5/2/2012 4:51 PM ET|
How much money you really make
Before you can calculate how much a job pays, you have to figure out how much it costs. Sometimes a higher salary can actually leave you with less time and money.
One of the most painful realizations I had when I started getting my financial life in order was that I wasn't earning as much money from my job as it seemed.
My salary at the time of this realization was about $40,000 a year, so let's use that as a baseline.
Now, on the surface, that's really good money. If I worked 40 hours a week for 50 weeks a year, I would be earning $20 an hour, right?
Well, that's not entirely true.
First of all, we have taxes. Federal income taxes, state income taxes and FICA taxes. Federal taxes would eat about 11% of my paycheck, state taxes would eat about 4% or so, and FICA would eat about 2%.
Second, I had to pay for my commute. This was about 10 miles each way, and it was the primary reason I owned a vehicle. So, let's tack on top of that a monthly car payment of about $200, about $40 a month in gas, about $30 a month (prorated) in maintenance expenses, and about $40 a month in insurance, just to keep that car on the road.
I also had to wear a nicer wardrobe. I spent $200 a year to make sure I dressed appropriately for meetings, conferences, and the like -- and that's a low-end estimation.
I also ate at least two meals eaten out a week, costing $10 each. There was travel about three times a year, when many of my expenses would be challenged, meaning each of those trips set me back about $100 out of pocket.
Not only that, there were many times where I would put in extra, unbilled hours to meet a deadline. I easily averaged 50 hours a week at work.
Plus, there was the time I spent traveling -- about 50 hours spent going to places I didn't want to be per trip. And there was the time spent commuting -- about 40 minutes per day. There were also work-related meals and other activities to attend, eating an additional four hours per month.
When you start running the math on this, the equation starts to change.
After receiving my $40,000 salary, I'd pay out $6,400 in taxes each year. I'd pay out $3,720 in commuting costs. I'd pay out $200 in wardrobe costs. I'd pay out $1,000 in extra meals each year. I'd pay out $300 in extra travel expenses.
Suddenly, my $40,000 salary became $28,380.
Now, I'd work 40 hours a week, totaling 2,000 hours per year, right? On top of that, I'd add 10 hours of unbilled work a week (over 50 weeks), three hours of commuting a week (over 50 weeks), 150 extra travel hours a year, and 48 extra hours of activities a year. This would bring my total up to 2,848 hours, or an average of 57 hours a week spent devoted to my job.
My job is suddenly paying me less than $10 an hour.
Of course, there were other job benefits that had some significant value, but frankly, I wasn't actually using them. My wife and I sat down and compared the health insurance offerings at our two jobs, and her insurance was far better than mine, so we used her insurance. I had no use for my employer's life insurance option, either, and its retirement plan wasn't particularly strong. These things do have value when you're comparing jobs in this way, but only if you're using them.
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Amazingly, I was actually earning more money that I could keep with my part-time job as an undergraduate. I earned $12 an hour. There were no travel costs, no wardrobe costs, no extra activities, no unpaid hours of work (I kept a diligent time sheet), no commuting expenses (I worked really close to where I lived). I would be left with more than $10 per hour working at this job.
On a per-hour basis, my part-time job in college was more lucrative than my first "good" job after college. It was also less stressful and far less intrusive on my time.
One of my closest friends at the time made $7.50 an hour working at the night shift at a local gas station right after college. The gas station was just down the block from his apartment, and he'd spend most of his time there reading or practicing his sketching, as he'd have a customer maybe once every 15 minutes. He didn't have a car, and on the rare occasions when he needed to go somewhere, he would take the bus.
It often seemed that he had more money to spare than I did. At the time, I thought it was just an illusion, but when you start running the numbers this way, it's not entirely surprising, particularly if he was paying lower rent and lower utilities than I was.
Realizations like this one are what persuaded me to make a scary career leap and start working on my writing full time. Doing that meant that I no longer had a commute (saving on car maintenance, fuel and time) or any wardrobe costs or eating-out costs. My time spent on work was actually spent on work. There was no more travel -- I've only been tempted to travel related to ny new work once, and that one time was canceled due to a family illness.
