job you are applying for.
This article isn’t about if you can live on a specific dollar amount, and it’s not about the minimum wage and if it is enough for people to live on. Those are all different questions that I am writing different articles about those. Instead, this is about self-reflection while you are establishing yourself or when you are already established.
My standard for personal finance is the 40/30/30 rule.
- You should be able to cover all your needs with 40% of your paycheck.
- You should be saving 30% of your paycheck
- Your wants should be 30% of your paycheck, or if not the full 30% then the remainder after your needs and savings.
I absolutely understand the typical split is 50/30/20 (50% needs, 30% wants, 20% savings) and I can tell you until 2025, I used to tell people the same model I was given when I was young which was 40% savings, 30% wants, 30% needs. After many attempts to keep the 40% savings threshold, I was unable to do so.
Also, as a fair disclosure, this example isn’t going to work for people living in places with a skewed cost of living. Major cities like New York, Chicago, Los Angeles, Atlanta, and most metropolitan areas have a cost of living that breaks both the 40/30/30 and 50/30/20 rules. I will be writing a future piece specifically for residents of major cities where these rules don’t hold.
I also understand that in your situation, you might need to bump your needs up as high as 50%. That allows you to survive on a job that offers lower total compensation but if you do, then the adjustment should come from your wants, not your savings. Why?
First, interest on invested money compounds over time. Being disciplined enough to put 30% of your income into savings early in life will set you up later.
Take home buying as an example. On a $300,000 house with 20% down, you only finance $240,000, and over a 30-year mortgage you’ll pay about $315,287 in interest with a monthly payment of $1,806.
With just 5% down, you finance $285,000 instead, and your total interest jumps to around $600,400, with a monthly payment of $2,096 and that doesn’t’ include the PMI you will most likely have to carry.
That’s nearly double the cost, all because you weren’t able to save for the larger down payment.
Second, when you are young you want to party and have fun, but it is also the best time in life to work a second job and set yourself up for success. If you budget 30 percent for wants, there will be months you spend it all whether you mean to or not. It will not happen every month, but it will happen, and how often depends on the individual. If there is something you really want, nothing stops you from carrying over your wants money month-to-month to make that purchase.
I can already hear the groan of the young reader about another older person preaching grind culture. I get it, I really do. What I’m writing here is no different than the advice I get to my adult children, and it’s no different than the advice I got when I was young.
"Live a few years like others won't, so you can live the rest of your life like others can't"
It is better to set yourself up when you are young with a long-term plan, rather than reach a point in your life where you are wishing you had money.
If you need $2500 a month to live on to cover your needs, then you will need to make $6,250 (after taxes) a month to cover needs, savings, and wants. This translates into $102,000 before taxes ($14,281 paid in Federal Taxes, $4,912 paid in State Taxes, $7,803 paid in FICA) or $49 an hour.
Incidentally, if you operate on 50% for needs, it means you only have to secure a job making $80,000 before taxes or $38 an hour.
How does knowing this help me?
Knowing this number ahead of time helps you because it allows you to focus your efforts on applying for only those jobs that will meet this threshold. If there are 500 jobs you could apply for, but only 100 of them are offering compensation that meets your requirements, then you know which 100 jobs you should apply for.
When you go into any of those interviews, have the number written on an index card in your pocket, and when you get to the end of the conversation about compensation, you don’t have to speak first.
Interviewer: “What salary expectations did you have for this position?”
You: “I have a number in mind, but I’m really interested in seeing what you consider my skillset to be worth?”
At that point, you can just look at them and wait. Remember, in a negotiation, the person who speaks first usually loses. Now, in this case, much like a casino the house never loses, but this shows a certain confidence and grit. If they offer you something that is above your number, you take it, because it is more than you expected. If they offer you something lower than your number, take your card out of your pocket.
Much like our percentage split from earlier, this tactic won’t work in all situations. Some states are required by law to post salary ranges. In these locations they have already spoken first, and now it will be up to you. That doesn’t change the punchline though.
Either way, it is a powerful move when you are able to reach into your pocket and pull out the index card and say to them. “I wrote this down before I walked in, and your offer is good, but this is where I need to be.” It is even better, if its not the absolute highest end of their posted salary range. This can help you be taken more seriously by an interviewer.
