How to Financially Assess Your Job Offer

Congratulations! You received a job offer!

There are lots of considerations for whether to accept a job offer. These include the job responsibilities, the rapport with the manager, opportunities for career growth, etc. Most importantly, will the compensation package allow you to live your desired financial life?

This post will show you how to conduct a financial assessment of your job offer.

Disclaimer - this is not a post on how to figure out how much you’re worth or whether to negotiate for a higher salary (we’ll cover these in another post!). This is a post on whether you can live the financial life you want to live given the compensation offered.

Working With a Financial Professional

Several years ago, I was thrilled to receive a job offer from a highly reputable pharma company in the geographic location that I was targeting for my next move. The job offer also included a relocation package tailored to my personal situation.

As part of the recruitment process, this pharma company provided me an opportunity to speak with Eric Dahl, a financial advisor with The Delta Group, with no cost to me. Because I would need to relocate across the country if I accepted the job, I jumped at the chance to have this consultation. 

I wanted to better understand how I should consider the impact to my finances if I accepted the offer and moved to a higher cost-of-living location. According to its website, The Delta Group offers prospective employees a relocation assessment that clarifies one of the most important components of the job offer:

Adapted to your particular details, (i.e., debt, children, second income) spreadsheet models replaces “back of envelope” scribble and midnight cold sweats. Our five-year look projects beyond short term relocation benefits and offers a realistic ‘bottom line’ view of the basic compensation package.

Why would a pharma company want to provide this service to job candidates? I would expect that they want job candidates to make a decision about the job offer with as much information as possible. Perhaps, this process eliminates financial surprises and allows for increased retention of new hires. 

The interaction that I had with the financial advisor focused on my expected living expenses and whether the compensation and relocation package offered by the pharma company would cover them. We ran several scenarios where I varied my basic living and housing expenses, including renting vs. buying a house.

In my case, the financial assessment gave me the following:

1. concrete numbers for understanding the financial impact if I accepted the job; and 
2. rationale for negotiating some of the relocation benefits to better fit my needs.

Indeed, because of this financial assessment, I negotiated for a temporary housing stipend, which helped tremendously in dealing with the initial sticker shock of moving to the Bay Area.

How to Do Your Own Financial Assessment

A financial advisor’s general assessment can be very helpful, and if you work with one already, it is well worth getting time on his or her calendar for this discussion. 

However, similar estimates can certainly be calculated without a financial advisor’s help, depending on how complicated your finances are. It is not complex math, but it does take a bit of extra homework. The estimates can be tailored to an individual or family’s situation, and you can compare the impact of different job offers side by side.

Here, I outline the key components of the analysis. Keep in mind that each person’s financial situation is unique (that’s why personal finance is personal!), so use this only as a general guide. You’ll also find a more detailed Workbook with example tables to plan out the next 5 years for each of these key components.

I. Basic expenses

Make a list of all your basic expenses such as food, clothing, utilities, transportation, and insurance premiums. Also include what you typically spend on vacations, childcare, and petcare. Add these up to see what you spend annually on basic expenses.

II. Housing Expenses

Do you plan to rent or buy? Maybe rent for a few years and then buy? For renting, research rental prices and factor in extra budget in case you need to move between rentals. For buying, look up recent home sales prices, and then use a basic online calculator for how much your mortgage would be. Don’t forget to add in property taxes, homeowner association fees, and estimated maintenance costs. 

III. Debts

Debt payments can include car payments, student loans, and mortgages or other loans. 

IV. Income, taxes, and deductions

Add up all the income expected from the new job as well as any other sources of income. Then subtract the estimated taxes, both federal and state, on this income to calculate your after-tax income. Consider deductions for benefits such as medical or dental insurance, etc. as well as contributions to retirement plans. Calculate your paycheck amount by subtracting these other deductions from the after-tax income. 

V. Putting it all together!

Subtract the basic and housing expenses and debt payments from your paycheck amount to calculate your excess cash flow, which can be used for other financial and life goals.

Summary

Conducting a financial assessment of the job offer can help you determine whether you:

1. are able to live the financial life you anticipate wanting to live after taking the job; or
2. need to adjust your basic living or housing expenses (and expectations) if you take this job; or
3. need to go back to the negotiation table for a higher salary or different relocation package.

We’ll cover the other very important considerations of whether to accept a job offer in other posts, but at least you’ll have the peace of mind that the financial component is now transparent. And you can take full ownership of the decision that you make about the job offer.

For more details on how to financially assess your job offer, check out our Workbook, which has detailed step-by-step instructions, along with tables for you to fill out, to guide your calculations.