What is a Six-Figure Salary and is it Enough?
As a career coach, a big part of my job is to discuss salary goals with people who are about to embark on a job search or ask for a raise in their current role.
It always amazes me how many people have a goal to make six figures, but haven’t really thought about it more than that. What number are they actually hoping for? Are they factoring in benefits and bonuses? Or is that just a straight salary? What about taxes?
I usually have a lot of follow-up questions for them, which sparks a great discussion and we will always arrive at a more tangible goal that they can seek out with confidence. So, I thought I’d put together a post with some of the biggest considerations we should be asking ourselves when it comes to earning a six figure salary.
What is a Six-Figure Salary?
First, what does a six-figure salary actually mean? Put simply, a six-figure salary is anything that pays over $100,000 per year up to $999,999 per year. But, that’s just part of the story (and a very vague part, if you ask me).
These days, a lot of employers will offer a compensation “package” that includes direct compensation such as the yearly salary, monetary bonuses, and other cash-based incentives and indirect compensation, such as insurance, retirement funds, paid time off, etc.
Each of these types of compensation has a monetary value attached to it, and the amount of money that gets deposited directly into your bank account twice a month is just one part of that total compensation package.
For example, you might be offered a salary package that includes:
$85,000 yearly salary
$2,500 sign-on bonus after 90 days of employment
Up to 10% as a performance bonus annually
A 401k with a 10% employer match
Free gym membership
Free lunch in the cafeteria each day
10 paid vacation days per year
10 paid sick days per year
Health insurance (employer pays 50% of premium)
Dental and vision insurance (employer pays 50% of premium)
$30,000 life insurance policy
Had you received this offer within the last two years, would you consider it to be a six-figure salary package? I definitely would, but a lot of people wouldn’t because the yearly salary is less than $100,000. The 401k match alone has so much value, but since it’s something you aren’t going to need until many years down the road, people don’t see as much value in it.
Is Six Figures Enough?
Many people who will read this will think, “of course six figures is enough!” Yes, it is a lot of money but again, we need to break it down because $100,000 doesn’t go quite as far as a lot of people think, especially once you factor in all of your taxes and expenses.
So, let’s say you have a salary of $100,000 per year, which comes out to $8,333 per month. This puts you in the 25% tax bracket, which means after Uncle Sam takes his cut and after your insurance premiums and 401k investments are taken out, your take-home pay is probably going to be less than $70,000 per year, or a little over $5,800 per month.
Some people think that simply landing a six-figure salary will take all of the worry they have about money off the table, but you have to consider what the actual take-home pay will be after taxes before you can decide if it’s enough to solve your money problems!
The Myth of the Six-Figure Lifestyle
When you think about a six-figure salary, do you think about an extravagant lifestyle that includes things like a nice home, multiple cars, and awesome trips? A lot of people do, but what they don’t consider is that there are also expenses like student loan debt, child care, investments, and hopefully, six months’ worth of savings in an emergency fund.
So, let’s say you’re making $100,000 a year and you have a $2,000 monthly mortgage, two $350 per month car payments, $1,000 in childcare costs, $250 in utility bills, and you’re putting away $1,000 into savings.
If you look at that take-home amount of $70,000, that means you only have $850 left over each month for things like groceries, gas, a cell phone, clothes, and the occasional concert or movie. That doesn’t really sound like a very enviable lifestyle, does it? There certainly isn’t enough money left over to go on extravagant trips!
This number also doesn’t factor in inflation, which is something we need to think about. Cost of living is increasing, but salaries aren’t increasing with it. Things like cars, gas, and groceries cost a lot more in 2022, so we need to consider that when we’re writing our budgets.
Get Specific About Your Goals
As you can see, just hitting the six-figure mark isn’t enough for most people in most cities to fund the American dream. So, instead of a vague “six-figure” goal, you need to sit down, map out your expenses and your investment goals, think about the lifestyle you want to live, and come up with a number that actually makes sense for your life.
Looking at that number, does it seem like an achievable goal to work towards in your career? What new skills or certifications would you have to add in order to command that salary? Is there a way you can position the accomplishments you’ve already achieved to justify that salary? Maybe it’s just a matter of telling your story in a way that communicates the real value you bring to the table. I help my coaching clients do this all the time, so it certainly is possible!
At the end of the day, I want to see you succeed, and having a clear understanding of what you need in order to feel successful financially is a big part of that. If you have any questions or comments, please feel free to share them below!