On the surface, my salary dropped through the floor when I made this move, but when I started running the numbers like this, I began to realize that my hourly income really wasn't going down much.
Whenever you're thinking about your next job or your next career move, you need to think through these kinds of things. Often, a job that looks like it earns you great pay or is a great opportunity really isn't either, and a job that seems like you won't be earning much can actually leave you with a lot of money in your pocket. When you take into account things like stress and schedule flexibility, sometimes the "low-end" job is just the job for you, particularly if you're simply working to earn a paycheck and are focusing your energies on getting a side business or other opportunity off the ground.
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VIDEO ON MSN MONEY
Where do these guys on MSN get their stuff? 2% for FICA? Try 6.8%, no mention of Medicare, no mention of medical, hath not ye healthcare? Heres my wifes last REAL paycheck, not some Baloney made up one by MSN. Okay, 80 hours = 2,320.00, plus 10.75 hours O.T. =469.36, + 79.25 PM differential. = 2,868.61 for 2 weeks. Now take out 230.06 Fed withholding, 38.14 Fed Med, 110.49 Fed OASDI, 103.42 Il. Withholding, 562.52 401k, 46.16 Flex Med, 165.00 Aetna Medical, 27.05 Aetna Dental, 2.13 Supplemental Life insureance ($50,000), 60.00 Christmas club, 56.00 for a mandatory health club deduction as she is an excercise physiologist,and 1.98 for I do not understand what its for. Her net take home ? 1,468.66 or about 50%.
Just wrote a check to school district yesterday for our one daughter to go to 6th grade, that was 775.00, taxes last year on the 4 bedroom, 2.5 bath home? $10,268.00 and blah, blah, blah. What the damn politicians don't understand, especially the democrats and their Union buddies, is that we are already taxed to death!!! To death!!! Where in the hell is there room for more? I love the authors 200.00 per month car payment. Really? at a 4% interest rate over 5 years that allows for an $8,000.00 car. The author commutes "40 minutes per day" and yet spends $40.00 per month in gas? We spend 350.00 per month in gas for my wife and she commutes 15 minutes. A tank is 85.00. Thats per tank. The author spends "200.00 per year to make sure she dresses appropriately" Does she go to work in her underwear? 200.00 per year? really? I love the 480.00 per year of insurance costs, ours is 940.00, the 30.00 per month of maintenance? and where can you eat out for $10.00? Last time I went to McDonalds drive through and ordered a #1 with an extra Filet o Fish it was $9.80. Are all you liberal media authors living in the same fantasy world? Jesus Crist, It is nearly impossible to scrape by.
I know I will take flack for my wife contributing 20% to her 401k. and 6.8% to her Social Security (her employer also matches 6.8%, the idiotic temporary Obama FICA reduction is crap and not calculated here) so you may say that my wife contributes 33.6% towards her retirement. Okay, after being on the same job for 24 years now, her 401k balance? $142,000.00 Wow, some of you may be thinking, thats a lot of money. Now think this; A govt worker would be retired next year, and suck out that much in bennies in his or her first three years. My wifes will have to last like 35 years. That is what public employees just dont get. We put in 33.6% of our income to eek out 5000.00 per year, and another 16,000.00 in Social security. You pay in like 2-8%, and expect Millions back over an even longer retirement period. Can somebody please start doing the 5th grade math on this? We are taxed to death right now. If we are responsible and pay into a 401k, and pay our bills and pay our medical, we end up on a shoestring budget. MSN, stop with your lies and innuendo's. You are making things worse.
What's new? In my life I have seen this country go from a place you could afford to provide for a family on one normal bue collar income, to one that now burys you in debt before you even leave home.
