PETE: You’re listening to How Not to Move Back In With Your Parents here on the IU MoneySmarts Radio Network. I am Pete the Planner, joined by Alex, hello.
PETE: What are we talking about today? Job offers!
ALEX: This is an exciting one, hopefully.
PETE: Job offers and negotiations. All right, so here’s what you need to know. And this may scare you off from listening to this. I used to be a terrible negotiator. I got really uncomfortable. I don’t like the haggle sense of negotiation. But when it comes to job offers and what you look for in a job offer, and how you negotiate a salary, I think there’s some things that you need to know, all right? So I’m gonna give you non sequitur thoughts here. They’re just gonna fly at you, you’ll react to them. Are you a good negotiator, by the way?
ALEX: I’m not sure, honestly. I haven’t really had to do too much negotiation yet. I don’t know, I’m a pretty nonconfrontational guy. So I feel like it’d be something I have to work on, but who knows?
PETE: My parents were nice enough when I was 16 to allocate some of their funds that I could buy a car, okay? And so they gave me my budget. Let’s say it was 5,000 bucks. I actually don’t remember what it was. And they gave me five thousand bucks. And they said all right, you have to figure this out. So my mom and I went down to this car dealership down the street from us. And there was this old Mustang, like classic Mustang. But it was a little bit beat up. But I figured, you know what, this could possibly be in my range. I went to the guy and I was like hey, how much is this car? And he goes, how much are you looking to spend? And I said, I’ve got $5,000. He goes, that’s exactly what it costs, which just proves what a terrible negotiator I am. Because no matter what I would have said, especially would have been a higher amount, that’s exactly what that car would have cost. So sometimes, Alex, in us trying to be honest and transparent within negotiation, especially from a salary perspective, it whips back and kills you. Because, sometimes, although honesty is good, you don’t need to be so forthright with information.
ALEX: My question is for this, as well, what are the limits or what should you watch out for negotiating as a graduate? So how much negotiating power do we really have? Cuz I’m gonna be going through this as well since I’m a senior. So how much to push it? Cuz for us it’s I just want a job. Obviously, salary matters but it’s like I’m not gonna risk not getting this job because of salary negotiations.
PETE: Yeah, there’s a couple factors and there’s a couple kind of delineation we need to make. Number one, there’s comparing offers to other offers, which we’ll talk about that in a second. But when it comes to negotiation itself you don’t have a lot of leverage when you’re right out of school. When you’ve had some career experience, maybe you’ve got a fantastic resume, you have a little bit of leverage. Here’s my favorite technique for trying to get a little bit more money out of a negotiation. You’re sitting in a negation. Alex, let’s say you just offered me a job. And as we’re beginning to talk about negotiations, or we’re in them for actual dollar amounts, I could say to you, Alex, tell me the hardest part about this job. So to get the employer to walk themselves mentally through the idea that your job is actually very challenging. So the harder they think your job is, the more they’re going to be willing to spend on you to do it. But if the last thing you talked about before money comes up is something, this is a great place to work, then all of a sudden there’s this idea that it’s an honor for you to work there versus hey, it’s hard for you to work here. You know what I mean?
ALEX: Yeah, definitely. And beyond that, it’s just propping yourself up as a person whether your resume, things like that. And then it sounds like as an actual thing getting them to match other offers, things like, that sounds like the number one thing that you’re gonna be able to negotiate with as like a bargaining chip is hey, I have this offer over here. Thinking about taking it. Could you match or beat something like that?
PETE: The matching offer thing is really interesting. You’re right, it is a ton of leverage. I think people misplay that all the time though, because they just try to drive the price up. And they don’t take the time to establish where they really want to work. And they also don’t compare the other compensation involved. So, I know from at one point being 22 years old that all I really cared about upon graduation was not only getting the job but getting a handsomely paid job, right? It’s like, I want to make 50, or whatever the number is. What you can’t forget, or what you don’t even maybe know, is that a lot of the compensation that you’ll receive have nothing to do with your direct income. It’s not what hits your checking account. It’s old boring stuff, health insurance benefits. What sort of retirement plan do you have? 15% of the private sector, which is basically non government work, 15% of the private sector has what’s called a pension, a defined benefit plan. A pension is when you work somewhere and then you retire and they keep paying you as though you worked there. Does that sound like a pretty good deal?
ALEX: Sounds like fun.
