It goes without much argument that all things being equal it’s a good idea to be making more money than less.  The extra money can be used to pay down debt, save faster, invest more, or simply buy more stuff.  And who doesn’t like those things?

Getting a new job that pays more or a raise from a current gig is a great feeling.  But just how valuable is really?  And is it worth chasing even a few thousand dollars more?   For many of us the answer is absolutely, and more so than you may know.

Let’s imagine a typical worker we’ll call Sally. She has been working at the same job for two years now and makes $50,000 a year.  She’s considering another job offered to her that pays $55,000 a year, but she’s unsure it’s worth the change as it doesn’t seem to be much more money.

After all, $55,000 is only $5,000 more a year than she’s currently making, and that works out to a 10% increase in salary.   This is not a trivial amount, but certainly not enough to change Sally’s life, right? Well, maybe it is.

If Sally’s at all normal she’s likely spending a good portion of her $50,000 salary each year.  After taxes, rent, food, transportation, clothing and everything else that life throws her way, Sally may only be able to save $3,500 a year. Continue reading →