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Saturday, October 25, 2008

Crunching the Numbers--How to Decide Whether to Take a New Job

I just went through this exercise, so I thought it might help someone else.

I got a new job offer at a little over 10 percent more than my current salary. In economics, we learned "more is better". So far, so good.

Does that mean that if my current employer offers me more than a 10 percent raise to stay, I should?

The answer, as in many things, is "It depends."

I made myself a little spreadsheet. Down the side of the first column I listed income:

Base Salary
Commission (if any)
Bonus
Education Benefit
Any other cash benefit (in my case a subsidy to buy life insurance)
401K Match


Then I listed deductions

Current personal 401K contribution
Current personal 401K contribution percentFamily Medical Coverage
Family Dental Coverage

For my purposes, I didn't include taxes, but you could.

The second column includes the data for all those fields from my current job. The third column includes the data for my job offer.

So then I calculated the net income before taxes (all the income less pretax deductions like medical and 401K contribution.) So far, so good.

Then I figured my commuting expenses. I took the government milage reimbursement rate (currently 58.5 cents per mile, according to the IRS) times the number of miles roundrip, times the approximate number of commuting days. If you commute every day, like I do, that is approximately 220. If you telecommute a couple of days a week, like I will in my new job, you can prorate the amount by the number of days you'll be driving in.

(Note: although I drive a hybrid, and I'm pretty sure my costs are lower than the IRS rate, I went with it anyway.)

I subtracted my current commuting costs from my current net income in column two, and my projected commuting costs from my projected net income in column three.

Then I compared the bottom line between Column 2 (current adjusted income) with Column 3 (prospective adjusted income). Again, I didn't figure in taxes, but you could. (You could also calculate the value of the vacation days and compare the existing job to the new one.)

In my case, I discovered that I'd be better off at the new job even with a 15 percent CUT is salary. When people say to take the benefits into account when evaluating a new job, they aren't kidding.

Of course, in this post I haven't said anything about whether the new job is a good fit for you (or me). Let's assume it is for now.

Tomorrow: a word on salary negotiation.

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