Between higher taxes to pay for wars(drug war, race war, holy wars etc.) and the corporate elite, who decided that instead of sharing their extreme profits in higher wages for workers, they would instead, increase our credit and just loan us some more money.. that we could pay back with interest. Ah, the American Dream turned into a nightmare
Then they decided, why pay us workers at all? There are third world countries where we can profit more and pay even less wages, no unions, no environmental restrictions and politians are cheaper to buy there as well. Ah, nation building! (colonizing}
Do I sound bitter? Sorry, but I have never taken a handout in my life, and it looks like in my life it may still happen since there are so few decent jobs left here.
Wake up America, we have been sold out by the Dems and Reps corporatism and warmongering,and they have tag teamed us for decades and bankrupted our nation.
Ron Paul gets my vote, to vote for anyone else will just bring more of the same. It's time for real change,.for the better that is.
Hmm. Let's analyze these points, shall we?
Taxes: unavoidable no matter what your job. If you want to take a lesser paying job for other reasons, great. If you want to take a lesser paying job simply to pay lesser taxes, you're an idiot.
Commute: unavoidable unless you live within walking distance of your job. Even public commute costs $. But you don't have to pay $200 a month for a car payment - buy used.
Wardrobe: unavoidable if you work with people. $200 a year is not bad for clothes. Oh, and this is tax deductible.
Eating out: you don't have to.
Travel expenses being challenged: your company isn't going to pay for your gambling, fool
Unpaid overtime: this is a company issue. If it happens rarely, you deal. If it happens often, and your company refuses to compensate you, then consider how they treat their employees and move on.
Bottom line: just because you couldn't control your spending doesn't mean your job was not worth it. It just means you didn't know how to minimize your costs.
While the article is interesting... I don't agree with most of his analysis. Most importantly, the author should only deduct the marginal increases in cost from his $40k salary. I think he would choose to keep his vehicle for personal use either way, so I would throw out the $200/mo expense, becuase this would be incurred anyway. Same thing with mileage and clothes... unless he has an alternative option of working naked from home, he probably shouldn't deduct the full amounts of these either. Lastly, throw out the overtime hours. I don't know anyone with a salary who averages 40hr weeks. When I started my career in public accounting (long gone now) I thought I was making big money at $55k/yr as a new grad. Until I realized I worked about 3,200 hours per year.
The real and valuable truth in the article: a salaried job will demand significant investments in time an money from employees.
On a side note... I'm all for repealing overtime exemption laws. I think it would be a great market based tool to correct income inequality. Any thoughts?
This article is unrealistic in the numbers. $40,000 per year is pretty average for a single person income. In Utah, that's not a bad single person income.
What makes me laugh is the $40 per month in gas. I have a car that gets 40MPG and I still put in a HELL of a lot more in gas than just $40 per month, it costs me $40 each time I fill up and I live 3 miles from work.
$200 per year in clothes, what fantasy world does this dude live in? Most your button up shirts start at around $20 and up. Your dress pants start at $20 and up, shoes are an easy $80 for halfway decent ones.
Car payment of $200 per month, really? Let's be realistic here, your average car payment is $300 per month. I really want to know who his insurance is, I want to pay only $40 per month, when in reality I pay over $150 per month and I am over 30, clean driving record, multiple vehicle discount, packaged insurance (Car, House, RV, etc) and I'm still paying over $150 per month.
This dudes numbers are so far out of reality it's sickening. He didn't even throw in 401k, Health/Dental/Vision Insurance, food costs (groceries) not eating out, entertainment (which everyone needs from time to time).
This article makes it sound that is if someone can't live on $40k per year, this may be true in some states in the country, but I make that $40k per year and I do just fine, I don't bitch and complain about how much I make, I don't live in poverty, I'm not on any government aid. IT'S CALLED MONEY MANAGEMENT PEOPLE, LIVE WITHIN YOUR MEANS, NOT BEYOND THEM!!!
