Using the power of negotiation and effective negotiation tactics can save us hard earned money over the long run. It can also increase our income if we use proper negotiation to increase our starting salary or to ask for raises over time.
Being aware and ready to negotiate when the door is open for it, can increase your income and/or minimize your expenditures. Experiencing either of those outcomes (increasing income or lowering expenses) is a sign you are a savvy, financially-minded individual!
This is going to be a two-part series on negotiating. This week is about the background on negotiating and important information to know about. The next article we publish will be about effective negotiation tactics to incorporate into your everyday life.
Why Negotiating is on My Mind
The house we purchased had a termite issue years ago, which the previous owners had mitigated. We have been in the house almost five years, and we just want to make sure we are taking care of the home. So, we had a termite inspection conducted on our property. We have no clue when the house was previously treated.
We had one inspector come and they tried to tell us that we needed to sign up that day for a treatment because they found termites in a neighbor’s flowerbed and potential evidence that termites are currently in our house. Of course they couldn’t prove this without breaking into a structural beam, so that’s why I say potential. The entire situation felt very high-pressure, as it felt like he was using all of the sales tactics (empathy building, scare tactics, etc).
The guy was nice and answered all of my questions; however, I wasn’t sold. He told me about the treatment he recommended. To price the service, he pulled up Google and showed me the average national costs for performing a service. He was ready to give me a steal by charging me the lowest-end number. That sounds great, right?
I told him I couldn’t make any decisions on the spot and needed to talk it over with my spouse. Before the day was done, I (on the advice of Dr. Thia!) decided to get a second opinion. I wasn’t sold and a second opinion could give me a different perspective and more information to feel confident in making a decision. When I told the first inspector my plan, he was clearly disappointed. He left the conversation by telling me that another inspector would likely give us a lower price, which he would beat.
Ah, ha! That low-end of the national average no longer sounds like that great of a deal. I’m not done with processing the information we’ve gotten to decide on a treatment method, but I sure as heck won’t be paying the low-end of the national average that he originally quoted.
Important Statistics on Negotiation
I’m sure you can go and search for statistics on negotiating and find a number of studies related to the art; however, there are four statistics I want to highlight. These statistics support the need for negotiating and by knowing them, you can use them as motivation for at least considering incorporating negotiation into your life more frequently..
- 70% of managers expect candidates to negotiate salary (Robert Half).
- There is a trend that more people are negotiating their starting salary, as 55% of surveyed individuals had done so in 2019 while only 39% of respondents had indicated they negotiated their starting salary in 2018. (Robert Half)
- 7% of women attempt to negotiate starting salaries, while 57% of men do so. (Linda Babcock of Carnegie Mellon University)
- 89% who bargain are rewarded at least once. (Consumer Reports)
Situations To Incorporate Negotiating
There are a number of situations you likely expect to negotiate – like when you buy a new home or a car. You may dread these experiences (like I do) or you may revel at the thought of the opportunity (like Dr. Thia). Whatever the case, I want to encourage you to be aware and looking for opportunities to negotiate.
- Large Purchases (home buying, car buying, appliances)
When you buy a home you negotiate the amount you are willing to pay, the closing costs, and, among other things, the closing date. You likely have an inspection done and then renegotiate the terms based on the information provided by the inspector.
You likely know that when you go to buy a car you are going to negotiate the price you buy the car for, likely the price of your trade-in, but you can also negotiate for free service (i.e. oil changes and tire rotations).
The true base of this category is comparison shopping. What other homes can you buy for a similar amount, car, or appliances. You use the information in the market to come to terms that are agreeable to both parties. So, if you have large purchases, make sure to shop around and know what the market is or isn’t supporting. Factors can change drastically over time and from one location to another.
Three of the statistics above are in support of negotiating your salary, especially at the time you accept a new job. As we change employers or roles, it’s critical to really focus on negotiating an appropriate starting salary. Most increases in pay are based on this initial number. The higher the starting number, the more your income increases when you receive a 2%, 3%, or higher raise each year.
- Employee Benefits
Most of us consider negotiating our initial salary; however, we may not think about negotiating our paid time off or other employee benefits that are offered alongside the salary. Consider your employee benefits as part of your entire package.
If you are moving from an employer to another and your number of days off decreases by five days, that’s a full work week of your life that you aren’t able to take off to see about other things (i.e. traveling, caring for sick kids, overseeing your physical and mental health, etc.).
Additionally, if the retirement match decreases, use this to negotiate a higher salary. Be sure then to contribute more to your retirement than what is matched, so you are putting the increased salary into your retirement.
- Medical Bills
There is a trend in society that we are negotiating medical bills less and less. There is information that says that because most of us are using large system-based health institutions instead of smaller doctors offices, we feel as though there is less room to negotiate medical bills. If you are paying for medical services outside of your co-pay, consider your ability to negotiate.
We have the ability to negotiate on emergent care, but we likely have even more leverage to negotiate on elective care. If you are choosing to undergo elective procedures, know the costs up front and negotiate your out-of-pocket costs.
- Maintenance Repairs
Just like with my story above on termites, take time to negotiate rates for maintenance items. Whether you are having someone clean your windows, install windows, or do pest control, there is the opportunity to negotiate. Consumer Reports encourages you to bargain. Comparison shop, walk away, and more (again, I’ll cover negotiating tactics in our next article, so more on this to come!).
- When You Feel it’s Appropriate
There is no clear framework for when to negotiate. If you see an opportunity to negotiate – say you know a store is going to start a sale the following day, but you want an item today at that lower price – go for it. As you negotiate more, you more easily see additional opportunities to negotiate.
A Final Thought: Negotiating is Not Just for Financial Gain
I really appreciate this article from Brenda Goodman in Psychology Today on the Art of Negotiation. Negotiation isn’t only for financial gain. Negotiation is “all interactions between two or more points of view,” says Mary P. Rowe an ombudsman for MIT.
Negotiation is a tool for living our best life. We can use negotiation as a tool, just like we can use money, for getting the things we want and pushing to have our needs met. Whether you need change within your relationship with your significant other, your family, your friends, your coworkers, boss, medical provider, or otherwise, the act of negotiation can be a means to being happier.
Recognizing appropriate moments and engaging in the art of negotiation to live a better life can be powerful!
Free Resource – Becoming a Millionaire Next Door
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