The interview may even ask you how to arrived at your number and you can explain.
I need $2500 to cover my basic needs, and then if I want to have a successful financial future, I need to be able to save 30% a month while still leaving 30% a month for the quality of life that I want to live.
Remember, you aren’t asking an employer that posted $21 an hour to suddenly pay you $29 an hour. Ironically this happens quite often, and the applicant is surprised when they never hear back after their interview. Instead, you are asking a job that offered at least $29 and hour to pay you what they offered.
If you got into the interview part of the application process, they saw something in your paperwork. Maybe they thought you would settle for a low ball offer, but you went in armed. You took the steps to calculate your value and write it down, but more than that you knew your number. You know you can’t take anything less than what you are asking for.
What if I can’t get anyone to pay me my number?
You may find yourself knowing your number, but unable to secure a job paying that much. A few different things may be going on in your life.
First, you may have overvalued your education, skills, and training. Or maybe you are just finding out that the degree you worked hard for is not worth as much in the job market as the college admissions office, the finance office, or even your high school guidance counselor told you it would be.
If you have minimum skills and minimum training and minimum experience, you are probably going to be earning the minimum wage. You may think you are worth $49 an hour, but the workforce thinks you are worth $38. In this case, you could pivot to the 50/30/20 model and still be ok. Your needs are still going to be met, but it will take a bigger chunk of your money, and you still have a healthy remainder to invest (30%) and have a decent quality of life (20%).
If you can’t get a job paying $49, and if you can’t get a job paying $38 then you are going to face your first reality check. Can you command the salary you are looking for?
If the answer is yes, then hustle harder, send out more resumes, do more interviews.
If the answer is no, then you need to refactor your number.
Realistically, the only category you can shrink is your needs. Every dollar you cut from needs lowers the amount of money you have to earn overall. Some needs are fixed, such as rent, utilities, or groceries, and cannot be reduced much. Other things people label as needs are actually wants in disguise. Identifying and cutting those expenses reduces your needs line and lowers the pressure on how much income you must bring in.
A good example is cell phones. You need a phone, but you do not need a $1,300 iPhone. If you count the full monthly cost of that phone as a need, you inflate your entire budget. The true need is whatever it would cost to have a basic prepaid phone. The rest of the bill belongs under wants. If you are disciplined enough to make that distinction, the hourly wage you require to live goes down. You may even begin to question the real value of an expensive smartphone. The positive side is that your budget already includes money for wants. You might not be thrilled that part of your play money is going to a phone bill, but you are still getting something you want rather than something you need.
Can’t I just save less? Want less?
You absolutely could decide to save less and want less. The reality is that most people who say they will cut back end up wasting money in other ways. Only the most disciplined, or the most desperate, can completely eliminate wants. Wants matter because they provide quality of life beyond the essentials.
As for savings, you can take a job that does not allow you to put away 30 percent of your income in the short term. The problem is that without a savings fund, you are one blown tire, broken phone, or twisted ankle away from falling into debt. The easiest solution then is to begin carrying a credit card balance, and that is the type of debt that accumulates quickly when left unchecked.
It is better to drop wants to five percent and work a second job until you build savings, rather than drifting with half effort and ending up in your late twenties or thirties wondering why you never got anywhere. Before you roll your eyes, here is what I did. I worked a full-time job, and part time at White Castle at $10.75 an hour plus an extra dollar on overnights.
It wasn’t fun and I didn’t enjoy it, but it kept me from taking student loans and it helped me buy a home at 20. That, however, is a story for another article, but the point remains: short-term sacrifice buys long-term financial freedom.
Knowing your number is not just about negotiating pay. It is about building a plan for your life. When you understand what you need to cover essentials, what you should be saving, and what you can spend on wants, you walk into every job interview with confidence. You stop applying blindly and start targeting jobs that actually meet your needs. More than that, you protect yourself from debt, disappointment, and wasted time. Your number is your bottom line, and once you know it, you will never again accept less than what you are worth.
If you want to discuss this more, I stream politics and real world related stuff on Mondays, Wednesdays, and Fridays on multiple different platforms from 1100 Eastern until 1500 Eastern.