We know the importance of prioritizing our mental and physical health when we think about self-care and holistic wellness. But what about our financial wellness?
Studies have shown that financial stress negatively affects your overall health. And the American Psychological Association (APA) found that money stress in 2022 is the highest since 2015, with 65% of Americans worried about money.
Your financial wellness encompasses your overall financial health, including your current earnings and retirement plans. And a significant factor in your financial health is your earning potential.
But what’s your earning potential? Without further ado, let’s dive into what earning potential is and how you can calculate it.
Earning potential 101
Let’s start with your earning potential (income potential) definition: this is the amount of capital you should be able to acquire during a specific timeframe. In other words, this refers to your earning potential of money. In general, earning potentials are based on the top salary for a particular field or profession.
While your current salary should reflect this, they aren’t always the same. Your earning potential could be much higher than your current wages if you’re being underpaid, early in your career, or up for a promotion. So if you’re a junior product developer at a tech company, you have lots of room to grow.
A Credit Karma poll from early 2022 found that nearly 30% of Americans feel they’re underpaid, with about 66% of workers feeling their pay won’t adequately cover rising inflation costs.
Knowing your earning potential isn’t just beneficial for salary negotiations. In fact, having a number in mind is the key to accurate financial planning and security, as it helps you control your finances, plan for the future, and determine how to achieve your desired salary.
Some workers find that job-hopping is the most effective way to meet their earning potential. Bloomberg found that employees earn an average raise of 4% if they stay at the companies, but 5.3% if they switch. And with dissatisfied employees powering the Great Resignation, it’s no surprise that turnover is increasing as workers ensure they’re paid what they deserve.
Determine your earning potential
Know your worth, then add tax. In other words: what are your compensation expectations?
Even if you’re satisfied with your current salary, wouldn’t you like to know if you could earn more? That’s where calculating your earning potential comes in.
The tricky thing about earning potential is that it’s not a static number. It relies on specific factors that could change over time, including your:
- Job title
- Educational background
- Skills
- Location
- Work experience
- Years of experience
Let’s dig into each of these below.
Job title
Your job title says a lot about you, like the type of skills and years of experience you have. Look at other individuals with similar job titles to figure out the average salaries for other professionals in a similar role.
Educational background
In some industries, your educational background plays a prominent role in your compensation package. If you have an advanced degree in your field, like a doctorate or master's, your earning potential should reflect those years of education.
But some fields, like software development, may prioritize experience in the form of a portfolio over education. Know your field to determine whether or not to factor your educational background into your desired salary.
Skills
Every role requires specific skills, and your mastery of these affects your earning potential. Take note of the in-demand skills your role requires and how you measure up.
Location
Should your pay be equal for a role in New York as it would be in Kansas? Probably not. Companies factor in cost-of-living for in-person roles before they offer you a financial package. As such, your location’s cost of living and the rarity of your role tie into your earning potential.
Work experience
While your job title usually indicates your work experience, your specific job history factors into your earning potential. A high degree of familiarity and proficiency in your role indicates to employers that you’re a desirable hire, whether that means experience managing teams or using certain software.
That motivates employers to offer you a competitive compensation package to ensure potential competitors don’t outbid them.
Years of experience
Is this your first rodeo, or have you been around the block a few times? While years of experience don’t necessarily mean you’re good at your job, it goes a long way to show how dedicated you are to a specific career. Your time in specific roles helps employers determine how much they should compensate you.
Use these tools to calculate your earning potential
The best way to calculate your earning potential is to use a salary calculator. We’ve rounded up a few tools to get you started.
PayScale
PayScale draws its data from web visitors, like yourself, who enter their salary, job title, and location information for free salary reports. They have a large data pool spanning over 40 industries.
To use PayScale, simply answer their questionnaire to get started. You’ll receive a “pay snapshot” that shows how your pay compares to other individuals in similar roles with a similar background and cost of living.
LinkedIn Salary
LinkedIn is a big name in the job search field, but how does it translate to calculating earning potential? The answer: extremely well.
LinkedIn Salary draws upon LinkedIn’s network of 850 million members worldwide to determine the base salary of a job title and stock and annual bonuses. This information will help you when you're ready to negotiate.
More importantly, if you’re thinking of changing jobs or moving to a new location, LinkedIn Salary also provides insight into the top paying locations, degrees, and companies for each industry.
When you search for the earning potential of a specific job title in any location, LinkedIn prompts you to enter your own salary data to view insights. LinkedIn Salary also recommends potential jobs matching your query and salary range.
Salary Expert
Salary Expert provides an extensive database of salary information to browse based on specific job titles. You can also enter your salary data, job title, and location to see the gross salary for your role based on your location. The site also provides links to certain roles you might be interested in, based on your search terms.
Consider these tips to increase your earning potential
Sounds pretty tricky to determine your earning potential, right? After all, there are so many moving parts. But that’s actually a good thing. With so many factors affecting your earning potential, there’s always room to increase it.
Here are some ways to increase your earning potential:
- Upskill. Stay up-to-date with in-demand skills for your industry and continue to skill up. Earn new certifications to show potential employers you’re working to stay current.
- Grow your network. Don’t be a faceless name in the crowd. Network with those in your industry to become a well-known name. If you have the expertise, become a thought leader or expert in a relevant area, then let your network know how this knowledge makes you indispensable.
- Ask for a raise. Don’t be afraid to speak up, especially if you’ve assessed your earning potential and feel your current salary doesn’t reflect your worth.
- Ask for more benefits. If you think you’re due for a raise but it’s not an option based on budget constraints or team size, see how else your employer can help you, like offering more benefits. Increased employee benefits might reduce your costs in other areas, like healthcare or retirement planning.
- Grow your wealth. Another way to increase your earning potential is to invest your earnings in financial markets by purchasing index funds, stocks, or stock options so your wealth grows faster than it would in your bank account.
You can also invest in other assets like commercial or residential real estate. This makes your money work for you instead of sitting in a bank account.
- Find an alternate income. If you just want a little bit more cash, consider starting a side hustle. Be your own boss and turn your “off” hours into potential wages.
Maximize your potential
Ultimately, your earning potential is a set of fluid factors that you control. If you’re unhappy with your current situation, it’s time to take some steps to change it. Another certification or course will help bolster your hard skills and make you even better in your position.
And if you just can’t improve your financial standing at your current job, it might be time to find a new role. There might be a hiring manager at another company looking for someone with your exact skills and willing to pay you what your expertise is worth.
