Wednesday, March 14, 2007

How much are you actually making?

How much is your time worth? Have you ever actually calculated what you make per hour? I don’t just mean what’s your hourly rate or yearly income. I mean how much do you make when all work related costs and times are factored in?

I’ve made a list of costs that I think should be factored in:
1. How many hours do you commute each day?
2. How much gas do you use going back and forth from work?
3. Does your job require you to buy expensive clothes?
4. How much do you spend in dry cleaning?
5. How much is your child care?
6. How many extra unpaid hours do you work (both at work and take home)?
7. Do you own an extra vehicle because of work?
8. How much do you spend paying people to do things you would do if you didn’t work so much (ie – mowing the lawn, shoveling the driveway, etc…)

Just a hypothetical example but let’s say an average couple with 2 kids both making $40,000. This would give them an $80,000 pretax household income.

$80,000 / 52weeks / 40hrs = $38.46 hour

Now let’s look at the actual hourly cost based on these assumptions.

1. They each commute for 1 hour a day = 2 hours a day
2. Each do 2.5 extra hours of work each week (ie- checking email from home) = 1 hour a day
3. Have daycare costs of $70 a day:$70 X 49 weeks = $3430/year
4. Have someone mow their lawn in the summer = $500/year
5. Have a 2nd vehicle payment and insurance: $350month X 12 = $4200/year
6. Gas for the cars: $10 day X 49weeks X 5days = $2450/year
7. Parking for work = $1000/year
8. Each spend $600 a year on “work clothes” = $1200/year
9. Conservatively assuming a 20% tax bracket = $16,000/year

New hourly wage (before taxes):
$80,000 / 52 / 43 = $35.77/hr

New hourly wage (after taxes):
$64,000 / 52 / 43 = $28.62/hr

New hourly wage (after taxes and work related expenses):
$64,000 – $12,780 = $51,220
$51,220 / 52 / 43 = $22.9/hr

This means that the real wage of the couple is $22.9/hr or $11.45/hr individually. A far cry from what it initially appears to be. This is just an example, so work it out on your own and see what your real wage is (might make you think twice about frivolous or impulse purchases).

4 comments:

Canadian Money said...

Good post MCM!

It sounds familar. Before retirement our joint income was about $80,000 before tax.

A couple of big costs that come to mind were; income tax - close to $20,000 per year, and the second car, which never dropped below about $4,000 per year (after tax dollars).

The second car was use mainly to travel to a part-time job that paid just enough to eliminate the dependant tax category for my wife.

Fernando Montenegro said...

Hi!

Isn't the daycare expense something like 70 $/day x 49 weeks x 5 days/week = $17150?

SavingsJourney said...

Hi MCM, just a quick comment on the lawn mowing, why not shell out a few thousand for a "landscaping business" when your kids are 16 - get the equipment, get a cheap old truck, and pay your kids in the summer. You get a huge tax break by paying your kids, you can deduct your business equipment on your taxes, and your kids get to keep most of the money that you're paying them since they're in super low tax bracket, and you make a few extra bucks (oh and they learn how to run their own little business if they haven't already).

Beats paying someone $500 bucks to mow your lawn, and helps to reduce the tax bite ;)

QUALITY STOCKS UNDER 5 DOLLARS said...

It can often be difficult to determine what you are making.