Smart SpendingSmart Spending

Calculate your Monthly Freedom Day

How many days do you have to work each month to pay for your fixed obligations?

By Karen Datko Aug 24, 2010 9:01AM

This post comes from Jim Wang at partner blog Bargaineering.

 

Every year, the Tax Foundation points to a day in April and proclaims it Tax Freedom Day. It's the day after which you have effectively earned enough to cover your tax liabilities for the year.

 

For 2010, that day was April 9. In 2009, it was April 8. The idea is that, based on what you are projected to owe in taxes, every hour you work until that day goes toward funding that liability.

It's more a gimmick than anything else, but it does underscore an important point: Each month you experience your own "Freedom Day."

 

Your personal Monthly Freedom Day is the day when you've earned enough that month to cover your fixed monthly obligations like your rent or mortgage, your car loan or your student loans. I'm going to help you calculate your Monthly Freedom Day.

First, why should you calculate your Monthly Freedom Day? There are two reasons:

  • That which can be measured can be improved. By sitting down and calculating your Monthly Freedom Day, you get to review all of your monthly expenses and make a decision on whether or not you want to keep them. In the case of your rent or mortgage, you won't have much of a choice. In the case of other monthly service contracts, like a gym membership or Netflix subscription, you may decide you don't want to pay for them anymore.
  • It's fun. It's fun to know what day you start working for yourself, instead of for the government or your loans for your car or your education.

Adding up expenses

The first step is to find every monthly expense you have and add them up. You can start by looking at your credit card bills and bank statements, as you probably pay for most of your services through one of those two methods. If there are monthly bills you pay in cash, it's important to include those as well.

 

Next, you need to recall all the things you pay for on a quarterly, semiannual or annual basis. If you own a home, this might be quarterly water bills or the property tax (it may be integrated into your mortgage payment). Another may be insurance -- my auto insurance is billed every six months. If you're a stickler for details, try to estimate gasoline usage (or mass transit expenses) and parking fees, if you want to be more precise.

 

Here is the list of my list of monthly expenses:

  • Mortgage (including property taxes and homeowners insurance).
  • Auto insurance (semiannual).
  • Netflix membership.
  • Pest control services.
  • Cell phone.
  • Cable television/Internet.
  • Gym and magazine subscriptions.

Calculating earnings

There are two different strategies you can use for calculating your earnings:

  • Calculate earnings after tax. Look at your paycheck and divide your take-home pay (gross income minus deductions) by the number of hours worked.
  • Use gross income and add deductions to your expenses. Divide your gross pay by the number of hours you worked so you know how much you earn per day, then account for the deductions by adding them to your monthly expenses. This is similar to the way the Tax Foundation calculates Tax Freedom Day.

The first way is easier and creates a much earlier day in the month, but the second way is more in the spirit of the Tax Foundation's calculation.

Calculation

Now you have your earnings per day (per eight hours) and your monthly expenses. Simply divide your expenses by your daily pay and you know how many days you need to work in order to hit your Monthly Freedom Day. This day will change each month, depending on when the weekends fall, but you get the general idea.

 

Which day is your Monthly Freedom Day?

 

More from Bargaineering and MSN Money:

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

VIDEO ON MSN MONEY

TOOLS

More