PETE: It was, and that’s why they’re disappearing left and right. So 85% of people don’t have that. I’m in that 85%. 15% of people do. So Alex, if you went to a place and for some reason from 22 on you’re like, I wanna hitch my horse to this wagon for the next 40 years, and if I do so, I will be paid by them even when I stop working here, that’s a pretty attractive benefit, isn’t it?
ALEX: Definitely, but you have to know yeah, you’re gonna love that company for the next 40 years.
PETE: Yeah, and so I think maybe later in your career, looking at compensation is more impactful. But even early on of 401k matching, or their stock options, or what does time off look like.
ALEX: Right, and here’s a question too then. Is whether it’s not based specifically on the salary, what benefits do you think are most important for graduates to try and get?
PETE: I think A, number one has gotta be retirement plan benefits.
ALEX: Like 401K match, stuff like that.
PETE: Yeah, so almost every employer you go to is going to have, if they’re of any size, a retirement plan, meaning a 401K, a 403B, a 457, whatever. There’s lots of numbers and they’re all the way confusing. But it’s called a retirement plan. A match is when an employer asks you to contribute a portion of your income to the plan. And in doing so they will match, they will put the exact amount in out of their pockets for your benefit. So Alex, if you were to make $100,000 right out of school and you were to-
ALEX: Sign me up.
PETE: You’re welcome, and they said they will waive a 3% match. What that means is, if you deferred $3,000 of your gross income into a 401k, instead of taking it home, you put it there before taxes, then they would pay you an additional 3%. So your real compensation is $103,000. You just gave yourself a 3% raise because you were willing to defer the 3% into your 401K. So I think as we all get so excited to start our careers, and make money, and make decisions, we cannot ignore our opportunities for extra compensation in the forms of retirement plan. Stock options are another one. A lot of companies what they’ll do is, they’ll allow you to purchase their stock at a discount. And what that does is it means it’s an instant gain if you’re able to put yourself in a financial position to do it.
ALEX: Yeah, and I think also a mistake that a lot of people could probably make is getting that stock option and then selling it off immediately when you can hold it and save up a little bit, get more options, and gain that into the future. Do you think that’s? It might be risky depending on, of course, how the company’s price does. But I feel like a lot of people just feel like, I have this discount. I’m gonna sell it immediately. I’m 23 years old. Sell it off immediately, get this little boost in income. And then, of course, blow that or hopefully put it into savings, something like that. But what is your opinion on selling that off right away?
PETE: No, I like the way you’re thinking. I think until you have an emergency fund of any sort, ideally three months, but at least one month of savings that’s your emergency fund, I think you’ve got to make sure that you can secure that. Beyond that, once that’s funded, yeah. You can start to make those decisions of, hey, I’m gonna hold on to this, and see what happens. We’ve all heard the stories of back in the day with Microsoft, someone invested 1,000 bucks and they had 40 gazillion dollars later. Whatever, I mean that’s fantastic. But I think realistically and pragmatically, you need to put yourself in a position to do that by securing the now. And a lot of this, too, as you know with job offers, are based on where you live and what city it is. A $100,000 offer in Manhattan is not the same as a $100,000 offer in Des Moines, Iowa.
ALEX: Not at all, yeah. And you need to of course cost in that living expenses that are gonna happen. Huge rent differences between those cities. Your transportation, as we’ve talked about, where you’re gonna live and how that will affect it. If you can live in the city and walk to work or if you’re gonna have to live in the suburbs and drive 40 minutes every day. That makes a big difference that you have to factor in.
PETE: All right, anything else before we move on from job offers negotiation? Again, the best tip I can give you from a negotiation standpoint, when you’re negotiating about anything, with anybody is as you’re discussing price, ask them in essence to tell you in not so many words the worst part of what you’re being asked to do. Because if you do that, then that shifts their thinking of they’re doing you a favor and now you’re doing them a favor. And that really helps.
PETE: You like that one?
ALEX: I love it.
PETE: Don’t ever negotiate. Don’t ever try that on me if we’re negotiating [INAUDIBLE] cuz I know the countermove. And you’ll end up on your back. All right, for more information like this go to moneysmarts.iu.edu. Who’d win an arm wrestling match between me and you? That’s not even worth asking.
ALEX: I think that’s a lose-lose in general for everybody.
PETE: Yeah, I think Alex. And so anyway, thanks for listening to How Not to Move Back in With Your Parents here on the IU MoneySmarts Radio Network.