I really don't like whiners. I had a paper route by the time I was 9. Everything but $5 a week was put into savings for my college. I got $1,500/yr from my parents for college, who had 3 kids in college at the same time. My husband (hispanic) put himself completely through college, while his parents tried to borrow from him. He paid rent to his parents to live at home summers. We saved, moved states to get in-state residency for advanced degrees, and scraped for years and years. Finally all our student loans are paid off and we are saving like mad for retirement. We pay for our children's educations at a private school because AZ schools rank 49th in the country. I am self employed with 2 employees. My husband and I combined make about $400k per year, finally at age 47. The amount of tax we pay, between self employment tax, employer FICA/Medicare, federal and state taxes is positively disgusting, whether you consider it from an amount or a percentage perspective. We have overcome major odds and obstacles to become the hated 1%. You people need to get some backbone and suck it up. Do something for yourself and stop expecting others to do it for you. Achieve.
Are you kidding...?
You really think that your would be better off at an entry level job paying you $12/hour because your immediate expenses would be a little lower than at a position that forces you into the corporate world and the commensurate salary?
You do not seem to factor any intangible value of promotion potential, salary increases, bonuses, etc. It's unfortunate that you were salaried and expected to work 50 hours a week to be competitive in your job. Sounds like you needed to have a discussion with your boss and use that as a point of negotiation. Either fewer hours or more money.
A few years ago, I was maxed out in my postion, no more salary raises avaialble but I was making a good chunk in overtime. I was "promoted" and got a little more money, but lost my overtime. BUT, I could continue to get salary increases/bonuses. Now I am certainly making much more than my previous job could have allowed me to make and am now positioned for yet another promotion. Don't be shortsighted and count pennies and lose sight of dollars. I think this article speaks to those that just want to get by - just not that ambitious.
I make 101K/year. Live in NYC. I reside in the outer borough's close to the city (I hate long commutes and dont own a car). Because of this I pay a hefty housing cost. By the time I pay utilities/phone and Student loans along with Mortgage (which I dont mind paying for my convenience) I have about $1500 discretionary income. I put $1000 into savings (in addition to maxing out retirement) and have $500 "play" money a month.
Me and the BF are thinking of moving in together soon (not because of money) so that will be a HUGE weight off me and him. Thank goodness I dont have kids (yet). No credit card debt (thank goodness) and no car payments (no car). I still have to budget for eating out and such. As I get older Im becoming more cost conscious.
Groceries are even skyrocketing. I use fresh veggies in most my meals and by the time I/we pay for groceries to eat for two every night, we may as well have went to a restaurant! I am mastering making food to last for the week though so Im happy about that. Being a single tax payer my taxes are high as heck! I think everyone can live "comfortable" on thier salary if they plan appropriately (barring any unforseen financial tragedies like divorce or medical issues and loss of job).
Some times eating oodles of noodles isnt so bad! lol
Also, keep in mind that to advance in your career, you must work several lower paying jobs and master them before you are considered for advancement. After several years of working the $40,000 job, and excelling at it, you may be considered for a $60,000 job, then a $100,000 job, etc.. At least that's the way it worked for me in my career. It's called working your way up.
If you quit the $40,000 a year job to work part time and work on your writing, it may be more difficult to compete for that $60,000 a year job later because you have not demonstrated skill, perseverance, nor motivation.
Do you or your friend want to work at a gas station the rest of your life after a 4 year education? You sound like one of those millennials that feel entitled to start at the top with little or no experience . . .
Woe is you.
I read the entire article and no where did I read anything about quitting your job and living off the Government...You can only do that these days if you are a paracitic illegal alien or if you come from a long line of welfare sucking folks and you are the next in line!! His point is valid in regard to how much money you supposedly make compared to how much you are allowed to actually have to spend!! my math shows an even bleaker picture....for every $100.00 I make I, as a fine upstanding tax payer, I am allowed to actually hold about 66.7%, then when I actually cash that check and spend the money, another 12% is spent in another set of taxes....so, that means that of the $100.00 I earned.....45.3% will be eaten up in taxes that will not directly benefit me one bit!~!! Now you tell me again why it is in my best interest to keep working.....make it good, I've got an appointment with department of human services to see if I qualify for any benefits.....if I'm not working....
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